AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
REGISTRATION NO. 33-_____
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
SPORTSTRAC SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 3949 84-1474432
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
MARC R. SILVERMAN
SUITE 100 CHIEF EXECUTIVE OFFICER AND PRESIDENT
6654 GUNPARK DRIVE SPORTSTRAC SYSTEMS, INC.
BOULDER, COLORADO 80301 SUITE 100
6654 GUNPARK DRIVE
(303) 527-0600 BOULDER, COLORADO 80301
(303) 527-0600
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES OF AGENT FOR SERVICE)
AND PRINCIPAL PLACE OF BUSINESS)
--------------------------
Copies to:
WILLIAM F. RIGGS, ESQ. STEVEN MORSE, ESQ.
DOERNER, SAUNDERS, DANIEL & ANDERSON, L.L.P. LESTER MORSE, P.C.
320 SOUTH BOSTON AVENUE, SUITE 500 111 GREAT NECK ROAD
TULSA, OKLAHOMA 74103 GREAT NECK, NEW YORK 11021-5473
PHONE: (918) 591-5226 PHONE: (516) 487-1446
FAX: (918) 591-5360 FAX: (516) 487-1452
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ____
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Title of each Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered Registered(1)(2) per Unit or Share(3) price(3) registration fee
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Units consisting of one share
of common stock and two class
A redeemable common stock
purchase warrants 672,750 $6.00 $4,036,500 $1,122.15
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Common stock contained in units 672,750 -- -- --
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Class A redeemable common
stock purchase warrants
contained in units 1,345,500 -- -- --
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Common stock underlying class
A redeemable common stock
purchase warrants 1,345,500 $7.20 $9,687,600 $2,693.15
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Managing underwriter's
warrants to purchase units 58,500 $.0017 $100 $.03
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Units underlying managing
underwriter's warrants 58,500 $9.90 $579,150 $161.00
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Common stock contained in units 58,500 -- -- --
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Class A redeemable common
stock purchase warrants
contained in units 117,000 -- -- --
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Common stock underlying
managing underwriter's unit
warrants 117,000 $11.88 $1,389,960 $386.41
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
Total Registration Fee -- -- -- $4,362.74
- -------------------------------- --------------------- ----------------------- --------------------- --------------------
</TABLE>
(1) Includes, for underwriters' over-allotment option, 87,750 units, 87,750
common stock contained in units, and 175,500 class A redeemable common
stock purchase warrants contained in units, and 175,500 common stock
underlying class A redeemable common stock purchase warrants.
(2) Pursuant to Rule 416, there are also being registered such additional
shares of common stock as may become issuable pursuant to the
anti-dilution provisions of the class A redeemable common stock
purchase warrants and the managing underwriter's warrants.
(3) Estimated solely to calculate the registration fee under Rule 457. The
offering price has been allocated 100% to the units.
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is prohibited.
PRELIMINARY PROSPECTUS DATED JULY 15, 1999
[LOGO] SPORTSTRAC(R) SPORTSTRAC SYSTEMS, INC.
585,000 UNITS
EACH UNIT CONSISTS OF ONE SHARE OF COMMON STOCK AND
TWO CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This is our initial public offering of 585,000 units. Each unit
consists of one share of our common stock and two class A redeemable common
stock purchase warrants. From ______, 2000 through _________, 2002, each class A
redeemable common stock purchase warrant will entitle you to purchase one share
of our common stock at $7.20 per share. This prospectus provides you with a
general description of the units and our common stock and class A redeemable
common stock purchase warrants. You should read this prospectus carefully before
you decide to purchase any units.
Prior to this offering, there was no public market for the units or for
our common stock or class A redeemable common stock purchase warrants. The
offering price may not reflect the market price of the units or of our common
stock or class A redeemable common stock purchase warrants after this offering.
The underwriters identified in this prospectus will underwrite this offering on
a firm commitment basis. Fairchild Financial Group, Inc. is the managing
underwriter. The underwriters have an overallotment option to purchase up to
87,750 units in addition to those listed in the table below.
INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD ONLY
PURCHASE UNITS IF YOU CAN AFFORD A COMPLETE LOSS. YOU SHOULD CAREFULLY CONSIDER
EACH OF THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROSPECTUS AND THE DILUTION
DISCUSSION ON PAGE 15 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------- -------------- ---------------- ----------------
PRICE TO UNDERWRITING PROCEEDS WE
PUBLIC DISCOUNTS WILL RECEIVE
- ------------------------------- -------------- ---------------- ----------------
Per Unit...................... $6.00 $.60 $5.40
- ------------------------------- -------------- ---------------- ----------------
Total (3)..................... $3,510,000 $351,000 $3,159,000
- ------------------------------- -------------- ---------------- ----------------
FAIRCHILD FINANCIAL GROUP, INC.
The date of this prospectus is __________, 1999
<PAGE>
TABLE OF CONTENTS
Summary Information............................................................4
Risk Factors...................................................................8
Risks Concerning our Business and Operations................................8
We may not generate sufficient revenues to sustain our
operations..............................................................8
We are dependent on our key personnel...................................8
We may not be able to attract or retain qualified personnel.............8
Competition may impact our performance..................................8
Our reliance upon a few products and our need for product
acceptance may affect our revenues......................................8
We are dependent on an emerging market; there is
uncertainty whether our products will achieve market
acceptance..............................................................9
We may be unable to manage any growth...................................9
Risks Concerning our Assets.................................................9
We may be subject to claims of creditors of our predecessor
company.................................................................9
Our purchase of the assets of our predecessor company was
not negotiated at arm's length.........................................10
The value of our technology is based on an appraisal...................10
If we lose our right to use licensed technology, our
operations will be affected............................................10
Risks Concerning our Financial Needs.......................................11
We have no operating history; our predecessor company
experienced net losses.................................................11
We have significant long-term indebtedness that we may
not be able to pay.....................................................11
We are dependent on the proceeds of this offering; we may
need additional financing..............................................11
Risks Concerning the Market for the Units and our Common Stock
and Class A Common Stock Purchase Warrants.................................11
There is no trading market for our securities..........................11
SEC and Florida proceedings involving the managing
underwriter............................................................12
Shares eligible for future sale may adversely affect the
market.................................................................12
Forward Looking Statements....................................................12
Use of Proceeds...............................................................13
Determination of Offering Price...............................................14
Dividend Policy...............................................................14
Dilution......................................................................15
Capitalization................................................................16
-2-
<PAGE>
Selected Financial Information................................................16
Management's Discussion and Analysis of Financial Condition...................18
Business......................................................................19
Where You Can Find More Information...........................................36
Management....................................................................36
Principal Stockholders........................................................45
Certain Relationships and Related Transactions................................47
Description of Capital Stock..................................................50
Underwriting..................................................................53
Market For Shares.............................................................58
Legal Matters.................................................................60
Experts.......................................................................60
Financial Statements.........................................................F-1
-3-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY INFORMATION
The following is a summary of the information and financial statements
contained later in this prospectus. This summary is not complete and may not
contain all of the information that is important to you. To understand this
offering, you should read the entire prospectus carefully, including the risk
factors and financial statements and all other information relating to this
offering at the sources identified below in the paragraph "Where You can Find
More Information."
WHO WE ARE
As used in this prospectus, "we," "us," and "our" mean SportsTrac
Systems, Inc. Our principal executive offices and telephone are:
Suite 100
6654 Gunpark Drive
Boulder, Colorado 80301
(303) 527-0600
We maintain our web site at www.sportstrac.com.
We are a Delaware corporation formed on June 15, 1998. On March 2,
1999, we purchased most of the assets of SportsTrac, Inc. We also assumed
certain of its liabilities. SportsTrac, Inc. was formed in April 1, 1995 to
develop and market products designed to enhance and monitor athletic
performance. Its business was similar to our business and its directors and
employees became our directors and employees. In this prospectus, we will refer
to SportsTrac, Inc. as our predecessor company.
OUR BUSINESS AND PRODUCTS
We develop and market products to enhance performance and health of
athletes. We currently have two product lines--The SportsTrac(R) System and The
SportsRAC(TM) System. Both product lines share a common underlying technology
that accurately measures variations in human coordination and fine motor
skills.* We have only recently begun selling production models of our products.
To date we have sold only a limited number of units of The SportsTrac(R) System
and The SportsRAC(TM) System.
THE SPORTSTRAC(R) SYSTEM. The SportsTrac(R) System is a performance
assessment tool. It can measure an athlete's hand-eye coordination and chart
day-to-day variations in performance. It measures both the physical and mental
readiness of an athlete. The underlying technology is coupled with a small
screen and a control knob similar to the volume control on a radio. The screen
displays a diamond pointer drifting between two vertical lines. Using the
control knob the player must correct for the unpredictable movement of the
pointer, keeping it from touching either of the lines. By using The
SportsTrac(R) System, athletes are able to identify problem areas,
- --------------------------
* "SportsTrac" is a trademark registered in our name. "SportsRAC," "EliteTEAM,"
"EliteSOLO," and "eAdvisor" are our trademarks.
-4-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
determine the causes of the problems, and take appropriate action. By helping
athletes understand the root causes of their problems, The SportsTrac(R) System
allows athletes to train themselves and make modifications to keep their
performance at the highest possible levels.
The SportsTrac(R) System is currently used by professional and amateur
organizations and individuals. Initially, The SportsTrac(R) System was a
prototype model used on a promotional or trial basis. We have recently begun
selling production models of the The SportsTrac(R) System and have sold a
limited number of units. Professional teams and athletes that are using The
SportsTrac(R) System typically provide us with promotional consideration.
Professional teams that are using The SportsTrac(R) System include the New York
Mets, the Los Angeles Dodgers, the San Francisco Giants, and the Los Angeles
Kings. We have also worked with an affiliate of the New York Rangers and with
the Minnesota Twins, the Minnesota Timberwolves, and other National Basketball
Association and Olympic athletes. A number of touring golf professionals on the
Professional Golfers' Association and Ladies Professional Golfers' Association
tours use The SportsTrac(R) System. We recently completed our second year
working with varsity football, basketball, tennis, golf, track and field,
swimming, and gymnastics teams at the University of Pennsylvania. Three teams
using The SportsTrac(R) System won Ivy League championships during their first
year of use.
THE SPORTSRAC(TM) SYSTEM. The SportsRAC(TM) System is an injury
rehabilitation tool. It enables a person to regain fine motor control of a
surgically-repaired limb more quickly than can be achieved under conventional
rehabilitation methods. The underlying technology is coupled with a
free-standing, anatomically-supportive structure that allows an athlete to
exercise a surgically-repaired joint in a resistance-free range of motion. The
software measures the user's ability to mentally and physically respond to
stimuli and maintain delicate body control. Because design of The SportsRAC(TM)
System protects the joint from stress, it can be used early in the
rehabilitation process to prevent loss of fine motor control. Under conventional
rehabilitation methods, loss of motor skills generally occurs during the initial
rehabilitative stages when the surgically-repaired limb is subjected to periods
of immobilization and the neuropathways between the brain and limb become
sluggish.
The SportsRAC(TM) System for the shoulder is presently being used by
the Los Angeles Dodgers and the Boston Red Sox. Initially, The SportsRAC(TM)
System was used by the Dodgers on a trial or promotional basis. We have recently
begun selling production models and have sold a limited number of units.
Professional teams that use The SportsRAC(TM) System typically provide us
promotional consideration.
In a series of pilot studies recently completed with the Dodgers, The
SportsRAC(TM) System was applied in a number of shoulder injury cases involving
Red Sox pitcher Ramon Martinez, then with the Dodgers, outfielder Todd
Hollandsworth, and other players within the Dodger organization. It is the
opinion of the Dodgers' clinical staff that the addition of The SportsRAC(TM)
System to the players' rehabilitation programs was a key factor in the players'
recoveries. Two members of the clinical staff are affiliated with us, including
Michael Mellman, M.D., our Chairman of the Board. The Dodger staff believes that
Martinez's regular use of The SportsRAC(TM) System played an essential role in
the pitcher's expedited recovery, which has thus far progressed ahead of
schedule. The clinical staff believes that The SportsRAC(TM) System can
-5-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
also be used in injury prevention applications by applying the technology for
the purpose of detecting subtle abnormalities and anticipating potential
problems surrounding the joint that may disrupt performance levels and lead to
subsequent injuries. We believe that The SportsRAC(TM) System can improve
athletic performance by enhancing an athlete's fine motor control skills.
Several members of the Los Angeles Dodgers pitching staff are presently using
The SportsRAC(TM) System in this manner.
THIS OFFERING
Securities Offered........................ 585,000 units. Each unit consists of
one share of our common stock and
two class A redeemable common stock
purchase warrants.
Class A redeemable common stock purchase Each class A redeemable common stock
warrants................................. purchase warrant entitles you to
purchase one share of common stock
for a price of $7.20. The class A
redeemable common stock purchase
warrants may be exercised from ____,
2000 through _____, 2002.
Securities Outstanding................... PRIOR TO THIS OFFERING:
* 2,099,788 shares of common stock
* options to purchase 266,331 shares
of common stock
* debt convertible into 568,117
shares of common stock.
SUBSEQUENT TO THIS OFFERING:
* 2,684,788 shares of common stock
* 1,170,000 class A redeemable
common stock purchase warrants to
purchase 1,170,000 shares of
common stock
* options to purchase 266,331 shares
of common stock
* debt convertible into 568,117
shares of common stock
* managing underwriter warrants to
purchase up to 175,500 shares of
common stock
Proposed Boston Stock Exchange Symbol.... "_______________"
Proposed NASDAQ Symbol................... "_______________"
-6-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL INFORMATION
The selected financial data below shows our actual balance sheet as of
April 30, 1999 and our pro forma balance sheet after the closing of this
offering. The pro forma balance sheet is our representation of the effect of
this offering if this offering had closed on April 30, 1999. The pro forma
balance sheet has not been audited by an independent certified public
accountant. Total assets include $1,965,812, net of accumulated amortization of
$34,188, attributed to certain intellectual property.
SUMMARY BALANCE SHEET DATA
Actual Pro Forma
------ ---------
Working capital ..................................... $ 763,739 $3,513,739
Total assets......................................... $2,951,666 $5,701,666
Total liabilities.................................... $ 973,848 $ 973,848
Stockholders' equity................................. $1,977,818 $4,727,818
Portions of our statements of operations for the years ended December
31, 1998 and 1997 and the four-month period ended April 30, 1999 are as follows:
SUMMARY STATEMENTS OF OPERATIONS
(Pro-Forma)
Year Ended December 31,
Four Months Ended -----------------------
April 30, 1999 1998 1997
-------------- --------------------------------------
Revenues............. $ 42,956 $ 72,500 $ 0
Net (loss)........... ($388,706) ($1,209,059) ($863,009)
You should read the above summary financial information in conjunction
with the financial statements in this prospectus.
ABOUT THIS PROSPECTUS
Prior to closing this offering, we will complete a 3.604-for-1 reverse
stock split to reduce the number of shares of our outstanding common stock.
Prior to the reverse stock split there are 7,567,784 shares of common stock
outstanding. After the reverse stock split, we will have 2,099,788 shares
outstanding. This prospectus is written as if the reverse stock split had always
been in effect.
The underwriters have an over-allotment option to purchase up to
87,750 additional units. Unless we indicate otherwise, the information in this
prospectus assumes that the underwriters' over-allotment option is not
exercised.
-7-
- --------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
YOUR INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. THE ITEMS
DISCUSSED IN THIS SECTION ARE A BRIEF SUMMARY OF ONLY SOME ASPECTS OF THAT RISK.
THIS PROSPECTUS SHOULD BE READ IN ITS ENTIRETY. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO PURCHASE ANY OF THE UNITS.
RISKS CONCERNING OUR BUSINESS AND OPERATIONS
WE MAY NOT GENERATE SUFFICIENT REVENUES TO SUSTAIN OUR OPERATIONS.
We have generated limited revenues to date. We cannot assure you that
we will successfully implement our business plan in a timely or effective manner
or that we will be able to sell enough of our products to generate sufficient
revenues to continue as a going concern.
WE ARE DEPENDENT ON OUR KEY PERSONNEL.
We will be dependent, in particular, upon the services of Michael
Mellman, M.D., our Chairman of the Board, and Marc R. Silverman, our Chief
Executive Officer. We do not have an employment agreement with Dr. Mellman or
key man life insurance on his life. We are negotiating an employment agreement
with Mr. Silverman and will maintain $1 million key man life insurance on his
life. Because Dr. Mellman and Mr. Silverman will be involved in all aspects of
our business, we cannot assure you that suitable replacements could be found if
Dr. Mellman and Mr. Silverman were unable to perform their services for us. As a
consequence, the loss of either Dr. Mellman or Mr. Silverman could have a
material adverse effect upon us.
WE MAY NOT BE ABLE TO ATTRACT OR RETAIN QUALIFIED PERSONNEL.
Our ability to develop and market our products and fulfill our business
plan will depend, in large part, on our ability to attract and retain qualified
personnel. Competition for qualified personnel is intense and we cannot assure
you that we will be able to attract and retain qualified personnel.
COMPETITION MAY IMPACT OUR PERFORMANCE.
At present, the competition for The SportsTrac(R) System and The
SportsRAC(TM) System is limited. However, there may be numerous competitors as
markets develop. Potential competitors may have greater financial, marketing,
and technical resources than we will have. To the extent that competitors
achieve a performance or price advantage, we could be at a competitive
disadvantage.
OUR RELIANCE UPON A FEW PRODUCTS AND OUR NEED FOR PRODUCT ACCEPTANCE
MAY AFFECT OUR REVENUES.
We will initially market multiple variations of two products, The
SportsTrac(R) System and The SportsRAC(TM) System. Our ability to meet our
business plan will depend in significant part upon the extent to which
additional professional and recreational athletes and athletic organizations
accept our two products. If athletes or organizations fail to accept The
-8-
<PAGE>
SportsTrac(R) System or The SportsRAC(TM) System or if we fail to achieve
consistent or adequate results, our ability to generate revenues will be
seriously limited.
WE ARE DEPENDENT ON AN EMERGING MARKET; THERE IS UNCERTAINTY WHETHER
OUR PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE.
We have only recently begun selling production models of our products.
To date we have sold only a limited number of units of The SportsTrac(R) System
and The SportsRAC(TM)System.
A segment of our business will include evaluating professional athletes
using The SportsTrac(R) System. The SportsTrac(R) System has been used on a
promotional basis for more than one year with a small number of professional
sports organizations. Currently, The SportsTrac(R) System is installed at
multiple locations. We cannot assure you, however, that additional professional
sports organizations will utilize The SportsTrac(R) System on a promotional
basis or otherwise.
The SportsRAC(TM) System has been successful in preliminary trials of
our prototypes. We currently do not have and do not plan to conduct clinical
trials to support The SportsRAC(TM) System.
Broader acceptance of our products may require lengthy periods of
review. Additional installations may be dependent upon the results achieved with
current professional sports organizations, as well as upon pricing and athlete
and union acceptance. Furthermore, our ability to provide customized software
and data analysis, as well as reconfiguring the parameters of both, may
influence whether other installations are made. While we believe that we
presently have the ability to produce and reconfigure customized software and
data analysis, we cannot assure you that products and services will be accepted
by the marketplace or will be provided on a cost-effective basis. Additionally,
we cannot assure you that the results at installed sites will be sufficiently
positive to achieve wide acceptance. Achieving market acceptance for our
products will require substantial marketing efforts and the expenditure of
significant funds to inform potential customers of the availability of our
products.
WE MAY BE UNABLE TO MANAGE ANY GROWTH.
Any growth that we have will require us to expand services, hire
additional employees, and expand our operational systems. We cannot assure you
that we will be able to effectively and cost-efficiently control the planned
expansion.
RISKS CONCERNING OUR ASSETS
WE MAY BE SUBJECT TO CLAIMS OF CREDITORS OF OUR PREDECESSOR COMPANY.
We purchased substantially all of the assets of our predecessor company
on March 2, 1999. As part of the purchase, we assumed most, but not all, of the
liabilities of our predecessor company. Any creditor of our predecessor company
whose obligation was not assumed may challenge the purchase as a fraudulent
transfer and could seek as a remedy a judgment against us for the lesser of the
value of the transferred assets or for the amount of the creditor's claim, a
lien
-9-
<PAGE>
upon the transferred assets to the extent of the creditor's claim, or the
avoidance of the transfer to the extent necessary to satisfy the creditor's
claim. Although the elements of proof necessary to successfully prosecute a
claim under the various laws applicable to fraudulent transfers (such as the
Uniform Fraudulent Conveyance Act or the Uniform Fraudulent Transfer Act) may
vary depending upon the state in which an action is brought, a number of
defenses to such claims exist. We would vigorously assert those defenses in the
event any claims were brought, and in addition we would assert all defenses of
our predecessor company upon the claim of the underlying indebtedness. We
recognize, however, that the expenditure of legal fees in connection with any
such proceeding could also have a material adverse effect on us. The general
limitation of the remedies available to the amount necessary to satisfy the
creditor's claim allows us to reasonably estimate that the exposure, in the
event such claims were raised, could be limited to the amount of the
indebtedness claimed by the creditor, in addition to the creditor's claims of
interest, costs, and attorney's fees. We believe that the likely exposure
(exclusive of our cost of defense, and any attorney's fees and interest that
might be claimed by the creditor) in the event such claims were raised would be
$135,000. The financial statements in this prospectus do not reflect any
adjustments for this uncertainty.
OUR PURCHASE OF THE ASSETS OF OUR PREDECESSOR COMPANY WAS NOT
NEGOTIATED AT ARM'S LENGTH.
Our purchase of the assets of our predecessor company was not
negotiated at arm's length. The purchase may have contained terms other than
those that would be included if the purchase were negotiated at arm's length.
The purchase price we paid for the assets of our predecessor company may be
greater than the value of the assets purchased. Most of the officers, directors,
and stockholders of our predecessor company are our officers, directors, and
stockholders. Each of them benefited from the purchase of the assets of our
predecessor company.
THE VALUE OF OUR TECHNOLOGY IS BASED ON AN APPRAISAL.
Our balance sheet data included in this prospectus reflects a value of
$1,965,812, net of accumulated amortization of $34,188, which has been
attributed to certain intellectual property. The intellectual property includes
patent rights and other technology. The value of the intellectual property is
the opinion of The Mentor Group, Geneva, Illinois. It is extremely unlikely that
we would be able to sell the intellectual property in a liquidation for more
than a fraction of the appraised value.
IF WE LOSE OUR RIGHT TO USE LICENSED TECHNOLOGY, OUR OPERATIONS WILL BE
AFFECTED.
The SportsTrac(R) System relies on the Critical Tracking Task
technology. The Critical Tracking Task technology is sublicensed to us by
BioFactors, Inc. BioFactors uses the Critical Tracking Task technology pursuant
to a license granted to BioFactors by Systems Technology, Inc. The Critical
Tracking Task technology is considered one of the benchmark measures of human
hand-eye performance and is protected under one patent and two copyrights. We
utilize the Critical Tracking Task technology in The SportsTrac(R) System and
The SportsRAC(TM) System.
Our sublicense with BioFactors expires on November 24, 2008 (assuming
the exercise of all available extensions), as does BioFactors license from
Systems Technology. If we do not
-10-
<PAGE>
market, sell, or manufacture products other than The SportsTrac(R) System and
The SportsRAC(TM) System and any other products relying upon the Critical
Tracking Task technology, the expiration of the sublicense will have a material
adverse effect on our revenue. We cannot assure you that we will be able to
extend the term of the sublicense beyond November 24, 2008 or that we will be
able to market, sell, or manufacture any products which do not rely on the
Critical Tracking Task technology. We have agreed with BioFactors and Systems
Technology that we can assume BioFactors' rights and obligations should the
BioFactors license from Systems Technology terminate earlier.
RISKS CONCERNING OUR FINANCIAL NEEDS
WE HAVE NO OPERATING HISTORY; OUR PREDECESSOR COMPANY EXPERIENCED NET
LOSSES.
We were recently formed. We purchased the assets of our predecessor
company on March 2, 1999. We have a short operating history. Our predecessor
company was formed in April 1995 for the purpose of developing and marketing
devices to enhance athletic performance. Our predecessor company had aggregate
net losses of $4,427,069. We cannot assure you that we, as the new owner of our
predecessor company's assets, will be able to operate profitably.
WE HAVE SIGNIFICANT LONG-TERM INDEBTEDNESS THAT WE MAY NOT BE ABLE TO
PAY.
As of April 30, 1999, we have long-term indebtedness of $819,000, due
December 31, 2000. Absent our ability to generate significant profits, we have
no known source to repay the debt beyond the proceeds of this offering.
WE ARE DEPENDENT ON THE PROCEEDS OF THIS OFFERING; WE MAY NEED
ADDITIONAL FINANCING.
Our cash requirements are significant. We believe that the net proceeds
of this offering, together with cash generated from operations, will be
sufficient to conduct our operations, for at least 18 months. We will use the
proceeds from this offering to further develop and market The SportsTrac(R)
System and The SportsRAC(TM) System. In the event that our plans change, or the
costs of development prove greater than we anticipated, we may be required to
curtail our expansion or to seek additional financing sooner than we currently
anticipate or we may cease operations. We have no current arrangements for
additional financing and we cannot assure you that additional financing, if
available, will be on acceptable terms.
RISKS CONCERNING THE MARKET FOR THE UNITS AND OUR COMMON STOCK AND CLASS A
COMMON STOCK PURCHASE WARRANTS
THERE IS NO TRADING MARKET FOR OUR SECURITIES.
There is no established trading market for the units or our common
stock or class A redeemable common stock purchase warrants. We will apply for
listing on the Boston Stock Exchange and the NASDAQ SmallCap(SM) Market. We may,
however, be unable to list or retain a listing of our common stock and class A
redeemable common stock purchase warrants. A trading market may not develop in
the future. You should purchase the units only as a long-term investment because
you may not be able to promptly liquidate your investment in the event of a
personal financial emergency or otherwise.
-11-
<PAGE>
SEC AND FLORIDA PROCEEDINGS INVOLVING THE MANAGING UNDERWRITER.
The Securities and Exchange Commission issued a formal order directing
a private investigation by the SEC staff involving Fairchild Financial Group,
Inc. and certain other persons. Fairchild is the managing underwriter for this
offering. For a description of the SEC investigation see "Underwriting."
On April 3, 1999, the Florida Department of Banking and Finance filed
an administrative complaint against the managing underwriter and its former
chief executive officer and three brokers. For a description of the complaint
see "Underwriting."
If we are not able to list our common stock or class A redeemable
common stock purchase warrants on the Boston Stock Exchange or another exchange
or on the NASDAQ SmallCap(TM) Market, and a public market for our common stock
develops, of which we can give you no assurance, the managing underwriter
intends to make a market in such securities in the over-the-counter market,
subject to compliance with Regulation M of the Securities and Exchange Act. An
unfavorable resolution of the SEC investigation or the Florida complaint could
have the effect of limiting or curtailing the managing underwriter's ability to
make a market in our securities in which case the market for and liquidity of
our securities may be adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
All of our currently outstanding shares of common stock are "restricted
securities." In the future they may be sold only upon registration under the
Securities Act, or upon reliance on an exemption from the registration
requirements such as Rule 144. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of one year may sell only an amount
every three months equal to the greater of (a) 1% of our issued and outstanding
shares, or (b) the average weekly volume of sales during the four calendar weeks
preceding the sale. The amount of restricted securities which a person who is
not an affiliate may sell is not so limited, since non-affiliates may sell their
shares held for two years if there is adequate current public information
available concerning us.
There is no market for our common stock or our class A redeemable
common stock purchase warrants, and you should not assume any market will ever
exist. If a market for our common stock or our class A redeemable common stock
purchase warrants develops, you should be aware that the possibility of resales
by our existing stockholders may, in the future, have a material depressive
effect on the market price of our securities.
IN ADDITION TO THE ABOVE RISKS, WE MAY BE SUBJECT TO RISKS WE DO NOT
FORESEE OR FULLY APPRECIATE. IN REVIEWING THIS PROSPECTUS, YOU SHOULD KEEP IN
MIND THAT OTHER POSSIBLE RISKS COULD BE IMPORTANT.
FORWARD LOOKING STATEMENTS
We make some forward-looking statements in this prospectus about our
plans, objectives, expectations, and intentions. The statements use
forward-looking words such as "anticipate," "continue," "estimate," "expect,"
"may," "will," or other similar words.
-12-
<PAGE>
The forward-looking statements involve certain risks and uncertainties.
There are many factors that may cause actual results to differ materially from
those contemplated, projected, forecast, estimated, or budgeted in the
forward-looking statements. These factors include:
* heightened competition, including specifically the entry of
new competitors and new products;
* inability to carry out our marketing plans;
* loss of our key executives; and
* general economic and business conditions which are less
favorable than we expect.
USE OF PROCEEDS
The net proceeds we will receive from this offering are estimated to be
$2,750,000. The net proceeds equal the price of the units LESS underwriters'
compensation and approximately $203,700 in other estimated expenses of this
offering. We intend to use the net proceeds over a period of 18 months
approximately as follows:
Approximate
Approximate Amount of Percentage(%) of
Net Proceeds Net Proceeds
---------------------------------------------
Product Development $ 550,000 20%
Sales and Marketing 1,100,000 40%
General and Administrative 412,500 15%
Acquisitions 550,000 20%
Working Capital 137,500 5%
---------- ------
Total $2,750,000 100.0%
We will use product development funds for research and development.
Research and development includes product design engineering, prototype design,
statistical analysis, and software design and development. Sales and marketing
expenses include direct and third party selling programs. General and
administrative expense includes administration and facility and infrastructure
expense. We will use working capital funds for our general business purposes.
The amounts listed above are estimates. Our board of directors has
broad discretion to spend the net proceeds for other business purposes if our
board of directors determines it is in our best interest. Thus, the actual
amount expended to finance any category of expenses may be increased or
decreased or reallocated to new uses by our board of directors, in its
discretion. In this respect, presently, we have no specific acquisitions
planned. We intend to explore acquisitions that may be complementary to our
business. Acquisitions will be directed to expand our product lines and
complement our marketing and visibility. Possible acquisitions may be in the
area of new products or technology or increased marketing capabilities.
-13-
<PAGE>
To the extent our expenditures are less than projected, the excess
funds will be used for general working capital purposes. Conversely, to the
extent our expenditures require additional funds, we may seek additional
financing from financial institutions or other sources. We can give you no
assurance that additional financing will be available on acceptable terms.
The net proceeds of this offering that are not expended immediately
may, but are not required to, be deposited in interest bearing accounts or
invested in government obligations or certificates of deposit.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there was no public market for our common stock
and no class A redeemable common stock purchase warrants were issued. We
determined the initial public offering price for the units and the exercise
price for the class A redeemable common stock purchase warrants in negotiations
with the underwriters. Among the factors we considered in determining the
initial public offering price and the exercise price were the following:
* Our financial information and prospects for future revenues;
* The history of, and the prospects for us and the industry in
which we compete;
* An assessment of our management;
* Our past and present operations;
* The present state of our development; and
* All of these factors in relation to market values and
valuation measures of other companies engaged in activities
similar to our activities.
The initial public offering price of the units and the exercise price
of the class A redeemable common stock purchase warrants should not be
considered an indication of the actual value of our common stock. The value is
subject to change as a result of market conditions and other factors. We cannot
assure you that an active trading market will develop for our common stock or
our class A redeemable common stock purchase warrants. We cannot assure you that
our common stock will trade in the public market subsequent to this offering at
or above the initial public offering price of the units or at or above the
exercise price of the class A redeemable common stock purchase warrants.
DIVIDEND POLICY
Declaration of dividends is within the discretion of our board of
directors. Our ability to declare dividends will depend upon our earnings, if
any, our financial condition, our capital requirements, and other general
business conditions. Even if we have the ability to declare dividends, we
currently intend to retain our earnings, if any, to finance the expansion of our
business and for general corporate purposes. We do not expect to pay dividends
for the
-14-
<PAGE>
foreseeable future. In addition, if we borrow money in the future, our lenders
may restrict our ability to pay dividends.
DILUTION
Our net tangible book value was $12,006 on April 30, 1999. Our tangible
book value equals our total tangible assets LESS our total liabilities. The net
tangible book value PER SHARE of our common stock equals our tangible book value
DIVIDED BY the number of shares of our common stock outstanding.
After application of the estimated net proceeds of this offering, our
pro forma net tangible book value will be $2,762,006 or $1.03 per share. This
represents an immediate dilution in net tangible book value per share of our
common stock of $4.97. This dilution is calculated without any value attributed
to the class A redeemable common stock purchase warrants and without any
dilutive effect of the exercise of any options, the conversion of any debt, or
the exercise of any class A redeemable common stock purchase warrants or
managing underwriter warrants. The following table illustrates this dilution:
Offering Price per Share $6.00
Net tangible book value per share prior to this offering $ .01
Net tangible book value increase attributable to
purchases of shares $1.02
-----
Net tangible book value per share after this offering $1.03
-----
Immediate dilution per offered share $4.97
The following table illustrates the number of shares of our common
stock held by our existing shareholders and to be held by our new shareholders
after this offering. The table also shows the total amount and average amount
paid for the shares of our common stock. The table does not take into account
any shares that we may issue upon the exercise of any options, the conversion of
any debt, or the exercise of any class A redeemable common stock purchase
warrants or managing underwriter warrants.
Shares of Aggregate Average
common stock consideration consideration
acquired paid paid per share
------------ ------------- --------------
Existing shareholders 2,099,788 $2,557,196 $1.22
Investors in this offering 585,000 $3,510,000 $6.00
--------- ---------- -----
Totals 2,684,788 $6,067,196 $2.26
-15-
<PAGE>
CAPITALIZATION
Our capitalization as of April 30, 1999 is presented in the following
table. The "As Adjusted" column shows our capitalization as if we received net
proceeds from the sale of the units at a price of $6.00 per unit on April 30,
1999. The table does not take into account any shares which may be issued upon
the exercise of any options, the conversion of any debt, or the exercise of any
class A redeemable common stock purchase warrants or managing underwriter
warrants.
April 30, 1999
-------------------------
Actual(1) As Adjusted
--------- -----------
LONG-TERM DEBT $ 819,000 $ 819,000
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01; 1,000,000 shares -- --
authorized; none issued or outstanding
Common Stock, par value $.01; 14,000,000 shares
authorized; 2,099,788 shares issued and outstanding
actual and 2,684,788 shares issued and outstanding as
adjusted 20,998 26,848
Additional paid in capital 2,293,414 5,037,564
Stock subscription receivable (116,875) (116,875)
Deficit accumulated during the development stage (219,719) (219,719)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $1,977,818 $4,727,818
---------- ----------
TOTAL CAPITALIZATION $2,796,818 $5,546,818
========== ==========
SELECTED FINANCIAL INFORMATION
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Financial Statements of the Company, the
respective notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Registration
Statement. The selected statement of operations data of the Company presented
below for the period from January 1, 1997 through April 30, 1999, and the
balance sheet data as of April 30, 1999, March 1, 1999, December 31, 1998 and
1997, are derived from the Historical and Pro-Forma Financial Statements of the
Company that have been audited and examined by Morrison, Brown, Argiz and
Company, independent auditors, and are included elsewhere in this Registration
Statement. See "Financial Statements."
-16-
<PAGE>
<TABLE>
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) January 1, 1998 January 1, 1997
March 2, 1999 January 1, 1999 Through Through
Through Through December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ -- $ 42,956 $ 72,500 $ --
--------------- --------------- --------------- ---------------
Expenses
General and administrative 154,798 153,245 931,451 756,869
Interest 28,595 44,500 265,929 209,009
Depreciation and amortization 37,987 14,198 84,179 78,098
--------------- --------------- --------------- ---------------
Total expenses 221,380 211,943 1,281,559 1,043,976
--------------- --------------- --------------- ---------------
Other income
Other 1,661 -- -- --
Estimated expenses previously
accrued but not incurred -- -- -- 180,967
--------------- --------------- --------------- ---------------
NET LOSS $ (219,719) $ (168,987) $ (1,209,059) $ (863,009)
=============== =============== =============== ===============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE: $ (.03) $ (.06) $ (.41) $ (.30)
=============== =============== =============== ===============
SHARES USED IN THE CALCULATION
OF BASIC AND DILUTED NET LOSS
PER SHARE 7,567,784 2,916,000 2,916,000 2,916,000
=============== =============== =============== ===============
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
--------------- --------------- --------------- ---------------
BALANCE SHEET DATA:
Cash $ 810,611 $ 20,829 $ 35,846 $ 90,850
Working capital (deficit) 763,739 (3,673,590) (3,511,435) (2,358,946)
Total assets 2,951,666 755,530 751,699 846,273
Long term debt 819,000 -- -- --
Total stockholders' equity (deficit) 1,977,818 (2,981,569) (2,812,582) (1,603,523)
</TABLE>
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
You should read the following discussion together with our financial
statements and notes thereto.
RESULTS OF OPERATIONS
To date, we have received only immaterial revenues from product sales
($115,456 through April 30, 1999). We anticipate only moderate revenues from
product sales during the next twelve months. We therefore expect to incur
operating losses until such time as we generate significant revenues from the
sale of any version of our products. We believe we can significantly increase
our overall revenues from product sales during the first and second quarters of
2000.
Our predecessor company had net losses of $863,009 in 1997, and
$1,209,059 in 1998. Our predecessor company had cumulative net losses from the
date of its inception through March 1, 1999 of $4,427,069.
PLAN OF OPERATION
During late 1999 and during 2000, we intend to further refine the
professional level sports team version of The SportsTrac(R) System for sale to
professional sports teams. We also intend to adapt it to other formats. We will
endeavor to develop and market new versions of our products. We plan to conduct
market research studies and develop new versions of our product and prototypes
of the new versions.
We also intend to formalize and implement a strategic marketing plan.
To date, we have focused our efforts in developing our products and proving that
our products work. With the completion of this offering we will focus more on
sales and marketing.
Although we will focus on sales and marketing, we will continue with
our research and development activities. We believe our proprietary performance
evaluation technology can be the foundation for a number of versions of our
products. Additionally, we believe that opportunities to address other market
segments will arise based on the fundamental nature of the core technology of
The SportsTrac(R) System and The SportsRAC(TM) System. We cannot assure you,
however, that we will successfully produce our products or adapt our products to
other uses. Even if we were able to successfully adapt The SportsTrac(R) System
and The SportsRAC(TM) System to other formats, we cannot assure you that the
adaptations will achieve market acceptance.
LIQUIDITY AND CAPITAL RESOURCES
Our business is in the development stage and requires the proceeds of
this offering to commence meaningful marketing activities and the adaptation of
our products to various formats. We expect to incur substantial expenditures and
operating losses over the next 18 months to implement our sales, marketing, and
other programs. We believe that the net proceeds of this offering will be
sufficient to fund our liquidity needs for at least the next 18 months.
-18-
<PAGE>
YEAR 2000
We utilize software and related technologies throughout our business
that will be affected by the date change in the year 2000. We are in the process
of evaluating the full scope and related costs to insure that our systems
continue to meet our internal needs and those of our customers. Anticipated
costs for system modifications are not expected to have a material impact on our
operations. However, we cannot measure the impact that the year 2000 issue will
have on vendors, suppliers, customers, and other parties with whom we conduct
business.
BUSINESS
GENERAL
We are an early stage business incorporated on June 15, 1998. We
commenced operations on March 2, 1999 when we acquired the assets of our
predecessor company. Our business is to develop and market products designed to
enhance and monitor athletic performance and to assist in injury rehabilitation.
We currently have two product lines--The SportsTrac(R) System line and
The SportsRAC(TM) System line. The SportsTrac(R) System is a performance
assessment tool that can measure a person's hand-eye coordination and chart
day-to-day variations in performance. It measures both the physical and mental
readiness of an athlete. The SportsRAC(TM) System is an injury rehabilitation
tool that enables a person to regain fine motor control of a surgically repaired
limb more quickly than can be achieved under conventional rehabilitation
methods. We have only recently begun selling production models of our products.
To date we have only sold a limited number of units of The SportsTrac(R) System
and The SportsRAC(TM) System.
A component of The SportsTrac(R) System and The SportsRAC(TM) System
incorporates the Critical Tracking Task, a tool created by Systems Technology,
Inc. for the U.S. Air Force. It was initially developed to evaluate whether
military pilots could control experimental aircraft. We have an exclusive right
to use the Critical Tracking Task technology solely for sports-related and
sports-entertainment applications. The software and associated protocols and
methodology for the Critical Tracking Task technology is licensed by Systems
Technology to BioFactors, Inc. We have a sublicense from BioFactors. Although
BioFactors' exclusive licensing agreement expires in 2008 (assuming the exercise
of all available extensions), we have an agreement which will allow us to assume
BioFactors' rights and obligations under the original licensing agreement with
Systems Technology in the event of BioFactors' default. This means our
sublicense will remain in effect, until the scheduled expiration date of our
sublicense in 2008, so long as we are not in default under any terms of the
sublicense. Our predecessor company paid BioFactors $1,000,000 and certain other
consideration for the sublicense. We are obligated to pay BioFactors quarterly
royalties equal to 8.5% of the cash receipts for the technology component of our
products when we sell products using the sublicensed technology.
MARKET POSITION
The SportsTrac(R) System and SportsRAC are computer-based tools
designed to enhance athletes' performance and health. Based on proprietary
technology, we believe that both product lines can be developed into
comprehensive product families aimed at the professional, organized
-19-
<PAGE>
amateur, and consumer sports markets, and at the healthcare industries.
Collective benefits include injury prevention and rehabilitation, improved
mental focus and concentration, self-training, and improved athletic
performance.
We believe that there is growth potential for The SportsTrac(R) System
and related products to be developed. Based on our industry research, we believe
that the market for computer-based performance assessment products (such as
athlete monitoring equipment or exercise machines with an integrated computer
system) is less than $50 million worldwide and thus represents a minuscule
fraction of the global sporting goods industry. Opportunities exist as a result
of a lack of product endorsements and poor product positioning on the part of
existing suppliers. Existing products are either too expensive, hard to use, or
lack real performance benefits. Our strategies are designed to remedy these
shortcomings.
We also believe there is growth potential for The SportsRAC(TM) System
product line. The technology offers more effective and accelerated injury
rehabilitation processes at a time when we believe the rehab industry is faced
with mounting pressures to reduce costs and shorten patient recovery times.
We have secured endorsements from several professional athletes, teams,
sports medicine experts, and other prominent sports figures that either use The
SportsTrac(R) System and The SportsRAC(TM) System or are otherwise in a position
to provide favorable testimonial. In addition, we plan to make the internet an
integral part of The SportsTrac(R) System technology and marketing approach.
RATIONALE FOR THE SPORTSTRAC(R) SYSTEM AND THE SPORTSRAC(TM) SYSTEM
The SportsTrac(R) System and The SportsRAC(TM) System are innovative,
computer-based tools that help athletes reach peak performance levels and
maintain optimal health. This is based on the simple equation:
"Body + Mind = Performance"
We believe athletes are at their best when body and mind come together
"just right"--when physical skills are at their peak and the mind is focused,
concentrating to bring those skills together at exactly the right moment. It is
then that athletes FEEL like athletes and perform at their highest levels.
Today's athletes enjoy a wealth of resources to increase their bodies' capacity
to perform. Sophisticated equipment to build strength and endurance, coaches who
teach cutting edge technique and proper form, and advanced medical procedures to
heal the body faster and better. All of these things have produced stronger,
faster, and physically superior modern athletes.
But in spite of these improved physical capabilities, we believe the
techniques and technologies in use today have done little to improve the way the
mind and body work TOGETHER to achieve peak performance levels. Thus, all
athletes--whether professional or amateur--continue to struggle with issues of
focus and concentration. While self-help books and tapes are readily available,
none of these static forms of training provide the objective measures needed to
gauge the athlete's mental state of readiness. Athletes continue to succumb to
loss of fine motor control when injuries and off-season rest cause the pathways
between body and mind to become
-20-
<PAGE>
sluggish. As a result, modern athletes suffer the same kinds of lapses in focus
and concentration experienced by athletes of years past. They go through the
same sorts of performance slumps and avoidable injuries that occur when body and
mind are out of rhythm. In short, today's athletes are physically enhanced, but
lack the tools to improve the mind's ability to exploit the body to its fullest.
The SportsTrac(R) System and The SportsRAC(TM) System measure the
combined physical and the mental aspects of the athlete's makeup, thus providing
a "body + mind" solution. The systems accurately measure physical coordination
and fine motor control, the critical links between the body's reaction to the
mind's perception, and in doing so, enable athletes to enhance the
inter-workings between body and mind, and maximize performance levels.
We have the benefit of five years of research in professional sports.
We believe we are poised to deliver beneficial, technologically advanced
performance and health enhancement products to professional and amateur athletes
and healthcare professionals. We intend to make The SportsTrac(R) System and The
SportsRAC(TM) System available to healthcare professionals, and all athletes, of
varying ages, male or female, from top professionals and elite amateurs, to
student and youth athletes, as well as serious weekend warriors. Our products
use proprietary technology, which we believe will be priced affordably, and will
be easy and fun for athletes to use on an everyday basis.
-21-
<PAGE>
PRODUCT OVERVIEW
Our product family is divided into two distinct product lines:
performance assessment products (The SportsTrac(R) System) and injury
rehabilitation products (The SportsRAC(TM) System). The structure of our family
of products is pictured below.
[FLOW CHART]
PRODUCT FAMILY
THE SPORTSTRAC(R) SYSTEM THE SPORTSRAC(TM) SYSTEM
PERFORMANCE ASSESSMENT PRODUCTS INJURY REHABILITATION PRODUCTS
PERFORMANCE ASSESSMENT PRODUCTS: THE SPORTSTRAC(R) SYSTEM
The professional version of The SportsTrac(R) System consists of a
small screen, keyboard, and a control knob similar to the volume control on a
radio. The components are housed in a small, rugged unit which can sit on a
tabletop in the corner of a locker room, at home, or on the road. The
SportsTrac(R) System is light and portable for easy transportation with team
equipment.
Before going out on the field or court, each athlete spends 2 to 5
minutes using The SportsTrac(R) System. After the athlete enters his or her
identification number, the screen displays a diamond pointer drifting between
two vertical lines. Using the control knob, the player must correct for the
unpredictable movement of the pointer, keeping it from touching either of the
lines. The difficulty increases as the pointer gradually accelerates, until the
pointer touches one of the lines. The "critical instability" level at the point
the player loses control of the pointer is an instant, accurate measure of the
player's hand-eye coordination. To ensure maximum accuracy, each player repeats
the task five times in a session with The SportsTrac(R) System. The subject's
ability to perform this task results in a set of precise, quantitative
coordination measurements, or "scores." When multiple trials of the task are
performed consecutively in a predetermined battery, subsequent measures of
concentration or mental focus can be derived.
Using The SportsTrac(R) System is like balancing a broomstick upright
on your open palm. You must move your hand from side to side to prevent the
unstable broomstick from falling to the ground. Using The SportsTrac(R) System
is like balancing a broomstick that becomes shorter over time. The balancing
task is simple when the stick is long, but becomes increasingly
-22-
<PAGE>
difficult and eventually impossible as the length decreases (compare balancing a
broomstick with balancing a short pencil).
The SportsTrac(R) System can help an athlete achieve and maintain peak
performance by intelligently monitoring the subtle day-to-day changes in
coordination and concentration that affect the athlete's ability to perform on
the field. These changes are typically caused by variations in the athlete's
"life" factors (E.G., sleep, diet, stress levels, fatigue, medication) which can
also be monitored by The SportsTrac(R) System. When used properly, the product
allows athletes to understand and modify the cause (life factors), to optimize
the effect (coordination and concentration), and thus maximize the impact
(athletic performance).
The SportsTrac(R) System includes the Critical Tracking Task, a tool
created by the U.S. Air Force to evaluate whether pilots could control
experimental aircraft. Since the initial conception of the Critical Tracking
Task, over 40 years of research and field testing by the Department of Defense,
NASA, and the Department of Transportation has supported the Critical Tracking
Task's accuracy in assessing the motor skill level of astronauts, pilots, ship
captains, and heavy equipment operators. The Critical Tracking Task is a
sensitive and reliable measure of the effects of environmental, or life, factors
on human coordination. The technology has been successfully applied in broad
range of military, aeronautics, and industrial applications. As stated in
"Advances in Man Machine Research" (Volume 5, 1988), The Critical Tracking Task
has emerged as one of the most sensitive and reliable tests for investigating
operator tracking work-load.
The Critical Tracking Task is integrated with one component of The
SportsTrac(R) System. Database and graphing functions allow athletes to enter
data on their life factors and athletic performance. These data can subsequently
be compared to the athlete's scores, either graphically for at-a-glance
examination, or quantitatively if more thorough analysis is required. The entire
process including data entry, performing the Critical Tracking Task task, and
graphical display takes no more than a few minutes to complete each day. The
understanding gained through this process allows athletes to make modifications
that lead to enhanced levels of performance.
Another major system component is the eAdvisor(TM), a proprietary set
of algorithms we developed. The eAdvisor(TM) detects abnormal (or, anomalous)
patterns in athletes' scores, and triggers automated alerts that signal an
increased risk of injury or performance slump. The eAdvisor(TM) can be
configured to dispense tips on mental focusing techniques and other timely
advice whenever the athlete's scores indicate the need for assistance.
Whether the user is a professional or amateur athlete, in a team or
individual setting, we believe that products developed with The SportsTrac(R)
System can provide the following benefits:
* Consistently higher levels of athletic performance
* Improved mental concentration and focus
* Self-training, exploration, knowledge, and assessment
* Competitive edge over other athletes and teams
* Injury prevention
-23-
<PAGE>
* Emulation of professional athletes who use The
SportsTrac(R)System
THE SPORTSTRAC(R) SYSTEM PRODUCT LINE. We intend to develop The
SportsTrac(R) System product line as pictured below. We believe that the
products will collectively enable us to stratify the market and reach a broad
base of customers including professional, elite amateur, and recreational
athletes, as well as persons interested in self-improvement, fitness, health,
and wellness.
[FLOW CHART]
PERFORMANCE ASSESSMENT PRODUCTS:
THE SPORTSTRAC(R) SYSTEM
STAND ALONE PRODUCTS INTERNET-BASED PRODUCTS
PROTEAM(TM) ELITETEAM(TM) LIFETRAINER
(currently in development)
ELITESOLO(TM)
STAND ALONE PRODUCTS. Stand alone versions of The SportsTrac(R) System
are CD-ROM-based self-contained, shrink-wrapped products that run on a single
computer platform. They are designed for "serious" athletes seeking to sharpen
their skills and improve their athletic performance levels. The stand alone
versions share the same comprehensive set of features, including the embedded
Critical Tracking Task, life factor data collection and graphical display, and
the eAdvisor(TM) automated trend analysis and injury alert sub-system. We
believe that the full feature set is better-suited for the dedicated athlete,
while a reduced feature set is more appropriate for recreational athletes and
persons interested in self-exploration and general health and fitness levels.
Each of the stand alone versions includes a control panel used to perform the
tracking task, a CD-ROM containing system software, and a printed user's guide.
Three stand alone products are presently available: The ProTEAM(TM)
System for professional athletes and teams, The ElITETEam(TM) System for
organized amateur sports teams, and The EliteSOLO(TM) System for individual
athlete-consumers. The three versions are differentiated primarily by the number
of users allowed per system and service and support levels.
PROFESSIONAL PRODUCTS. The ProTEAM(TM) System is currently in
use by a number of our professional clients on a promotional basis. It
is designed for an unlimited number of users. The base package includes
software, a proprietary digital control panel,
-24-
<PAGE>
documentation, on-site installation, technical support, and custom data
analysis. Additional consulting services can be purchased.
AMATEUR TEAM PRODUCTS. The EliteTEAM(TM) System is an advanced
version of the amateur product optimized for group use. This product is
marketed to amateur athletic organizations including universities, high
schools, and athletic clubs. The package includes software, an analog
control panel, and documentation. The EliteTEAM(TM) System is currently
priced at under $300 per system and allows up to twenty five users. The
University of Pennsylvania was the first organization to purchase The
EliteTEAM(TM) System.
CONSUMER-ATHLETE PRODUCTS. The EliteSOLO(TM) System is the
first consumer product based on The SportsTrac(R) System. The base
package incorporates all of the core functions and features of The
SportsTrac(R) System, but is tailored specifically to appeal to the
consumer-athlete. The package includes software, and analog control
panel, and documentation. The system allows up to four users and is
priced aggressively (less than $100 per system). A feature unique to
The EliteSOLO(TM) System is the inclusion of value-added content
provided by certain individuals, each of whom are noted authorities on
athletic performance, fitness, and/or athletes' health issues. These
experts include, among others, David Wright, Ph.D., renowned sports
psychologist and author of the best-selling MIND UNDER PAR. In addition
to the initial The ELITESOLO(TM) System package, customers will be
offered a variety of after-market products and services. These include:
* Add-on profiles to expand the number of system users.
* Add-on sports-specific "tabs" that let users enter performance
data for their chosen sports.
* Customized data analysis reports.
* Subscriptions to our print newsletters covering the latest trends
and findings in fitness, athletics, health, and mental
concentration.
* Periodic updates to the eAdvisor(TM) informational tips on a
subscription basis.
These after-market items are designed to enhance The EliteSOLO(TM)
System experience and provide access to the same expertise and
knowledge resources offered to our professional clients. Customers will
have the option to purchase bundles of these items at reduced prices.
Future upgrades to our existing stand alone products will be enhanced
through greater automation of life factor, tracking, and trend data, improved
software interface elements, and built-in interaction with our web site. Using
"hyper-links" embedded within The SportsTrac(R) System, users will be able to
link to the site with a click of a mouse and access a host of interactive
features. These will include:
* "Calibrating" the user's tracking and life factor data against
demographically defined groups of users for self-assessment and
comparative purposes.
* Accessing a virtual encyclopedia of helpful tips and advice
provided by an expert panel of sports medicine practitioners,
leading authorities on mental focus and
-25-
<PAGE>
concentration, professional athletes, trainers, and coaches,
sleep experts, as well as reputable nutritionists and dieticians.
* Interacting with other users as well as occasional celebrity
guests through chat rooms.
INTERNET-BASED PRODUCTS. We are presently developing LifeTrainer, an
internet-based variant of The SportsTrac(R) System intended for recreational
athletes and persons interested in self-improvement, fitness, general health,
and wellness. LifeTrainer is designed to be a true mass market offering and will
include a software module available to consumers free-of-charge via internet
download. This module will be tightly integrated with our web site to create a
highly interactive, personalized experience. Our web site will thus become an
integral, strategic component of the LifeTrainer product. The initial module is
based on a much simplified, reduced feature set that includes only the embedded
Critical Tracking Task and life factor data collection capabilities.
Users will be able to download the module from our web site, run a
simple installation routine, input life factor data, and perform the tracking
task with Microsoft Windows 95 or 98-compliant joystick. The user's data is
stored on the recipient computer's hard drive in encrypted format. The module
will not display graphs, or otherwise interpret the data for the user. Instead,
LifeTrainer will periodically prompt users to obtain personalized, easy-to-read
data analysis reports from our web site to learn how various factors uniquely
affect their mental and physical capabilities. Once users accept the prompt,
LifeTrainer will connect them to our web site, where the data will be analyzed
by an algorithmic program residing on the site. Results will be presented online
in real time in an attractive on-screen format for a nominal fee ($10-$15 per
analysis). Users will also have the option to subscribe to the site for a higher
fee in exchange for an unlimited number of reports within a predetermined time
frame. We believe that the highly personalized, insightful information will
provide great value to end-users.
INJURY REHABILITATION PRODUCTS: THE SPORTSRAC(TM) SYSTEM
The SportsRAC(TM) System shares the same proprietary software
technology embedded within The SportsTrac(R) System, but utilizes it in a manner
that expands our range of product applications. Where The SportsTrac(R) System
users respond to the tracking task by manipulating a knob with their fingertips,
The SportsRAC(TM) System tracking session is performed using an anatomical joint
(e.g., shoulder). The SportsRAC(TM) System integrates the core tracking task
technology with anatomically-supportive biomechanics engineering, making it a
safe and effective tool for the rehabilitation of surgically-repaired joints.
The SportsRAC(TM) System is a free-standing device that supports the
limb and joint as they are purposefully moved in a resistance-free range of
motion. The software measures the user's ability to maintain "proprioceptive"
awareness and delicate body control. Proprioception, in laymen's terms, refers
to an individual's fine sense and feel for the position of the body or body
part, relative to his or her surroundings. The measurements, or scores, provide
important feedback. Because the design of The SportsRAC(TM) System protects the
joint from stress, it can be used very early in the rehabilitation process to
prevent loss of fine motor control. Under traditional rehabilitation methods,
loss of motor skills generally occurs during the early rehabilitative stages
when the surgically-repaired joint is subjected to long periods of
immobilization and the neuropathways between the brain and limb become sluggish.
This loss
-26-
<PAGE>
of motor control lengthens the rehabilitation program because the patient must
perform a series of specialized exercises in order to regain the diminished
skills. We believe that use of The SportsRAC(TM) System allows the patient to
avert this erosion of motor skills and recover from injury faster and with
greater body control.
We also believe that The SportsRAC(TM) System can be used by
non-injured athletes in everyday training routines to prevent injuries, improve
the athlete's anatomical awareness, and enhance performance levels. The Critical
Tracking Task's ability to accurately measure variations in coordination skills
can be exploited to anticipate potential problems surrounding the joint that
have not yet come to the surface. This feature enables trainers and therapists
to monitor the athlete and take corrective action before performance levels are
affected and injuries occur. Athletes themselves can use the quantitative
feedback as a benchmark while honing their sense of control over the joint. When
used in this manner, The SportsRAC(TM) System provides a safe and effective
means for athletes to enhance their delicate sense of body control, resulting in
a heightened state of anatomical awareness and improved performance on the field
We believe that The SportsRAC(TM) System offers the following benefits
to healthcare practitioners, sports teams, and athletes:
* Accelerated, more efficient rehabilitation processes vis-a-vis
traditional rehabilitation methods.
* Enhanced anatomical awareness and functional limb control.
* Injury prevention.
Initially The SportsRAC(TM) System - Shoulder model was used by the Los
Angeles Dodgers on a trial or promotional basis. Two members of the clinical
staff are affiliated with us, including Michael Mellman, M.D., our Chairman of
the Board. We have recently begun selling production models and have sold a
limited number of units. Professional teams that use The SportsRAC(TM) System
typically provide us promotional consideration. The SportsRAC(TM) System
- -Shoulder model has been applied by the Los Angeles Dodgers and Boston Red Sox
in a number of shoulder injury cases. The Dodger pitching staff is using the
model to improve the pitchers' delicate sense of shoulder control. The shoulder
model is priced at $10,000 to $15,000 and consists of a free-standing unit, a
laptop computer, installed software, documentation, and technical support.
We are considering additional rehabilitation modalities for future
development. The SportsRAC(TM) System can conceptually be re-configured for any
joint, or group of joints, including knee, ankle, hip, and spine.
We intend to develop The SportsRAC(TM) System product line as pictured
below.
-27-
<PAGE>
[FLOW CHART]
INJURY REHABILITATION
PRODUCTS:
THE SPORTSRAC(TM) SYSTEM
SPORTSRAC(TM) SPORTSRAC(TM) KNEE
SHOULDER (in conceptual development)
OTHER SPORTSRAC(TM)
PRODUCTS
(in conceptual development)
MARKET OVERVIEW: PERFORMANCE ASSESSMENT PRODUCTS
Our performance assessment products (The SportsTrac(R) System family)
are designed to enhance athletic performance. In a broad sense, they are
therefore classified as sporting goods, albeit with a unique technology bent.
The multibillion dollar sporting goods market is global in scale and encompasses
a broad spectrum of products ranging from sports apparel to athletic and fitness
equipment, and athletic shoes. In a 1997 report, the Sporting Goods
Manufacturers Association estimates the total WHOLESALE market at roughly $15
billion. At this massive size, overall growth rates are modest. However,
individual suppliers are still able to generate strong growth at the expense of
competitors by securing product endorsements from professional athletes.
COMPUTER-BASED SPORTING GOODS. Within the overall sporting goods market
is the specialized niche for computer-based fitness and athletic performance
enhancement products. Products in this segment include, at the low end, simple
database software programs that allow users to log their training routines and
view their progress through graphs. These low end products are generally priced
in the $100 and under range and, while they are affordable for most athletes, do
little in the way of actual performance enhancement.
In the upper reaches of this segment is a diverse group of
higher-priced offerings which usually incorporate some element of propriety
technology. These "high end" products include
-28-
<PAGE>
virtual reality systems in which users "race" against competitors over networked
computers while working out on rigged treadmills and stationary bikes and
video/computer-based motion analysis systems which analyze the athlete's golf
swing or throwing motion. Although some of these products provide real
performance benefits, they typically cost several thousand dollars and are not
suited for most amateur athletes due to their inherent complexity and price.
The computer-based sporting goods segment is small but growing. Based
on our industry research, we estimate 1997 worldwide revenues at less than $50
million. While this figure is modest, we believe there is the potential for
growth when viewed in proper perspective. At less than $50 million, the
computer-based segment represents less than 1/10 of 1% of the total sporting
goods industry. At the same time, there are roughly 75 million individuals in
the U.S. alone who frequently participate in sports and fitness. On the
institutional level, there are more than 300,000 colleges, high schools, health
clubs, and amateur sports organization in the U.S. A strong potential market
exists for the right product and approach.
OPPORTUNITIES. We believe the keys to unlocking this segment's
potential are to introduce properly positioned products and secure endorsements
from professional athletes, sports teams, sports medicine authorities, and other
visible sports figures. We believe none of these areas have been properly
addressed by existing suppliers. Few, if any, suppliers have secured the kinds
of endorsements needed to establish credibility and generate widespread
interest. Suppliers have also fallen short in delivering well-positioned
products. We believe the computer-based segment is saturated with products that
either are innovative and solutions-oriented but too costly and difficult to use
or are affordable and simple to use but do not offer true performance benefits.
The SportsTrac(R) System provides solutions that are used in the
professional sports world, are priced within the reach of our target customers,
and are intuitive and simple for the average athlete to use. We will attempt to
secure endorsements from several sports teams and athletes that have used our
products extensively. Past and present users of The SportsTrac(R) System
include:
* PROFESSIONAL BASEBALL: Los Angeles Dodgers, New York Mets,
Minnesota Twins, San Diego Padres, Anaheim Angels, and San
Francisco Giants of Major League Baseball and their minor league
affiliates
* PROFESSIONAL ICE HOCKEY: Los Angeles Kings of the National Hockey
League, and the New York Rangers' American Hockey League affiliate
* PROFESSIONAL GOLF: Len Mattiace and Grant Waite, PGA touring pros,
and Wendy Doolan, Hiromi Kobayashi, and Karen Noble, LPGA touring
pros
* COLLEGIATE ATHLETICS: University of Pennsylvania Athletics
Department
* PROFESSIONAL BASKETBALL: Minnesota Timberwolves and certain
individual players
Some of these users used a prototype model of The SportsTrac(R) System on a
promotional or trial basis. A number of these teams or athletes currently
endorse The SportsTrac(R) System on the SportsTrac web site (www.sportstrac.com)
or on their official team web site.
-29-
<PAGE>
MARKET TRENDS. A number of social and technological trends will create
favorable market conditions for our performance assessment products:
* The cost of computer ownership is rapidly declining, making it
increasingly affordable for target customers to use computers in
their daily lives. Pentium-based, multimedia systems equipped
with modems and CD-ROM drives are now available for under $1,000.
* Society is shifting away from the appearance-oriented fitness
mentality of the 1980's towards a more pragmatic approach
emphasizing health, wellness, productivity, and human performance.
Fitness is becoming a more practical social goal with broader
appeal, thus expanding our target audience.
* Women's participation in sports at both the professional and
amateur levels is growing, thereby expanding the base of sporting
goods customers. In a 1997 report, the Sporting Goods
Manufacturers Association anticipated a 30% increase in
participation in sports and fitness by women over the past decade.
The first professional women's basketball league--the Women's
National Basketball Association--was established in 1997.
* A trend referred to as "cocooning" is the phenomenon where
individuals increasingly spend their time at home using home
exercise equipment, computers, and the Internet. This phenomenon
naturally enhances the appeal of our consumer products.
* Consumer use of the Internet is growing exponentially. In a 1998
report, the U.S. Department of Commerce estimated that Internet
traffic is doubling every 100 days, and on-line commerce should
reach $300 billion by the year 2002. With more than 100 million
people now on-line, the digital economy is growing at double the
rate of the overall U.S. economy.
* Acceptance of computer technology within the world of professional
sports is growing. While acceptance was slow to develop until
recently because of the tradition-bound nature of sports,
computers are quickly finding their way into athletic training
rooms, front offices, and in the trainers', coaches', and
athletes' hands. The SportsTrac(R) System is among the first to be
used regularly by professionals for performance enhancement
applications.
We anticipate that all of these trends will have a strong favorable impact on
market growth.
MARKET SEGMENTATION. Our performance assessment markets are segmented
primarily by customer group. Each of The SportsTrac(R) System products addresses
the needs of a specific sub-market. The strategies for developing and marketing
these products have been developed accordingly.
The professional sports segment consists of professional athletes and
sports teams. The professional market plays a vital role, as it provides
credibility and may be a source of endorsements needed to establish a presence
in the more viable and promising amateur markets. It is the foundation on which
our amateur products are based. Due to the finite number of prospective
customers as well as the service-intensive, "hands-on" approach required by the
professional customer, this segment has limited profit potential and is
considered by us to be a break-even, or marginally profitable business. The
professional segment is served by The
-30-
<PAGE>
ProTEAM(TM) System. Currently, several professional teams and athletes are
providing promotional consideration to us in order to use The SportsTrac(R)
System. Professional consideration typically includes official media exposure,
team/player endorsement, inclusion in the teams official web sites, and other
promotional activities. We believe that such endorsements are vastly more
valuable than the purchase price consideration we could receive on an outright
sale basis.
At the other end of the scale is the consumer segment, which feeds
heavily off of professional usage and endorsements. We believe the consumer
market is by far the largest in terms of revenue/profit potential. It is a high
volume, mass market business with drastically reduced service requirements and
greater product feature and promotion requirements. This segment is addressed by
The EliteSOLO(TM) System and will be addressed by our LifeTrainer product. Our
target customer for The EliteSOLO(TM) System has the following characteristics:
* Motivated to improve athletic performance.
* Serious amateur athlete, likely to compete in organized sports
leagues and events.
* Interested in emulating professional athletes, or seeks to gain
same competitive edge enjoyed by professional athletes.
* Computer literate.
* Computer ownership within the household.
* Primary user within the household has some level of college
education.
* Average annual household income of $40,000 or more.
* Male or female; product is gender neutral.
Our target LifeTrainer customer will have the following characteristics:
* Interested in self-exploration, wellness, mind-body performance,
and general health and fitness.
* Computer literate and versed in Internet usage.
* Computer ownership within the household, including Internet
access.
* Primary user within the household has some level of post-high
school education.
* Male or female; product is gender neutral.
In between the two extremes lies the amateur team segment, consisting
of NCAA collegiate athletic teams and similar organizations. This segment offers
some of the credibility/endorsement value of the professional market, but is
substantially larger in size, less severe in terms of the customer's service
requirements, and therefore holds significant profit potential. It is addressed
by The EliteTEAM(TM) System. Our target customer for The EliteTEAM(TM) System
has the following characteristics:
* Amateur organization focused on competition, as opposed to
recreational or social aspects.
* Youth-oriented/young adult organization which actively strives to
train and develop participants' skills and abilities.
* Regular, daily access to at least one computer system, or
sufficient financial resources to purchase a dedicated computer.
-31-
<PAGE>
We believe the two amateur/consumer segments combined present
significant growth opportunities. Our strategies are designed to capitalize on
these opportunities and convert them to satisfied customers, revenues, and
profits.
BUSINESS PLAN: PERFORMANCE ASSESSMENT PRODUCTS
We believe that we must focus on market education and building
awareness of The SportsTrac(R) System. Our strategy to build acceptance and
awareness is to
* Leverage our experience with professional athletes and teams to
obtain highly visible endorsements,
* Utilize a low-cost entry approach,
* Make use of OEM/private label distribution agreements that allow
us to piggy-back on firmly entrenched distributors and marketers,
* Create programs that foster the development of a SportsTrac(R)
System "culture," and
* Use the internet to rapidly build a large customer base by
offering free software downloads.
Because The SportsTrac(R) System is the first computer-based athletic
performance product used by professional sports organizations, we will attempt
to position The SportsTrac(R) System as the standard across professional and
amateur sports.
ADVERTISING AND PROMOTION. We will rely on product endorsements from
sports professionals throughout our advertising and promotions. Several
endorsements currently appear on our web site (www.sportstrac.com). The
SportsTrac System(R) consumer and amateur products will be promoted through a
number of avenues, including print media and television. An infomercial is being
planned in which a number of professional athletes, trainers, and coaches
endorse The SportsTrac(R) System and discuss real-world case studies that
demonstrate the value of The SportsTrac(R) System. Print media advertising and
promotion will include ads and product reviews in national and regional
publications. Targeted mass mailings are also planned. Our web site
(www.sportstrac.com) will be used extensively to promote The SportsTrac(R)
System over the internet. LifeTrainer will be promoted heavily over the internet
through the use of banner ads on high-traffic sites that link directly to our
site.
Professional products will be promoted through referrals, targeted
trade shows, and conventions and through trade journals aimed at trainers,
coaches, and team executives. We will use our established ties within
professional sports to make further inroads and selectively add new clients that
bring additional areas of strength, credibility, and endorsement value.
DISTRIBUTION. Stand alone versions of The SportsTrac(R) System will be
initially distributed through direct channels such as the internet and direct
mail. As our product develops, we will review OEM/private label arrangements
with established athletic equipment marketers and distributors. Carefully
selected private labelers will use their visibility and market presence to build
awareness quickly and efficiently. We will rely on a small direct sales force to
distribute our professional-use products. We intend to implement client referral
programs to facilitate the
-32-
<PAGE>
distribution of our professional-use products. To penetrate regions where
language and culture present significant barriers, we will actively seek
overseas partners to act as value-added distributors and/or technology
licensees.
The LifeTrainer, the internet-based versions of The SportsTrac(R)
System, will be distributed primarily through our web site via free software
download. Additionally, free CD-ROM disks containing the LifeTrainer software
will be given away at tradeshows and targeted direct mailings. By distributing
LifeTrainer free-of-charge, we believe we can saturate the market in a
cost-effective manner and rapidly build up a large customer base.
PRODUCT DEVELOPMENT. The entire SportsTrac(R) System product family is
designed so that new products and specialized variants can be developed from
interchangeable software code and simple database modifications. This design
approach speeds up the development cycle while reducing costs and testing
requirements. Moreover, it will allow us to capitalize on new market
opportunities in a responsive manner. Specialized products being considered for
introduction include consumer products for golfers and fitness enthusiasts
interested in monitoring the effects of diet and nutrition on their mental focus
and athletic performance. Multimedia and the Internet will be a large part of
our products to make them attractive and inviting to use.
Beyond The SportsTrac(R) System, we intend to explore other
technologies and products to compliment The SportsTrac(R) System. We cannot
assure you that our efforts will be successful.
MARKET OVERVIEW: REHABILITATION PRODUCTS
According to the 1995 Medical and Healthcare Marketplace Guide, the
U.S. market for rehabilitation services grew 25% from $16 billion in 1993 to an
estimated $20 billion in 1995. It is expected to reach $45 billion in 2000.
Strong demand for rehabilitation services is being fueled by a number of
factors, including the aging of the U.S. population. According to a 1996 report
on U.S. Rehabilitation Equipment Markets by Frost & Sullivan, sales of
rehabilitation equipment are also expected to benefit, while at the same time,
industry pressures arising from a limitation of Medicare reimbursement funds are
forcing service providers to lower their costs and reduce patient recovery
times.
We believe that these trends will encourage strong enthusiasm and
acceptance of The SportsRAC(TM) System because the technology can help
healthcare service providers meet their cost containment objectives by
accelerating the rehabilitation process.
Opportunities also exist within the professional sports markets, due to
the continued escalation of player salaries. Increases in workers' compensation
costs create strong incentive to reduce injury rates, which, in turn, presents
additional opportunities for The SportsRAC(TM) System.
BUSINESS PLAN: REHABILITATION PRODUCTS
We believe that The SportsRAC(TM) System is positioned to capitalize on
the growing market for rehabilitation equipment. Moreover, we believe that the
accelerated rehabilitation and
-33-
<PAGE>
performance enhancement benefits offered by The SportsRAC(TM) System will enable
us to realize acceptable rates of growth. To achieve this, we believe we must
quickly establish brand recognition and focus on education of the healthcare and
professional training industries.
ADVERTISING AND PROMOTION. We intend to promote and educate the market
about The SportsRAC(TM) System extensively through print media, primarily
through the use of public relations campaigns and through select tradeshows
aimed at physical therapists, professional sports trainers, and sports medicine
practitioners. Targeted direct mailings will also be employed. The SportsRAC(TM)
System will be further promoted on our web site.
DISTRIBUTION. The SportsRAC(TM) System will be distributed through a
direct sales force which will take advantage of our established network of
contacts within the professional sports market. Once sufficient sales momentum
has been established, we will also seek out qualified rehabilitation equipment
distributors with widespread access to the healthcare buyers.
PRODUCT DEVELOPMENT. We will concentrate our initial development
efforts on refinement of The SportsRAC(TM) System -Shoulder model. We intend to
also expand the product line to include additional rehabilitation modalities,
beginning with a model designed for the rehabilitation of knee injuries. Future
models may include systems for the rehabilitation of the ankle, spine, hip, and
other joints, or groups of joints.
COMPETITION
Other performance assessment technologies have been developed for
research and fitness for duty testing purposes. We are not aware of any that
have been refined for commercial application in the sports and performance
enhancement fields. Based upon our own evaluation, we believe that these
alternate technologies are more difficult to administer and less practical in
the marketplace than The SportsTrac(R) System. We believe that a significant
amount of engineering and other work would be required for any of these other
technologies to be successfully adapted to the marketplace in which we intend to
market The SportsTrac(R) System.
We have researched our intended marketplace and found that there are no
products that are the same or similar to The SportsRAC(TM) System. We have not
identified any machine that provides active neuromuscular stimulation involving
the tissues that encapsulate the shoulder joint with performance evaluation from
a resistance-free task. Thus, to our knowledge, there is no direct competition
for The SportsRAC(TM) System, which we believe is unique in its exercise and
assessment of the neuromuscular pathways involved in shoulder dynamics.
There are a variety of products made by several companies that are used
for shoulder training and rehabilitation. Those products significantly differ
from the design and methods used by The SportsRAC(TM) System. While those
products rely on strength, range of motion, and passive electrical stimulation
either alone or in combination, none of them provide an exercise and assessment
of the shoulder's ability to function with synchronized neuromuscular "firing"
in a nearly resistance free environment. In fact, these same strength, range of
motion, and electrical stimulation devices offer benefits that complement the
advantages gained through use of The SportsRAC(TM) System.
-34-
<PAGE>
As our products are established, competition could arise from companies
with more computer and software expertise or superior financial capability than
we have. We believe that any new technology would lack the benefit of the three
decades of validation of the Critical Tracking Task underlying The SportsTrac(R)
System and The SportsRAC(TM) System.
TRADEMARKS AND SERVICE MARKS
We hold a federally registered trademark for the name "SportsTrac" and
have filed a trademark application for the name "SportsRAC." We may register or
file other applications in the future. On occasion, our applications may be
opposed by third parties. We intend to pursue all available legal remedies to
vigorously defend our rights to our trademarks to the extent we have resources
available to fund such activities. Although to date no claims have been brought
against us alleging that we infringe on the intellectual property rights of
others, we cannot assure you that claims will not be brought against us in the
future, or that if made, the claims will be unsuccessful. In addition to any
potential monetary liability for damage, we could be required to obtain a
license in order to continue to use the trademark in question or could be
enjoined from using the trademark if a license were not made available on
acceptable terms. If we became involved in litigation, it might consume
significant resources which could have a material adverse effect on us and our
operations. If such a claim were successful, our business could be materially
adversely affected.
EMPLOYEES
As of May 31, 1999, we employed seven full-time employees and three
part-time employees. We anticipate hiring additional personnel after this
offering for sales, marketing, engineering, and product support, and for general
administrative assistance.
BOARD OF ADVISORS
We are actively developing a board of advisors. The board will bring
together noted athletes and experts in the fields of sports medicine,
administration, research, marketing, law, and promotion. While the board of
advisors is intended to serve an important role in the review of The
SportsTrac(R) System and The SportsRAC(TM) System designs and identification of
new product designs and customers, it will not serve any management function.
FACILITIES
Our executive offices are located at 6654 Gunpark Drive, Suite 100,
Boulder, Colorado 80301. The lease of our executive office is for a term through
December, 2000 with rent at approximately $1,400 per month. We also lease office
space in Manhattan Beach, California. The lease is on a month-to-month basis
with rent at $1,200 per month. Both facilities are used for administration,
research and development, marketing, and customer services.
We believe adequate facilities are available for our operations.
-35-
<PAGE>
LITIGATION
We are not a party to any pending legal proceeding and our property is
not subject to any pending legal proceeding. We are not aware of any material
proceeding threatened against us.
We have obtained insurance coverage in amounts deemed appropriate for
the type and scope of our business. We cannot assure you that our insurance
coverage will be adequate to protect against all losses that we might incur. If
any losses were to occur, they could have a material adverse affect on our
financial condition.
WHERE YOU CAN FIND MORE INFORMATION
Because this is our first public offering, we have never been subject
to the reporting requirements of the Securities and Exchange Act of 1934. We
filed a registration statement on Form SB-2 with the Securities and Exchange
Commission under the Securities Act of 1933 describing and discussing the units
offered in this prospectus. As allowed by the Securities and Exchange
Commission, this prospectus, which is part of the registration statement, does
not contain all of the information included in the registration statement.
Additionally, statements we make in this prospectus about contracts and other
documents are not necessarily complete. For more information about us and the
units and our common stock and class A redeemable common stock purchase
warrants, you should read the registration statement and any attached exhibits
and schedules.
You can read and copy our registration statement and any other
materials we file with the Securities and Exchange Commission at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549 or on the Internet at http://www.sec.gov. You can obtain information about
the operation of the public reference room by calling the Commission at
1-800-SEC-0330.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are:
NAME AGE POSITION HELD
- ---- --- -------------
Michael Mellman, M.D.............. 48 Chairman of the Board and
Director
Marc R. Silverman................. 46 Chief Executive Officer, President,
Chief Financial Officer, and
Director
Elliot Steinberg.................. 61 Director
Solomon A. Weisgal................ 72 Director
Joshua S. Kanter.................. 37 Secretary and Director
-36-
<PAGE>
Our directors hold office until the next annual meeting of our
shareholders or until their successors are duly elected and qualified. Our board
of directors intends to meet quarterly. Executive officers are appointed by and
serve at the discretion of our board of directors. For a period of five years
after the date of this prospectus the managing underwriter will have the right
to designate a non-voting advisor to our board of directors.
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
MICHAEL MELLMAN, M.D., age 48, is our Chairman of the Board. He was a
founder of our predecessor company and served as its chairman of the board. He
lists the following activities and accomplishments:
* Private practice of Internal Medicine as part of the Medical
Institute of the Little Company of Mary Hospital in Redondo Beach,
California from 1998 to present.
* Private practice of Internal Medicine at Centinela Hospital
Medical Center in Inglewood, California, from 1991 to 1998
* Team physician for the Los Angeles Dodgers since 1986, and for the
Los Angeles Lakers and Los Angeles Kings from 1981 to present
* Team physician for the now defunct LA Express of the United States
Football League
* Consultant to the Los Angeles Rams
* Recognized as an expert in the area of sports medicine and
athletic performance
* Bachelor's degree in Zoology from the University of California at
Los Angeles in 1973
* Medical degree from Mount Sinai School of Medicine in New York
* Internship, residency, and chief residency in Internal Medicine at
Cedars Sinai Medical Center in Los Angeles
MARC R. SILVERMAN, age 46, is our Chief Executive Officer, President,
Chief Financial Officer, and a Director. He was a founder of our predecessor
company and served as its chief executive offer, president, chief financial
officer, and a director. He lists the following activities and accomplishments:
* President and a director of Performance Factors, Inc. from 1989
through 1993, in which he was one of the founders. Performance
Factors merged into BioFactors, Inc. in May, 1994. Mr. Silverman
was an officer of BioFactors from 1993 until September 1, 1995
and was a director until April, 1995
* Director of Planning and Business Development at Technicon
Corporation, a developer of computerized patient care and
hospital information systems, from 1987 to 1989; responsible for
strategic direction, new product planning, and corporate
development
* General Manager of the Medical Information Systems Division at
Baron Data Systems, which developed and marketed automated
clinical decision support systems for acute care hospitals and
ambulatory care facilities from 1985 to 1987; Director of
Planning of Baron Data Systems, with responsibility for the
direction of all corporate product lines, from 1982 to 1985
-37-
<PAGE>
* Senior Analyst and Program Manager at Cutter Laboratories and
Hexcel Corporation from 1978 to 1982; responsible for the design
and implementation of various computer applications
* Engineering degree from the University of California at Los
Angeles
* Attended the Stanford University, Advanced Management College
ELLIOT STEINBERG, age 61, is one of our Directors. He was a director of
our predecessor company from its formation. He lists the following activities
and accomplishments:
* Managing partner of W.S. Ventures, a private investment
partnership
* Engaged in the practice of law, specializing in business planning
and real estate from 1992 to present
* Managing member of Sunrise Creek, LLC, a company engaged in real
estate subdivision and development in Colorado, from 1995 to
present
* Trustee of the California Real Estate Investment Trust, a
self-administered real estate trust (traded on the New York Stock
Exchange under the symbol "CT"), from 1995 to present
* Director of American Access Technologies, Inc. (traded under the
symbol "AATK")
* Director of Kimco Hotel Management Company, a private company
engaged in hotel management and development, during 1992 and 1993
* Director of NHancement from 1992 to July 1996
* Director of Ganson Ltd. and Cege Co., Ltd. (Hong Kong), both
private companies engaged in the manufacture and sale of leather
goods, from 1992 to present
* General partner of, and general counsel to, Genesis Merchant
Group, an Illinois financial services firm, providing investment
banking, brokerage activities, and asset management of equities
and bonds, from 1988 through 1992
* Undergraduate degree from the University of California (Berkeley)
* Law degree from the Boalt Hall School of Law, University Of
California (Berkeley)
SOLOMON A. WEISGAL, age 72, is one of our Directors. He was a director
of our predecessor company from its formation. He lists the following activities
and accomplishments:
* Certified Public Accountant
* President of Solomon A. Weisgal, Ltd., a financial consulting
firm, since its inception in 1979
* Director of The Alta Group Ltd., privately-held concerns, and
Walnut Financial Services, Inc., a publicly-held concern (NASDAQ
NMS--WNUT)
JOSHUA S. KANTER, age 37, is our Secretary and a Director. He was a
director of our predecessor company from its formation. He lists the following
activities and accomplishments:
* Of-counsel to Barrack Ferrazzano Kirschbaum Perlman & Nagelberg,
Chicago, Illinois since July 1993, a law firm specializing in
securities, corporate, and real estate law
-38-
<PAGE>
* Chief executive officer and director of The Alta Group Ltd. and
Greenway Environmental, Inc., a regional hazardous waste
treatment company from July 1997 to present
* Vice-President and director of Windy City, Inc., a closely held
investment management and consulting firm since June 1986
* Vice-President and director of Kanter Family Foundation from 1987
to present
* General Counsel of Walnut Financial Services, Inc. since
September 1995
* Bachelor's degree in Economics and Political Science and
graduated magna cum laude from Emory University in 1984
* Law degree from the University of Chicago Law School in 1987
SIGNIFICANT EMPLOYEES
We employ several individuals in senior level management positions as
follows:
RALPH A. GAMBARDELLA, M.D., age 46, is our Director of Research and
Development. He joined us in May 1999 and lists the following activities and
accomplishments:
* Associate at the Kerlan Jobe Orthopaedic Clinic since 1985;
Chairman of the Board of Directors since 1995
* Clinical associate professor at the University of Southern
California School of Medicine Department of Orthopedics
* Director of the pediatric and adolescence sports medicine clinic
program at Orthopaedic Hospital in Los Angeles
* A team orthopedist for the Los Angeles Dodgers Baseball Team, and
a team orthopedist for the University of Southern California
Department of Athletics and Loyola Marymount University
Department of Athletics
* Secretary of the Major League Baseball Physicians Association
* Editorial board for The American Journal of Medicine and Sports
* A member of the medical advisory board for Innovasive Devices,
Inc.
* Undergraduate education at Bowdoin College
* Medical degree from the University of Southern California
* Orthopedic residency at the University of Southern California in
1982, and sports medicine fellowship at the Kerlan Jobe
Orthopaedic Clinic in 1983
REGGIE SMITH, age 54, is our Director of Business Development. Mr.
Smith joined us in May, 1999 and lists the following activities and
accomplishments:
* Founder and owner of the Reggie Smith Baseball Centers,
all-encompassing training camps for players (from Little League
to Major League) to develop skills and receive instruction
* Former Major League baseball player for 17 years with the Boston
Red Sox, Los Angeles Dodgers, St. Louis Cardinals, and San
Francisco Giants; .287 lifetime batting average with 314 home runs
and 1,100 rbi's; seven time all-star; four World Series with one
World Championship
* Two seasons in Japan with Tokyo Giants
* Los Angeles Dodgers hitting and first base coach from 1993 to 1998
-39-
<PAGE>
DAVID WOHL, age 50, is our Director of Professional Relations with 26
years of experience in professional sports. He joined us in February, 1996 and
lists the following activities and accomplishments:
* Currently assistant coach of Orlando Magic, sharing duties as an
assistant coach and as our Director of Professional Relations
* Assistant coach in the NBA, most recently with the Los Angeles
Lakers during the 1999 season
* Executive Vice President of Our predecessor company, Inc. from
1996 to 1999 where he was involved in strategic planning,
increasing pro and amateur sports client base, and developing
first consumer prototype product
* Executive Vice President and Director of Basketball operations for
the Miami Heat of the NBA from 1994 to 1996
* Responsible for strategic planning, negotiations of player
contracts, and roster management including all trades and college
draft selections. During this period, the Miami Heat improved
from the 16th best record in the league to the 2nd best overall
* 15 years as both a head coach and as an assistant coach in the NBA
prior to joining the Miami Heat as an executive; during that time
he won an NBA championship as an assistant coach with the Los
Angeles Lakers in 1985
* Played in the NBA from 1971 through 1978 and served as a
representative to the NBA Players Association during that time
* Graduate of the University of Pennsylvania
* Television analyst for NBA games and written numerous articles on
sports for national publications
DIRECTOR AND EXECUTIVE COMPENSATION
Each director is reimbursed for reasonable out-of-pocket expenses
incurred in attending meetings of our board of directors. In March, 1999,
Elliott Steinberg, Solomon A. Weisgal, and Joshua S. Kanter (our three
non-employee directors) were granted options to purchase 8,324 shares of common
stock for a price of $1.80 per share.
We engaged Mr. Kanter to provide us consulting services. For his
services, Mr. Kanter is paid $4,000 per month and received options to purchase
8,324 shares of common stock at $3.60 per share. One-half of his monthly fee is
paid in cash and the remaining one-half is deferred. The deferred portion will
be paid at such time and in such manner as is mutually agreed by Mr. Kanter and
us.
We pay Marc R. Silverman an annual salary of $152,000. Of the salary,
$48,000 is deferred at the rate of $4,000 per month. The deferred portion of the
salary will be paid at such time and in such manner as is mutually agreed upon
by the compensation committee of our board of directors and Mr. Silverman. Until
paid, the deferred compensation accrues interest at the rate of 12% per annum.
In addition, at the time we purchased the assets of our predecessor company, we
issued options to Mr. Silverman. Under the options Mr. Silverman may purchase
72,141
-40-
<PAGE>
shares of common stock for a price of $1.80 per share and 9,711 shares of common
stock for a price of $3.60 per share.
We pay Michael Mellman, M.D. an annual salary of $108,000. Of the
salary, $36,000 is deferred at the rate of $3,000 per month. The deferred salary
will be paid at such time and in such manner as is mutually agreed upon by the
compensation committee of our board of directors and Mr. Silverman. Until paid,
the deferred compensation accrues interest at the rate of 12% per annum. In
addition, at the time we purchased the assets of our predecessor company, we
issued options to Dr. Mellman. Under the options Dr. Mellman may purchase 72,141
shares of common stock for a price of $1.80 per share and 9,711 shares of common
stock for a price of $3.60 per share.
The following table summarizes the compensation paid by our predecessor
company to its officers during its last three completed fiscal years:
Annual Compensation
--------------------------------
Other
Name Annual All Other
and Compen- Compen-
Principal sation sation
Position Year Salary($) Bonus($) $ ($)
- -------------------------------------------------------------------------------
Mark Silverman, 1998 $144,000 -0- -0- -0-
Chief Executive 1997 $144,000 -0- -0- -0-
Officer 1996 $144,000 -0- -0- -0-
Michael Mellman, 1998 $108,000 -0- -0- -0-
M.D., 1997 $108,000 -0- -0- -0-
Chairman 1996 $ 90,000 -0- -0- -0-
Of the annual salary paid by our predecessor company to Dr. Mellman in
the above table, $36,000 was deferred in 1998 and 1997 and $33,000 was deferred
in 1996. Of the annual salary paid by our predecessor company to Mr. Silverman
in the above table, $48,000 per year was deferred. When we purchased the assets
of our predecessor company we assumed the obligation to pay the deferred salary
of Dr. Mellman and Mr. Silverman. Dr. Mellman and Mr. Silverman, however, agreed
to convert their deferred salary of our predecessor company into shares of our
common stock at the rate of $.91 per share of common stock. The following table
illustrates this conversion.
Shares of common
Unpaid stock issued to
deferred salary cancel deferred salary
--------------- ----------------------
Michael Mellman, M.D. $124,901 138,624
Marc R. Silverman $171,645 190,504
-41-
<PAGE>
EMPLOYMENT AGREEMENTS
There are no employment agreements with any of our executive officers
or significant employees. We are currently negotiating an employment agreement
with Mr. Silverman. All executive salaries are set by the compensation committee
of our board of directors. The committee consists of certain non-employee
directors as determined from time to time by our board of directors. Presently,
Elliott Steinberg, Solomon A. Weisgal, and Joshua S. Kanter are on the
committee.
INCENTIVE STOCK PLAN
GENERAL. We have an incentive stock plan. The purpose of the plan is
* to provide a means whereby key individuals may sustain a
sense of proprietorship and personal involvement in our
continued development and financial success and
* to encourage key individuals to remain with and devote their
best efforts to our business, thereby advancing our
interests and the interests of our stockholders.
Under the plan, certain directors, officers, employees, consultants, and
advisors are eligible to acquire common stock or otherwise participate in our
financial success. The plan is expected to provide flexibility to our
compensation methods, after giving due consideration to competitive conditions
and the impact of federal tax laws.
The maximum aggregate number of shares of our common stock that may be
awarded to individuals under the plan is 1,000,000 shares. Any shares that
remain unissued at the termination of the plan will cease to be subject to the
plan. Until termination of the plan, we will reserve sufficient shares to meet
the requirements of the plan. The aggregate number of shares of our common stock
which may be awarded under the plan will be adjusted to reflect any change in
capitalization, such as a stock dividend or stock split.
The plan is administered by the compensation committee of our board of
directors. The compensation committee selects the individuals to whom awards
will be made and establishes the amount of the award for each individual.
STOCK OPTIONS. Options granted under the plan may be "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, or stock options which are not incentive stock options. Whether or
not options will be granted, the number of shares subject to each option
granted, the prices at which options may be exercised (which may not be less
than the fair market value of shares of our common stock on the date of grant),
whether an option will be an incentive stock option or a non-incentive stock
option, the time or times and the extent to which options may be exercised, and
all other terms and conditions of the options are determined by the compensation
committee.
-42-
<PAGE>
Each incentive stock option terminates no later than 10 years after the
date of grant, except with respect to incentive stock options granted to 10%
stockholders. The exercise price at which shares of common stock may be
purchased may not be less than the fair market value of shares of our common
stock at the time the option is granted, except with respect to incentive stock
options granted to 10% stockholders. The exercise price of an incentive stock
option granted to a person possessing more than 10% of the total combined voting
power of all shares of our stock may not be less than 110% of the fair market
value of the shares of our common stock on the date the incentive stock option
is granted. The term of an incentive stock option granted to a 10% stockholder
may not exceed five years from the date of grant.
The exercise price at which shares of our common stock may be purchased
must be paid in any one or a combination of cash, personal check, shares already
owned, or plan awards which the optionee has an immediate right to exercise.
Under the plan we have granted options to purchase 266,331 shares of
common stock at option prices of $1.80 per share and $3.60 per share. Included
are options granted to members of our board of directors and our executive
officers as noted above.
RESTRICTED STOCK AWARDS. The plan provides that restricted stock awards
under the plan will be in the form of shares of our common stock, restricted as
to transfer and subject to forfeiture. Restricted stock awards are evidenced by
restricted stock agreements in such form and consistent with the plan as the
compensation committee may approve. Restricted stock awards awarded under the
plan are subject to such terms, conditions, and restrictions (including
prohibitions against transfer, substantial risks of forfeiture, attainment of
performance objective, and repurchase or right of first refusal), and for such
period or periods as determined by the compensation committee at the time of
grant. The compensation committee has the power to permit, in its discretion, an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of the restricted stock awards awarded to a grantee.
The plan provides that restricted stock awards and the right to vote on
the underlying shares of our common stock and to receive dividends thereon, may
not be sold, assigned, transferred, exchanged, pledged, hypothecated, or
otherwise encumbered during the restriction period applicable to the shares,
except in the event of the death of the grantee or by will or the laws of
descent and distribution except for certain estate planning purposes, and except
pursuant to domestic relations orders. Subject to the foregoing, and except as
otherwise provided in the plan, the grantee has all other rights of a
stockholder including, but not limited to, the right to receive dividends and
the right to vote the shares.
The plan provides that in the event of a grantee's termination of
employment prior to the lapse of restrictions, all the shares subject to
restrictions are forfeited by the grantee without payment of any consideration
to the grantee. Neither the grantee nor any successors, heirs, assigns, or
personal representatives will thereafter have any further rights or interest in
such shares or certificates.
No restricted stock awards have been granted under the plan.
-43-
<PAGE>
STOCK APPRECIATION RIGHTS. Stock appreciation rights are rights
entitling the grantee to receive cash or shares of our common stock having a
fair market value equal to the appreciation in market value of a stated number
of shares from the date of grant, or in the case of rights granted in tandem
with or by reference to an option granted prior to the grant of such rights,
from the date of grant of the related option to the date of exercise. Stock
appreciation rights may be granted separately or in tandem with or by reference
to a related option. If granted in tandem, the grantee may elect to exercise
either the option or the stock appreciation right, but not both, as to the same
share subject to the option and stock appreciation right. The plan provides that
in the event of an independent grant, the stock appreciation right will be
subject to the terms and conditions determined by the compensation committee.
Stock appreciation rights may not be transferred, assigned, or encumbered,
except that stock appreciation rights may be exercised by the executor,
administrator, or personal representative of a deceased grantee within 12 months
of the death of the grantee.
The plan provides that upon exercise of a stock appreciation right, the
grantee will be paid the excess of the then fair market value of a number of
shares of our common stock to which the stock appreciation right relates over
the fair market value of such number of shares at the date of grant of the stock
appreciation right or of the related option.
No stock appreciation rights have been granted under the plan.
LIMITATION ON LIABILITY OF DIRECTORS
Our certificate of incorporation provides that our directors and
officers will be indemnified to the fullest extent allowed by the Delaware
General Corporation Law. Section 145 of the Delaware General Corporation Law
empowers us to indemnify our directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The Delaware General Corporation Law provides that the
indemnification permitted will not be deemed exclusive of any other rights to
which the directors and officers may be entitled under our bylaws or any
agreement, vote of stockholders, or otherwise.
The effect of the provision in our certificate of incorporation and the
Delaware General Corporation Law is to require us to the extent permitted by law
to indemnify our officers and directors for any claim arising against them in
their official capacities. In order to be indemnified, our officer or director
must have acted in good faith and in a manner that he or she reasonably believed
to be in or not opposed to our best interests, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Our bylaws also provide for this indemnification.
Our certificate of incorporation also eliminates the liability of
directors for monetary damages for breach of judiciary duties to the fullest
extent permitted by Delaware General Corporation Law. Section 102 of the
Delaware General Corporation Law does not limit liability for:
* any breach of our director's duty of loyalty to us or to our
stockholders;
-44-
<PAGE>
* acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
* unlawful payment of dividends or stock purchases or redemptions;
or
* any transaction from which our director derived an improper
personal benefit.
All of our directors and officers will be covered by insurance policies
against certain liabilities for actions taken in their capacities as directors
and officers.
To the extent that indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers, and
controlling person pursuant to our certificate of incorporation, bylaws,
Delaware law, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than our payment of expenses incurred or paid by a director,
officer, or controlling person, and the successful defense of any person, suit,
or proceeding) is asserted by a director, officer, or controlling person in
connection with the units, we will, unless in the opinion of our counsel the
matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The underwriters have agreed to indemnify us and our officers and
directors and each person, if any, who controls us within the meaning of the
Securities Act of 1933, against certain liabilities resulting from information
contained in the "Underwriting" section of this prospectus provided by the
underwriters.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
prospectus of ownership of our common stock by:
* any holder of more than five percent of the outstanding shares of
our common stock;
* each of our officers and directors; and
* our directors and officers as a group:
The table does not take into account any shares of our common stock
that will be issued if the class A common stock purchase warrants are exercised
or if the warrants issued to the managing underwriter are exercised. The table
assumes the officers, directors, and stockholders have exercised all options and
conversion rights they hold and the table includes shares beneficially held by
officers, directors, and 5% stockholders, as follows:
* The shares held by Michael Mellman, M.D., include 81,852 shares to
be issued if he exercises his options. The shares held by Marc R.
Silverman include 81,852 shares to be issued if he exercises his
options.
-45-
<PAGE>
* The shares held by Elliot Steinberg include 8,324 shares to be
issued if Mr. Steinberg exercises his options and 17,341 shares
owned by W.S. Ventures. Mr. Steinberg is the general partner of
W.S. Ventures.
* The shares held by Solomon A. Weisgal include 8,324 shares to be
issued if Mr. Weisgal exercises his options and 4,162 shares
issued to Mr. Weisgal as trustee of a trust. Mr. Weisgal has sole
voting and investment control of the shares held by him as
trustee, but he disclaims beneficial ownership.
* The shares held by Joshua S. Kanter include 16,648 shares to be
issued to Mr. Kanter if he exercises his options. The shares also
include 13,873 shares owned by the Kanter Family Foundation; 5,549
shares owned by Windy City, Inc.; and 27,747 shares owned by
Ulster Investments Limited. Mr. Kanter is a Vice President and
Director of the Kanter Family Foundation, a charitable foundation
established by Mr. Kanter's family. Sole voting and investment
control of the shares held by the Foundation is held by Mr.
Kanter's brother, Joel Kanter, the President of the Foundation.
Mr. Kanter is a Vice President of Windy City. Sole voting and
investment control of the shares held by Windy City is held by
Mr. Kanter's brother, Joel Kanter, the President of Windy City.
Ulster is a corporation owned by a trust established for the
benefit of various members of Mr. Kanter's family, excluding Mr.
Kanter's father, Burton Kanter. Joshua S. Kanter disclaims any and
all beneficial interest in the shares owned by the Foundation,
Windy City, or Ulster.
* The shares held by The Holding Company include 325,332 shares to
be issued if The Holding Company elects to convert its debt into
Common Stock. Sole voting and investment control of the shares
held by The Holding Company is held by Burton Kanter, the father
of Joshua S. Kanter.
* The shares held by Swiss American Bank are 242,785 shares to be
issued if Swiss American elects to convert its debt into Common
Stock.
-46-
<PAGE>
PERCENTAGE PERCENTAGE
SHARES (%) OF CLASS (%) OF CLASS
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------ ------------ ------------ ------------
Michael Mellman, M.D.
6654 Gunpark Drive
Suite 100
Boulder, Colorado 80111 220,476 10.1% 8.0%
Marc R. Silverman
6654 Gunpark Drive
Suite 100
Boulder, Colorado 80301 272,384 12.5% 9.8%
Elliot Steinberg
P.O. Box 3721
Telluride, Colorado 81435 25,665 1.2% 1.0%
Solomon A. Weisgal
120 South Riverside Dr.
Suite 1620
Chicago, Illinois 60606 12,486 0.6% 0.5%
Joshua S. Kanter
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606 69,366 3.3% 2.6%
All officers and directors (as
a group) 600,377 26.1% 20.8%
The Holding Company
Two North LaSalle Street
Chicago, Illinois 60602 1,406,075 58.0% 46.7%
Swiss American Bank
Redclife Street
St. Johns
Antigua, West Indies 242,785 10.4% 8.3%
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING THE PURCHASE OF ASSETS OF OUR PREDECESSOR COMPANY
When we purchased substantially all of the assets of our predecessor
company, we assumed most of our predecessor company's indebtedness. As a
condition to our purchase of the assets and the assumption of the liabilities,
many creditors of our predecessor company agreed to
-47-
<PAGE>
convert their indebtedness into shares of our common stock. The conversions
included the following:
* 1,080,743 shares were issued to The Holding Company for
cancellation of $1,618,750 of our predecessor company's debt. Of
the shares issued, 28,093 shares were issued at the rate of one
share of common stock for every $3.60 of debt cancelled and
1,052,650 shares were issued at the rate of one share of common
stock for every $1.44 of debt cancelled. The Holding Company is
one of our principal stockholders. Trusts for the benefit of
Burton Kanter's family control a majority of the outstanding
common stock of The Holding Company. Burton Kanter is the
President of The Holding Company. Burton Kanter is the father of
Joshua S. Kanter. Joshua S. Kanter is a Director and Secretary.
* 8,323 shares were issued to siblings of Joshua S. Kanter for
cancellation of our predecessor company's debt in the amount of
$30,000. One share of common stock was issued for every $3.60 of
debt cancelled.
* 13,873 shares were issued to the Kanter Family Foundation and
5,549 shares were issued to Windy City, Inc. for cancellation of
our predecessor company's debt in the amount of $70,000. Joshua
S. Kanter is Vice President and his brother is President of the
Foundation and Windy City. One share of common stock was issued
for every $3.60 of debt cancelled.
* 27,747 shares were issued to Ulster Investments for cancellation
of our predecessor company's debt in the amount of $100,000.
Ulster is beneficially owned by a trust. The beneficiaries of the
trust are members of the family of Burton Kanter (including
Joshua S. Kanter, but not including Burton Kanter). One share of
common stock was issued for every $3.60 of debt cancelled.
* 4,162 shares were issued to a trust for cancellation of our
predecessor company's debt in the amount of $15,000. Solomon A.
Weisgal, a Director, is trustee of the trust. One share of common
stock was issued for every $3.60 of debt cancelled.
* 138,624 shares were issued to our Chairman of the Board, Michael
Mellman, M.D. The shares were issued in cancellation of $124,901
of his salary that was not paid by our predecessor company. One
share of common stock was issued to Dr. Mellman for every $.90 of
deferred salary cancelled.
* 190,504 shares were issued to our President, Chief Executive
Officer, and a Director, Marc R. Silverman. The shares were
issued in cancellation of $171,645 of his deferred salary that
was not paid by our predecessor company. One share of common
stock was issued to Mr. Silverman for every $.90 of deferred
salary cancelled. These shares are in addition to the 27 shares
of our common stock we issued to Mr. Silverman when we initially
incorporated. The shares were also issued at a price of $.90 per
share.
-48-
<PAGE>
In addition, as a result of our assumption of certain of our
predecessor company's debt, The Holding Company became a lender to us with
outstanding indebtedness of $576,000. The loan bears interest at 10% per annum,
with all interest and principal due on December 31, 2000. The current balance is
$469,000. The Holding Company, as the holder of the indebtedness, has the option
to convert the loan into shares of our common stock on a basis of one share of
common stock for each $1.44 of debt (or 325,332 shares in the aggregate).
Prior to the foregoing transactions, on January 20, 1999, we agreed to
issue to W.S. Ventures 17,341 shares of common stock at a price of $.90 per
share. Elliott Steinberg, a Director, is the general partner of W.S. Ventures.
We made W.S. Ventures a 10-year non-recourse loan to finance the purchase. The
loan accrues interest, payable at maturity only, at a rate of 6% per annum. The
loan is secured by a pledge of the common stock purchased.
With respect to each of the foregoing transactions, we believe that the
terms of the transactions were as fair to us as could be obtained from an
unrelated third party. Future transactions with affiliates will be on terms no
less favorable than could be obtained from unaffiliated parties and will be
approved by a majority of the independent and disinterested members of our board
of directors.
OTHER RELATIONSHIPS AND TRANSACTIONS
In 1988 Systems Technology, Inc. licensed the Critical Tracking Task
technology to Performance Factors, Inc. On May 27, 1994 Performance Factors
merged into BioFactors, Inc. BioFactors is a subsidiary of NHancement
Technologies, Inc. On August 30, 1995, BioFactors sublicensed the Critical
Tracking Task to us. Various of our officers, directors, and significant
stockholders have or had relationships with Performance Factors, BioFactors, and
NHancement, as follows.
* Marc R. Silverman, our Chief Executive Officer and a Director, was
one of the founders of Performance Factors. From 1989 until 1993,
Mr. Silverman was the president and a director of Performance
Factors. Following the merger of Performance Factors into
BioFactors, Mr. Silverman was an officer of BioFactors from 1993
until September 1, 1995 and was a director until April 1995. Mr.
Silverman is a minority stockholder of NHancement, the parent of
BioFactors. Mr. Silverman is a founder of our predecessor company
and served as its chief executive officer, president, and chief
financial officer and as a director of our predecessor company.
* Burton Kanter is President of The Holding Company, one of our
principal stockholders. He served on the board of directors of
Performance Factors and has served on the board of directors of
NHancement. Burton Kanter is Chairman of the Board of Walnut
Capital Corp., an early-stage venture capital fund that has a
minority interest in NHancement. Joel Kanter is President of
Walnut Capital Corp. Joel Kanter and Joshua S. Kanter are sons of
Burton Kanter.
* Elliott Steinberg, one of our Directors, is the general partner
of W.S. Ventures. He has sole voting and investment control over
the shares of our common stock
-49-
<PAGE>
owned by W.S. Ventures. W.S. Ventures is a minority stockholder of
NHancement. Mr. Steinberg served on the board of directors of
Performance Factors and served on the board of directors of
NHancement until July 1996.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters voted upon by our common stockholders. Holders of our common stock are
entitled to receive ratably any common stock dividends declared by our board of
directors out of funds legally available for dividends. In the event we are
liquidated, dissolved, or wound-up, the holders of our common stock are entitled
to share ratably in any assets remaining after the payment of liabilities and
any distribution to holders of our preferred stock. Our common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock, and the shares of common stock to be
sold in this offering, are fully paid and non-assessable.
We are authorized to issue 14,000,000 shares of common stock, $.01 par
value. Upon completion of this offering, there will be a total of 2,684,788
shares of common stock issued and outstanding. Additionally, 1,170,000 shares
will be reserved to issue upon the exercise of the class A redeemable common
stock purchase warrants; 266,331 shares will be reserved to issue upon the
exercise of options; 568,117 shares will be reserved to issue upon conversion of
certain debt; and 175,500 shares will be reserved for issuance upon exercise of
certain warrants issued to the managing underwriter. We will have 9,135,264
shares of common stock available for issuance.
CLASS A COMMON STOCK PURCHASE CLASS A COMMON STOCK PURCHASE WARRANTS
The following is a brief summary of certain provisions of the class A
redeemable common stock purchase warrants. For the complete terms, you should
review the actual text of the class A redeemable common stock purchase warrant
certificates and agreement. The texts are contained in our registration
statement filed with the Securities and Exchange Commission.
EXERCISE PRICE AND TERMS. Each class A redeemable common stock purchase
warrant entitles you to purchase one share of common stock for $7.20 per share.
The exercise price is subject to adjustment as described below.
The class A redeemable common stock purchase warrants can only be
exercised from _________, 2000 through _________, 2002. They also cannot be
exercised until they are separated from the units. The class A redeemable common
stock purchase warrants will be separated on the close of business on
__________, 2000, unless the managing underwriter permits earlier separation.
The class A redeemable common stock purchase warrants are exercised by
surrender to our warrant agent, with the subscription form on the reverse side
of the certificate properly
-50-
<PAGE>
completed and signed, together with payment of the exercise price. The class A
redeemable common stock purchase warrants may be exercised for all shares or
only some shares.
The exercise price of the class A redeemable common stock purchase
warrants bears no relation to any objective criteria of value. You should not
consider the exercise price as an indication of the future market price of our
shares of common stock. We have reserved a sufficient number of shares of our
common stock to accommodate the exercise of all class A redeemable common stock
purchase warrants.
ADJUSTMENTS. The exercise price and the number of shares of our common
stock which may be purchased under a class A redeemable common stock purchase
warrant are subject to adjustment upon the occurrence of certain events. The
events include stock dividends, stock splits, stock combinations, and
reclassifications of our common stock. Also, in the event of a consolidation or
merger, or a sale of all or substantially all of our assets, the class A
redeemable common stock purchase warrants will be exercisable for the kind and
number of shares of stock or other securities or property which you would have
received had you exercised the class A redeemable common stock purchase warrant
before the consolidation, merger, or sale. No adjustment to the exercise price
or the number of shares will be made for dividends (other than stock dividends),
if any, paid on the common stock.
REDEMPTION. We may redeem the class A redeemable common stock purchase
warrants beginning 13 months after the date of this prospectus. We may only
redeem the class A redeemable common stock purchase warrants if the closing bid
quotation of our common stock is $10.80 or higher on 20 consecutive trading days
ending on the third day before the day we give notice of our redemption. If we
give you notice, you will have at least 30 days in which to exercise your class
A redeemable common stock purchase warrants. The price to redeem will be $.10
per class A redeemable common stock purchase warrant.
TRANSFER AND EXCHANGE. The class A redeemable common stock purchase
warrants will be registered in your name. If a market for the class A redeemable
common stock purchase warrants develops, you may sell the class A redeemable
common stock purchase warrants instead of exercising them. You cannot be
certain, however, that a market will develop or continue.
If we do not qualify the shares of our common stock underlying the
class A redeemable common stock purchase warrants for sale in the state in which
you reside, you will not be able to exercise the class A redeemable common stock
purchase warrants. You will have no choice but to sell the class A redeemable
common stock purchase warrants or allow them to expire.
WARRANT HOLDER NOT A SHAREHOLDER. The class A redeemable common stock
purchase warrants do not give you any voting or other rights as a shareholder.
PREFERRED STOCK
We are authorized to issue 1,000,000 shares of "blank check" Preferred
stock. "Blank check" preferred stock means our board of directors has the
authority, without any action by holders of common stock, to issue shares of
preferred stock in one or more series. When issuing preferred stock, our board
of directors may determine the designation, preferences, and relative
-51-
<PAGE>
participating, optional, or other special rights and the qualifications,
limitations, or restrictions applicable to the preferred stock. These include
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price, and liquidation preference of each series.
There are no shares of preferred stock issued and outstanding.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar and warrant agent is American Stock
Transfer & Trust Company. You may contact them at: 40 Wall Street, New York, New
York 10005, (212) 936-5100.
DELAWARE ANTI-TAKEOVER LAW
As a Delaware corporation, we are subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested person" from engaging in a "business combination" with us for three
years following the date the person became an interested person. In general, an
interested person is a person owning 15% or more of our common stock. Under
Section 203, we may, however, engage in a business combination with the
interested person in the following situations:
* before the person became an interested person, our board of
directors approved the transaction in which the person became an
interested person or approved the business combination;
* upon consummation of the transaction that resulted in the person
becoming an interested person, the person owned at least 85% of
our common stock at the time the transaction commenced (excluding
stock held by the directors who are also officers of the
corporation and by certain employee stock plans); or
* following the transaction in which the person became an interested
person, the business combination is approved by our board of
directors and is authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of our common stock
not owned by the interested person.
Under Section 203, the restrictions also do not apply to certain business
combinations proposed by an interested person following the public announcement
or notification of one of certain extraordinary transactions if:
* the transaction involves us and a person who was not an
interested person during the previous three years or who became
an interested person with the approval of our board of directors
and
* the business combination is approved by a majority of the members
of our board of directors who were directors prior to any person's
becoming an interested stockholder.
-52-
<PAGE>
The provisions of Section 203 requiring a super-majority vote to
approve certain corporate transactions could have the effect of discouraging,
delaying, or preventing hostile takeovers including those that might result in
the payment of a premium over the market price of our common stock or changes in
control or our management.
UNDERWRITING
GENERAL
The following underwriters are offering the units on a firm commitment
basis. Fairchild Financial Group, Inc. is the managing underwriter.
Underwriters Number of Units
- ------------ ---------------
Fairchild Financial Group, Inc.
Total 585,000
=======
The underwriters have agreed to purchase from us and we have agreed to
sell to the underwriters 585,000 units. The underwriting agreement, however,
provides that the obligations of the underwriters to purchase the units are
subject to certain conditions. The underwriting agreement also provides that the
underwriters are committed to purchase, and we are obligated to sell, all of the
units offered by this prospectus, if any of the units being sold pursuant to the
underwriting agreement are purchased (without consideration of any shares that
may be purchased through the exercise of the underwriters' over-allotment
option).
The underwriters have advised us that they propose to offer the units
to the public initially at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price, less a concession not
to exceed $____ per unit. The underwriters may allow, and the dealers may
reallow, a concession to other dealers not to exceed $_______ per unit. After
the initial public offering of the units, the public offering price, the
concessions to selected dealers, and the reallowance to other dealers may be
changed by the underwriters.
We have granted the underwriters an option, exercisable during the 45
day period after the date of this prospectus, to purchase up to an additional
87,750 units at the initial public offering price set forth on the cover page of
this prospectus, less underwriting discounts. The underwriters may exercise the
option only to cover over-allotments, if any, incurred in the sale of the units.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
thereof. The underwriters have informed us that they do not intend to confirm
sales to any account over which it exercises discretionary authority.
UNDERWRITER COMPENSATION; EXPENSES
-53-
<PAGE>
We have agreed that the underwriters will purchase the units at $6.00
per unit less a discount of 10% per unit.
We have agreed to pay to the underwriters a non-accountable expense
allowance of 3% of the aggregate of the public offering price of the units. None
of the expense allowance has been paid as of the date of this prospectus. We
also have agreed to pay all expenses in connection with qualifying the units and
our common stock and class A redeemable common stock purchase warrants for sale
under the laws of the states as the managing underwriter designates.
At the closing of this offering, we will enter into a financial
consulting agreement with the managing underwriter. For its consulting services,
the managing underwriter will be paid $100,000 at the closing of this offering.
We have agreed to sell to the managing underwriter, for a price of
$100, warrants to purchase 58,500 units. The managing underwriter's warrants to
purchase the units will be exercisable at a price of $9.90 per warrant. The
class A redeemable common stock purchase warrants included in the units will be
exercisable at the lower of 165% of the then effective exercise price of the
class A redeemable common stock purchase warrants or $11.88 per share of common
stock.
We will pay the managing underwriter ten percent of the exercise price
of each class A redeemable common stock purchase warrant that is exercised if
the following conditions are met:
* the market price of our common stock is greater than the exercise
price;
* a NASD member solicited the exercise;
* the class A redeemable common stock purchase warrant was not held
in a discretionary account;
* disclosure of this compensation arrangement is made at the time of
the solicitation and at the time of the exercise; and
* the solicitation did not violate Regulation M under the Securities
Act of 1933 or Rule 2710 of the NASD Rules of Conduct.
The managing underwriter may pay a portion of its ten percent fee to the NASD
member who solicited the exercise.
The managing underwriter will have the right to designate a non-voting
advisor to our board of directors for a period of five years after the date of
this prospectus.
STABILIZING TRANSACTIONS
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the market price of
our units, common stock, and class A
-54-
<PAGE>
redeemable common stock purchase warrants. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
pursuant to which the underwriters may bid for or purchase our units, common
stock, and class A redeemable common stock purchase warrants for the purpose of
stabilizing the market price. The underwriters also may create a short position
by selling more of our units, common stock and, class A redeemable common stock
purchase warrants in connection with this offering than it is committed to
purchase from us. In such case, the underwriters may purchase common stock in
the open market following completion of this offering to cover all or a portion
of such short position. The underwriters may also cover all or a portion of such
short position, up to 87,850 units, by exercising its over-allotment option
referred to above. In addition, the underwriters may impose "penalty bids" under
contractual arrangements with the underwriters whereby it may reclaim from an
underwriter (or dealer participating in this offering) for the account of the
other underwriters, the selling concession with respect to units that is
distributed in this offering but subsequently purchased for the account of the
underwriter in the open market. Any transactions described in this paragraph may
result in the maintenance of the price of our units, common stock, and/or class
A redeemable common stock purchase warrant at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
INVESTIGATION INVOLVING MANAGING UNDERWRITER
SEC INVESTIGATION INVOLVING MANAGING UNDERWRITER. The Securities and
Exchange Commission has issued a formal order directing a private investigation
by the staff of the SEC. The order empowers the SEC staff to investigate
whether, from June 1995 to the present, the managing underwriter and certain
other persons and/or entities may have engaged in fraudulent acts or practices
in connection with the purchase or sale of securities of certain other companies
in violation of Sections 10(b) and 15(c)(1) of the Securities Exchange Act of
1934 and Section 17(a) of the Securities Act of 1933. These acts or practices
include whether the managing underwriter and certain other brokers or dealers
effected transactions or induced transactions by making untrue statements of
material fact and whether the managing underwriter and certain others have
engaged in manipulative, deceptive, or other fraudulent devices. The order also
concerns whether the managing underwriter and certain others who have agreed to
participate in a distribution have violated Rule 10b-6 of the Exchange Act by
having bid for or purchased securities for accounts in which it had a beneficial
interest or which is the subject of such distribution. As of May 19, 1999, the
managing underwriter understands that the SEC investigation is ongoing. The
managing underwriter cannot predict whether this investigation will result in
any type of enforcement action against the managing underwriter. An enforcement
action by the SEC against the managing underwriter may have a material adverse
effect on its operations and could force the managing underwriter to cease its
business activities.
We have been advised that in the event a public market for our units,
common stock, and/or class A redeemable common stock purchase warrants should
develop after this offering, of which we can give you no assurance, the managing
underwriter intends to make a market in such securities in the over-the-counter
market. An unfavorable resolution of the SEC investigation concerning the sales
and trading activities and practices of the managing underwriter could have the
effect of limiting or curtailing the managing underwriter's ability to
-55-
<PAGE>
make a market in our securities in which case the market for and liquidity of
our securities may be adversely affected.
NASD ORDER AGAINST MANAGING UNDERWRITER. On February 20, 1998, the NASD
Department of Enforcement filed an administrative complaint against the managing
underwriter, a principal of the firm, and two traders from other broker-dealers.
The complaint alleges that the managing underwriter, acting through Edward S.
McCune its then President-Chief Executive Officer-Sole Owner, acquired and
distributed certain securities of another company as "statutory underwriters"
without registration under Section 5 of the Securities Act of 1933 representing
approximately 28% of the available float in the security in purported violation
of NASD Rule 2110 and failed to provide customers with an offering prospectus.
The complaint alleged that at the same time the managing underwriter and Mr.
McCune (i) entered into a consulting agreement with the issuer to arrange for
the sale of certain of its securities at a "designated price" slightly below the
market at the time; (ii) sold short to retail customers the issuer's securities
at prices substantially above the designated price; (iii) acquired from five
short term investors securities of the issuer to cover the managing
underwriter's large short inventory position in what had previously been an
inactive or thinly traded market for the issuer's securities; (iv) illegally bid
for, purchased, or induced others to purchase the issuer's securities in the
secondary market while a distribution was still in progress; and (v) continued
to make a market in the corporation's stock all in purported violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-6 thereunder
and NASD Rules 2110 and 2120. Moreover, the complaint alleges that the managing
underwriter and Mr. McCune caused the aforementioned alleged unregistered
distribution without filing the necessary documents with the NASD's Corporate
Financing Department and failed to disclose to customers alleged unfair,
excessive, and unreasonable compensation received from the distribution in
violation of NASD Rules 2110 and 2710. In addition, the complaint alleged that
the managing underwriter and Mr. McCune fraudulently manipulated the market for
the issuer's common stock by arbitrarily increasing the share price and by
artificially inflating the reported trade volume through "wash" and "matched" or
circular trading so as to create the appearance of an active market in the stock
in purported violation of Section 10(b) of the Securities Exchange Act and Rule
10b-5 thereunder and NASD Rules 2110 and 2120.
On November 19, 1998, the managing underwriter and Mr. McCune submitted
an Offer of Settlement to the NASD Department of Enforcement. On December 11,
1998, the NASD Department of Enforcement's Office of Hearing Officers issued an
Order of Acceptance of the Offer of Settlement. Under the terms of the Offer,
the managing underwriter and Mr. McCune consented solely for the purpose of that
proceeding, without admitting or denying the allegations of the complaint, to
the entry of findings of facts and violations consistent with the allegations of
the complaint and to the imposition of sanctions upon the understanding that the
Order of Acceptance would become part of their permanent disciplinary record and
could be considered in future actions brought by the NASD Department of
Enforcement. In its Order of Acceptance, the NASD Department of Enforcement made
findings that the managing underwriter and Mr. McCune violated Section 10(b) of
the Exchange Act and Rules 10b-5 and 10b-6 thereunder and NASD Conduct Rules
2110, 2120, and 2710 and ordered that the managing underwriter and Mr. McCune be
sanctioned as follows: the managing underwriter was censured, required to pay
restitution/disgorgement to customers in the total amount (including interest)
of $300,000 and
-56-
<PAGE>
fined $100,000 jointly and severally with Mr. McCune; Mr. McCune was also
censured and suspended for eight months from associating with any NASD member
firm.
In a related matter, on or about October 12, 1998, the NASD Department
of Enforcement accepted a letter of Acceptance, Waiver and Consent from the
respondent's trader (David W. Noble) pursuant to which Mr. Noble, without
admitting or denying the alleged violations, consented to findings that during
the period April 19, 1995 through April 24, 1995, Mr. Noble aided and abetted
the managing underwriter and Mr. McCune and in so doing violated NASD Conduct
Rules 2110, 2120, and 3110 and Sections 10(b) and 17(a) of the Securities
Exchange Act and Rules 10b-5 and 17a-3 thereunder. Mr. Noble also consented to a
censure, a 15 business day suspension, and a $10,000 fine.
STATE OF FLORIDA--ADMINISTRATIVE PROCEEDING AGAINST FAIRCHILD FINANCIAL
GROUP, INC. On April 3, 1999, the State of Florida, Department of Banking and
Finance filed an administrative complaint against the managing underwriter,
Edward J. McCune (former President-Chief Executive Officer of the managing
underwriter), and three of its brokers. The Department of Banking and Finance
set forth in its complaint allegations of misconduct and conclusions of law
which in summary state that as a matter of law that: (i) by using sales scripts,
the managing underwriter allowed one of the brokers to make false, misleading,
or unwarranted statements and to omit material facts in the sale or offer of
securities; (ii) said sales scripts contained misrepresentations and baseless
price predictions and that a broker violated rules and regulations which
requires each member to deal fairly with the public; (iii) the use of sales
scripts that were not reviewed or approved by the managing underwriter's
Compliance Department as required by its compliance manual caused the violations
by the managing underwriter of various rules and regulations; (iv) the managing
underwriter in not preventing the use of misleading and false sales scripts by
its registered associated persons as required by its compliance manual
constituted violations; (v) the managing underwriter is responsible for the acts
of Mr. McCune and the three brokers; (vi) one of the three brokers is
responsible for the acts of two other brokers as they were his registered
associated persons; (vii) the managing underwriter allowed one of its brokers to
engage in duties that NASD registration rules and the managing underwriter's
supervisory manual define as principal, supervisory, or managerial activities in
contravention of one of the broker's registration agreement with the Department
of Banking and Finance; (viii) the managing underwriter and one of its branch
managers failed to properly supervise a registered representative; and (ix) the
managing underwriter, Mr. McCune, and the three brokers violated sections of the
Florida statutes and the rules and regulations of the NASD by engaging in and
permitting violations of such laws. The complaint alleges that such conduct
demonstrated the managing underwriter's unworthiness to conduct a securities
business and subjects it to the administrative penalties set forth in the
Florida statutes. Based upon the foregoing, the Department of Banking and
Finance is seeking to enter a final order which will (a) impose on the managing
underwriter, Mr. McCune, and the three brokers one or more of the administrative
penalties authorized by Sections 517.161 and 517.221 of the Florida Securities
and Investor Protection Act, including but not limited to, the revocation,
suspension, or denial of any and all registrations, and the imposition of fines
of up to $5,000 per violation; and (b) order the managing underwriter and Mr.
McCune to cease and desist from violations of Chapter 517 of the Florida
Statutes, and the Rules promulgated thereunder. The managing underwriter intends
to vigorously contest these allegations and conclusions of law. No assurance can
be given that the managing underwriter will be successful. An adverse result
could severely impact the
-57-
<PAGE>
managing underwriter's ability to do business in the State of Florida and
possibly in other states and could materially adversely effect the managing
underwriter's operations.
MARKET FOR SHARES
MARKET FOR SHARES
We will apply to list the common stock and class A redeemable common
stock purchase warrants on the Boston Stock Exchange under the trading symbol
"___" and on the NASDAQ SmallCap(SM) Market under the trading symbol "________."
No established trading market for the units exists at this time, and a
trading market may not develop or be sustained in the future. You should
consider purchasing the units only as a long-term investment. You may not be
able to promptly liquidate your investment at a reasonable price, or for any
price, in the event of a personal financial emergency or otherwise.
MARKET FOR COMMON STOCK AND SHARES ELIGIBLE FOR FUTURE SALE
No public market currently exists for our common stock. Currently there
are 2,099,788 shares of our common stock outstanding held by 83 record holders.
Upon completion of this offering, 2,684,788 shares of common stock will be
outstanding. All of the 585,000 shares purchased in this offering will be freely
tradable without registration or other restriction under the Securities Act of
1933, except for any shares beneficially owned by our affiliates. Also, any
shares purchased by the managing underwriter upon exercise of the managing
underwriter's warrants will be registered. All of the remaining shares of common
stock outstanding are restricted shares which may be sold only pursuant to an
effective registration statement or pursuant to an applicable exemption,
including an exemption under Rule 144 under the Securities Act of 1933. In this
regard, holders of 414,508 shares of common stock have registration rights
pursuant to a registration rights agreement. Under the agreement we have granted
to the holders the right to "piggy-back" registration other than in this
offering.
In general, Rule 144 provides that if a person (including an affiliate)
holds restricted shares (regardless of whether the person is the initial holder
or a subsequent holder of such shares), and if at least one year has elapsed
since the later of the date on which the restricted shares were issued or the
date that they were acquired from an affiliate, then the person is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume of such stock during the four calendar weeks preceding the
sale. After the restricted shares are held for two years by a person who is not
deemed an "affiliate," the holder is entitled to sell such shares under Rule 144
without regard to the volume limitations described above. Approximately 696,272
of the currently outstanding shares of common stock will be eligible for resale
pursuant to Rule 144 on March 2, 2000, an additional 276,201 shares on April 15,
2000, and an additional 36,761 on April 30, 2000.
In addition to the outstanding shares of our common stock, we will
issue additional shares upon the exercise of the class A redeemable common stock
purchase warrants, the exercise of the managing underwriter warrants, and the
exercise of the options and upon the conversion of our debt. Any exercise or
conversion could impact the market price of our common stock and class A
redeemable common stock purchase warrants.
-58-
<PAGE>
The effect, if any, that future market sales of shares or the
availability of shares for sale will have on the prevailing market prices for
our common stock cannot be predicted. Nevertheless, sales of a substantial
number of shares in the public market could adversely affect prevailing market
prices for the common stock.
We cannot assure you that transactions in units or in our common stock
or class A redeemable common stock purchase warrants following this offering can
be effected at or above the offering price. You should not deem the offering
price to reflect the market value of the units or of our common stock or class A
redeemable common stock purchase warrants. The offering price for the units was
arbitrarily determined by negotiation with the underwriters. The offering price
is not related to our assets or book value or other accepted methods of valuing
a business. Since the price has been determined in this manner and not by the
market, the price at which the units trade after this offering may decrease.
If a trading market does develop for our units, common stock, or class
A redeemable common stock purchase warrants, there may be wide fluctuations in
the price of our securities. These fluctuations may be caused by several factors
including:
* variations in operating results;
* changes in market valuation of companies in our industry
generally;
* announcements of technological innovations by our competitors; and
* other announcements by us, our competitors, or third parties.
If our common stock and class A redeemable common stock purchase
warrants are not listed on NASDAQ SmallCap(SM) Market or the Boston Stock
Exchange, there will be less interest in the market place for our securities.
This may result in lower prices for our securities and make it more difficult
for you to sell your common stock, class A redeemable common stock purchase
warrants, or units. We will apply for listing on NASDAQ SmallCap(SM) Market and
the Boston Stock Exchange on the date of this prospectus. We cannot guarantee
that our listing application will be approved. Even if our securities are
approved for listing, we must continue to meet certain maintenance requirements
in order for our securities to continue to be listed on NASDAQ SmallCap(SM)
Market or the Boston Stock Exchange. We may not be able to continue to meet such
requirements.
PENNY STOCK REGULATIONS
If we are not able to list or maintain the listing of our common stock
or the class A redeemable common stock purchase warrants on NASDAQ SmallCap(SM)
Market or the Boston Stock Exchange and a trading market develops for our common
stock or class A redeemable common stock purchase warrants, it is likely that
trading in the common stock or the class A redeemable common stock purchase
warrants will be subject to the requirements of certain rules promulgated under
the Securities Exchange Act of 1934. The rules require additional disclosure by
broker-dealers in any trades involving a stock defined as a penny stock. Penny
stock is generally any equity security not listed on an exchange or NASDAQ that
has a market price of less than $5.00 per share, subject to certain exceptions.
The rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks
-59-
<PAGE>
associated with the penny stock. The rules impose various restrictions on sales
practices by broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written consent to the transaction prior
to sale. The additional burdens imposed upon broker-dealers by the requirements
may discourage them from effecting transactions in our common stock or our class
A common stock purchase warrants and may adversely affect your ability to sell
our common stock or our class A common stock purchase warrants in any secondary
market, if one were to develop.
LEGAL MATTERS
Doerner, Saunders, Daniel & Anderson, L.L.P., Tulsa, Oklahoma will
render an opinion that the units, including the common stock and class A
redeemable common stock purchase warrants, are validly issued. Certain legal
matters in connection with the units will be passed on for the underwriters by
Lester Morse P.C., Great Neck, New York.
EXPERTS
Our financial statements at April 30, 1999, and the pro forma
statements at March 1, 1999, December 31, 1998, and December 31, 1997, appearing
in this prospectus have been audited by Morrison, Brown, Argiz & Co.,
independent auditors, as set forth in their report on the financial statements
appearing elsewhere in this prospectus. The financial statements are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
-60-
<PAGE>
SportsTrac Systems, Inc.
(A Development Stage Company)
Financial Statements
April 30, 1999, March 1, 1999,
December 31, 1998 and 1997
-F1-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................F3 - F4
FINANCIAL STATEMENTS:
BALANCE SHEETS.............................................................F5
STATEMENTS OF OPERATIONS...................................................F6
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)...............................F7
STATEMENTS OF CASH FLOWS..............................................F8 - F9
NOTES TO FINANCIAL STATEMENTS........................................F10 - F25
-F2-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
SportsTrac Systems, Inc.
We have audited the accompanying balance sheet of SportsTrac Systems, Inc. (A
Development Stage Company) as of April 30, 1999, and the related statements of
operations, stockholders' equity and cash flows for the period from March 2,
1999 through April 30, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SportsTrac Systems, Inc. at
April 30, 1999, and the results of its operations and its cash flows for the
period from March 2, 1999 through April 30, 1999 in conformity with generally
accepted accounting principles.
The Company is in the development stage as of April 30, 1999. As discussed in
NOTE 2A to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including maintaining adequate financing to
fulfill its development activities and achieving a level of sales adequate to
support the Company's cost structure.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
Miami, Florida
May 14, 1999
-F3-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
SportsTrac Systems, Inc.
We have examined the pro-forma adjustments reflecting the transaction described
in Note 1 and the application of those adjustments to the historical amounts in
the assembly of the accompanying pro-forma condensed balance sheets of
SportsTrac Systems, Inc. (A Development Stage Company) as of March 1, 1999,
December 31, 1998 and 1997, and the pro-forma condensed statements of
operations, stockholders' deficit and cash flows for the period January 1, 1999
through March 1, 1999 and the years ended December 31, 1998 and 1997. The
historical condensed financial statements are derived from the historical
financial statements of SportsTrac Systems, Inc., which were audited by us. Our
examination was made in accordance with standards established by the American
Institute of Certified Public Accountants and, accordingly, included such
procedures as we considered necessary in the circumstances.
The objective of this pro-forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction occurred at an earlier date. However, the pro-forma condensed
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transaction actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transaction described in Note 1, the related pro-forma adjustments give
appropriate effect to those assumptions, and the pro-forma columns reflect the
proper application of those adjustments to the historical financial statement
amounts in the pro-forma condensed balance sheets as of March 1, 1999, December
31, 1998 and 1997, and the pro-forma condensed statements of operations,
stockholders' deficit and cash flows for the period January 1, 1999 through
March 1, 1999 and the years ended December 31, 1998 and 1997.
MORRISON, BROWN, ARGIZ & COMPANY
Certified Public Accountants
Miami, Florida
May 14, 1999
-F4-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 810,611 $ 20,829 $ 35,846 $ 90,850
Accounts receivable -- 42,680 17,000 --
Stock subscription receivable 107,976 -- -- --
-------------- -------------- -------------- --------------
TOTAL CURRENT ASSETS 918,587 63,509 52,846 90,850
LICENSED TECHNOLOGY, net 1,965,812 619,706 630,106 696,295
PROPERTY AND EQUIPMENT, net 65,914 62,527 60,515 53,749
OTHER ASSETS 1,353 9,788 8,232 5,379
-------------- -------------- -------------- --------------
TOTAL ASSETS $ 2,951,666 $ 755,530 $ 751,699 $ 846,273
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bridge notes payable $ -- $ 2,763,500 $ 2,656,500 $ 1,907,000
Accounts payable and accrued expenses 154,848 973,599 907,781 542,796
-------------- -------------- -------------- --------------
TOTAL CURRENT LIABILITIES 154,848 3,737,099 3,564,281 2,449,796
-------------- -------------- -------------- --------------
LONG-TERM DEBT 819,000 -- -- --
-------------- -------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, par value $.01;
1,000,000 shares authorized; none
issued or outstanding -- -- -- --
Common stock, par value $.01;
14,000,000 shares authorized;
7,567,784 shares issued and
outstanding at April 30, 1999;
2,916,000 shares issued and
outstanding at March 1, 1999,
December 31, 1998 and 1997 75,678 29,160 29,160 29,160
Additional paid in capital 2,238,734 1,416,340 1,416,340 1,416,340
Stock subscription receivable (116,875) -- -- --
Deficit accumulated during the
development stage (219,719) (4,427,069) (4,258,082) (3,049,023)
-------------- -------------- -------------- --------------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 1,977,818 (2,981,569) (2,812,582) (1,603,523)
-------------- -------------- -------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,951,666 $ 755,530 $ 751,699 $ 846,273
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F5-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE PERIODS
<TABLE>
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) January 1, 1998 January 1, 1997
March 2, 1999 January 1, 1999 Through Through
Through Through December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ -- $ 42,956 $ 72,500 $ --
--------------- --------------- --------------- ---------------
EXPENSES
General and administrative 154,798 153,245 931,451 756,869
Interest 28,595 44,500 265,929 209,009
Depreciation and amortization 37,987 14,198 84,179 78,098
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 221,380 211,943 1,281,559 1,043,976
--------------- --------------- --------------- ---------------
OTHER INCOME
Other 1,661 -- -- --
Estimated expenses previously
accrued but not incurred -- -- -- 180,967
--------------- --------------- --------------- ---------------
NET LOSS $ (219,719) $ (168,987) $ (1,209,059) $ (863,009)
=============== =============== =============== ===============
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (.03) $ (.06) $ (.41) $ (.30)
=============== =============== =============== ===============
SHARES USED IN THE CALCULATION
OF BASIC AND DILUTED NET LOSS
PER SHARE 7,567,784 2,916,000 2,916,000 2,916,000
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F6-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED APRIL 30, 1999, MARCH 1, 1999, DECEMBER 31, 1998
AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional Stock During the
------------------- ------------------------ Paid-in Subscription Development
Shares Amount Shares Amount Capital Receivable Stage Total
-------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances - January 1, 1997
(PRO-FORMA) -- $ -- 2,904,000 $ 29,040 $ 1,413,960 $ -- $(2,186,014) $ (743,014)
Exercise of options for cash
(PRO-FORMA) -- -- 12,000 120 2,380 -- -- 2,500
Net loss (PRO-FORMA) -- -- -- -- -- -- (863,009) (863,009)
-------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Balances - December 31, 1997
(PRO-FORMA) -- -- 2,916,000 29,160 1,416,340 -- (3,049,023) (1,603,523)
Net loss (PRO-FORMA) -- -- -- -- -- -- (1,209,059) (1,209,059)
-------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Balances - December 31, 1998
(PRO-FORMA) -- -- 2,916,000 29,160 1,416,340 -- (4,258,082) (2,812,582)
Net loss through March 1, 1999
(PRO-FORMA) -- -- -- -- -- -- (168,987) (168,987)
-------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Balances - March 1, 1999
(PRO-FORMA) -- -- 2,916,000 29,160 1,416,340 -- (4,427,069) (2,981,569)
Retirement of common stock in
connection with acquisition of
Old SportsTrac, Inc. (PRO-FORMA) -- -- (2,916,000) (29,160) (1,416,340) -- 4,427,069 2,981,569
Issuance of common stock in
connection with acquisition of
Old SportsTrac, Inc. -- -- 6,073,784 60,738 759,674 (116,875) -- 703,537
Issuance of common stock in
connection with private
placement -- -- 1,494,000 14,940 1,479,060 -- -- 1,494,000
Net loss -- -- -- -- -- -- (219,719) (219,719)
-------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Balances - April 30, 1999 -- $ -- 7,567,784 $ 75,678 $ 2,238,734 $ (116,875) $ (219,719) $ 1,977,818
======== ========= ========= =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F7-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE PERIODS
<TABLE>
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) January 1, 1998 January 1, 1997
March 2, 1999 January 1, 1999 Through Through
Through Through December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (219,719) $ (168,987) $ (1,209,059) $ (863,009)
--------------- --------------- --------------- ---------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 37,987 14,198 84,179 78,098
Change in operating assets and liabilities:
Accounts receivable 42,680 (25,680) (17,000) 10,000
Other assets -- (1,556) (2,853) (3,268)
Accounts payable and accrued expenses (24,722) 65,818 364,985 76,017
Deferred revenues -- -- -- (20,000)
--------------- --------------- --------------- ---------------
TOTAL ADJUSTMENTS 55,945 52,780 429,311 140,847
--------------- --------------- --------------- ---------------
NET CASH USED IN
OPERATING ACTIVITIES (163,774) (116,207) (779,748) (722,162)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (7,186) (5,810) (24,756) (25,420)
--------------- --------------- --------------- ---------------
NET CASH USED IN
INVESTING ACTIVITIES (7,186) (5,810) (24,756) (25,420)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bridge notes payable -- 107,000 749,500 787,000
Repayment of bridge notes payable (107,000) -- -- --
Increase in stock issue costs (318,282) -- -- --
Proceeds from issuance of common stock 1,386,024 -- -- 2,500
Decrease in deferred offering costs -- -- -- 25,000
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 960,742 107,000 749,500 814,500
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 789,782 (15,017) (55,004) 66,918
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 20,829 35,846 90,850 23,932
--------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 810,611 $ 20,829 $ 35,846 $ 90,850
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F8-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE PERIODS
<TABLE>
<CAPTION>
(PRO-FORMA) (PRO-FORMA)
(PRO-FORMA) January 1, 1998 January 1, 1997
March 2, 1999 January 1, 1999 Through Through
Through Through December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
ACTIVITIES:
As a result of an asset purchase agreement
the Company acquired assets and incurred
liabilities as follows:
Cash $ 20,829 $ -- $ -- $ --
Accounts receivable 42,680 -- -- --
Property and equipment 62,527 -- -- --
Licensed technology 2,000,000 -- -- --
Other assets 1,353 -- -- --
Bridge notes payable (2,763,500) -- -- --
Accounts payable and accrued liabilities (1,047,343) -- -- --
Stockholders' deficit 1,688,454 -- -- --
--------------- --------------- --------------- ---------------
Cash required upon acquisition $ 5,000 $ -- $ -- $ --
=============== =============== =============== ===============
Conversion of accrued salaries, assumed
as a result of the asset purchase
agreement, into shares of common stock $ 296,546 $ -- $ -- $ --
=============== =============== =============== ===============
Conversion of debt, assumed as a result
of the asset purchase agreement, into
shares of common stock $ 1,837,500 $ -- $ -- $ --
=============== =============== =============== ===============
Conversion of accrued interest, assumed
as a result of the asset purchase agreement,
into additional paid in capital $ 576,227 $ -- $ -- $ --
=============== =============== =============== ===============
Issuance of shares of common stock
through stock subscription receivable $ 224,851 $ -- $ -- $ --
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F9-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND ORGANIZATION
SportsTrac Systems, Inc. (the "Company") is a Delaware Corporation
which was formed on June 15, 1998. The Company entered into an Asset
Purchase Agreement dated as of March 2, 1999 (the "Asset Purchase
Agreement") to purchase substantially all of the assets, and assume
certain liabilities of SportsTrac, Inc. a Delaware corporation ("Old
SportsTrac") (NOTE 2L). The Company was dormant from its formation
through March 2, 1999.
Old SportsTrac was formed on April 25, 1995 to develop and market
products designed to enhance and monitor athletic performance.
Subsequent to its formation, Old SportsTrac entered into a sublicense
agreement providing it with the exclusive right to manufacture and
market a hand-eye coordination device (the "SportsTrac System") with
sports related and sports entertainment applications. The SportsTrac
System is a performance evaluation tool that can measure a person's
hand-eye coordination and chart day-to-day variations in performance.
All of Old SportsTrac's rights to the SportsTrac System, including the
trademark, were transferred to the Company pursuant to the Asset
Purchase Agreement.
The SportsTrac System, as developed by Old SportsTrac, applies
advanced, proprietary computer technology, which enables athletes to
monitor and enhance their athletic performance. The SportsTrac System
measures both the physical and mental readiness of an athlete, enabling
athletes to identify problem areas, determine the causes, and take
appropriate action. By helping athletes understand the root causes of
such problems, the SportsTrac System allows them to train themselves
and make modifications to keep their performance at the highest
possible levels.
The SportsTrac System is currently in use by many professional and
elite athletes. Upon consummation of an initial public offering of
securities ("Offering") and the transactions contemplated by the Asset
Purchase Agreement, the Company will commence marketing adaptations of
the same technology in the form of a monitoring system for amateur
sports organizations and in the form of consumer-level health and
fitness products for golfers and other recreational sports enthusiasts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The Company is a development stage company engaged in the
discovery and development of technology solutions that enable
athletes to achieve and maintain peak levels of performance.
Upon completion of product development, it intends to
manufacture and market products developed through its research
programs. Since the acquisition of Old SportsTrac, the Company
has been primarily engaged in research and development.
-F10-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(A) BASIS OF PRESENTATION (CONTINUED)
In the course of its development activities, the Company has
sustained continuing operating losses and expects such losses
to continue for the foreseeable future. The Company plans to
continue to finance its operations with a combination of stock
sales, payments from strategic partnerships and licensing of
certain technology, and, in the longer term, revenues from
product sales. The Company's ability to continue as a going
concern is dependent upon successful completion of additional
financings and, ultimately, upon achieving profitable
operations.
PRO-FORMA INFORMATION
The accompanying financial statements and related notes
reflect the carve-out historical results of operations, cash
flows and balance sheets of Old SportsTrac.
The information presented for periods prior to the date of
acquisition, March 2, 1999, (NOTE 1 and 2L) is reflected on a
pro-forma basis.
(B) BUSINESS OPERATIONS
The Company is newly formed and has no operating history. The
Company acquired substantially all of the business of Old
SportsTrac. For the period April 25, 1995 (inception) to March
1, 1999, Old SportsTrac had aggregate net losses accumulated
during the development stage of $4,427,069. There can be no
assurance that the Company, as the new owner of Old
SportsTrac's business, will be able to operate profitably. The
Company has long-term indebtedness of $819,000, due December
31, 2000, and absent the ability to generate significant
profits, has no known source of repayment. The Company will be
subject to many business risks which include, but are not
limited to, unforeseen marketing and promotional expenses,
unforeseen negative publicity, competition, and lack of
operating experience. Many of the risks may be unforeseeable
or beyond the control of the Company. There is no assurance
that the Company will successfully implement its business plan
in a timely or effective manner, or that management of the
Company will be able to market and sell enough products to
generate sufficient revenues and continue as a going concern.
There is no assurance that the Company will not incur net
losses in the future or that it will be able to operate
profitably.
-F11-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management 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 periods. Actual results could differ from
those estimates.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as financial instruments
with maturities of three months or less. As a result, the
recorded amounts approximate their fair value.
(E) ACCOUNTS RECEIVABLE
Accounts receivable mainly consists of product sales
receivables.
No allowance was deemed necessary as of the date of the
financial statements.
(F) DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the respective assets (5 years).
Amortization of licensed technology is computed using the
straight-line method over the contractual period of the
license (13 years).
(G) OTHER INCOME
During 1996, Old SportsTrac intended to file a registration
statement on Form SB-2 in connection with a proposed public
offering of securities. As a result, various expenses relating
to the proposed public offering were accrued by Old
SportsTrac. The proposed public offering did not subsequently
occur. As a result, the expenses previously accrued, amounting
to approximately $181,000, were reversed and recorded during
1997 as "estimated expenses previously accrued and not
incurred".
-F12-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) INCOME TAXES
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis
of assets and liabilities using currently enacted tax rates in
effect for the years in which the differences are expected to
reverse.
(I) EARNINGS PER SHARE
Earnings per share is determined in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". This statement establishes standards for computing
and presenting earnings per share ("EPS"). It replaces the
presentation of primary EPS with a presentation of basic EPS.
This statement requires restatement of all prior-period EPS
data presented.
The net income (loss) per share is computed by dividing the
net income or loss for the period by the weighted average
number of shares outstanding (as adjusted retroactively for
the dilutive effect of common stock options) for the period
plus the dilutive effect of outstanding common stock options
and warrants considered to be common stock equivalents. Stock
options and other common stock equivalents are excluded from
the calculations as their effect would be anti-dilutive.
Basic and diluted earnings per share amounts are equal because
the Company has a net loss and consideration of the redeemable
preferred stock, outstanding options, warrants and their
equivalents would result in anti-dilutive effects to earnings
per share.
The weighted average number of shares used to compute EPS was
7,567,784 for the period ended April 30, 1999 and 2,916,000
for the periods ended March 1, 1999, December 31, 1998 and
1997.
-F13-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" for the
periods presented. Comprehensive income is defined as "the
change in equity of a business enterprise during a period
resulting from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners". Comprehensive income
includes net income as well as other comprehensive income.
Other comprehensive income refers to revenues, expenses, gains
and losses that under generally accepted accounting principles
are included in comprehensive income but excluded from net
income. For the periods presented, the Company had no items of
other comprehensive income.
(K) LICENSED TECHNOLOGY
The balance sheets reflect a value which has been attributed
to certain intellectual property, including patent rights and
other technology. Such value reflects the appraised value of
the licensed technology (Note 3). It is unlikely that the
Company would be able to sell such intellectual property in a
liquidation for more than a fraction of such estimated value.
(L) ASSET PURCHASE AGREEMENT
The Company entered into an Asset Purchase Agreement to
purchase substantially all of the assets of Old SportsTrac in
exchange for a cash payment of $5,000 and assumption of
approximately $3,800,000 in certain liabilities of Old
SportsTrac. At the closing, the Company acquired all of Old
SportsTrac's rights to the SportsTrac System, rights under a
sublicense and related agreements and the Old SportsTrac
trademark, together with all of the inventory, furniture,
fixtures, and equipment owned by Old SportsTrac. The
liabilities of Old SportsTrac, which the Company assumed under
the Asset Purchase Agreement, included obligations to pay
future licensing fees under the sublicense, obligations to pay
rent under Old SportsTrac's lease, and approximately
$3,800,000 in certain accounts payable and bridge financing.
The Company hired all of Old SportsTrac's employees
immediately following the closing. It was a condition to the
closing under the Asset Purchase Agreement that certain
creditors of Old SportsTrac, the liabilities of which the
Company assumed, agree to accept between one and four shares
per dollar of the Company's common stock in full payment.
-F14-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) ASSET PURCHASE AGREEMENT (CONTINUED)
As a result of this transaction, there remained various unpaid
creditors of Old SportsTrac. At the time of the asset
purchase, Old SportsTrac was insolvent. Any unpaid creditor of
Old SportsTrac may claim the asset purchase was a fraudulent
conveyance (NOTE 10). Among these unpaid creditors, there
exist holders of $80,000 of the original bridge financing who
did not exchange their indebtedness for the Company's common
stock. Consequently, these notes were excluded from the
Company's asset purchase on March 2, 1999 and remained a
liability of Old SportsTrac. These notes are in default and
the debt holders have demanded payment of all principal and
accrued interest at the default rate of 16% as stated in the
loan documents.
The acquisition was accounted for at fair value, in accordance
with the provisions of Accounting Principles Board Opinion No.
16 "Business Combinations".
(M) YEAR 2000 SYSTEMS COSTS
The Company utilizes software and related technologies
throughout its businesses that will be affected by the date
change in the year 2000. The Company is in the process of
evaluating the full scope and related costs to insure that the
Company's systems continue to meet its internal needs and
those of its customers. Anticipated costs for system
modifications will be expensed as incurred and are not
expected to have a material impact on the Company's results of
operations. However, the Company cannot measure the impact
that the Year 2000 issue will have on its vendors, suppliers,
customers and other parties with whom it conducts business.
(N) INCENTIVE STOCK OPTIONS
The Company adopted an incentive stock plan (the "Plan"). The
purpose of the Plan will be to provide a means whereby key
individuals providing services to the Company may sustain a
sense of proprietorship and personal involvement in the
continued development and financial success of the Company and
to encourage them to remain with and devote their best efforts
to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Under the Plan,
certain directors, officers, employees and consultants will be
eligible to acquire common stock of the Company or otherwise
participate in the financial success of the Company. The Plan
is expected to provide flexibility to the Company's
compensation methods, after giving due consideration to
competitive conditions and the impact of the federal tax laws.
-F15-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) INCENTIVE STOCK OPTIONS (CONTINUED)
The maximum aggregate number of the Company's common stock
that may be awarded to individuals under the Plan is 1,000,000
shares. Any shares that remain unissued at the termination of
the Plan will cease to be subject to the Plan, but until
termination of the Plan, the Company will reserve sufficient
shares to meet the requirements of the Plan. The aggregate
number of shares of the Company's common stock which may be
awarded under the Plan will be adjusted to reflect any change
in capitalization, such as a stock dividend or stock split.
The Plan is administered by the entire board of directors. The
Company's board of directors selects the individuals to whom
awards will be made and establishes the amount of the award
for each individual.
(O) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash
deposits in excess of the FDIC-insured limits. The Company
generally limits its exposure by placing its deposits with
high credit quality financial institutions. At times, such
balances may be in excess of the federally insured limit of
$100,000.
NOTE 3 - LICENSED TECHNOLOGY
In August 1995, Old SportsTrac entered into a thirteen year exclusive
and world-wide sublicensing agreement with Biofactors, Inc. (NOTE 10)
for the rights to manufacture and market a hand-eye coordination device
with sports related and sports entertainment applications for an
aggregate price of $1,000,000. Certain of the Company's stockholders
are also minority stockholders of NHancement Technologies, Inc. (NOTE
10). The consideration consisted of a down payment of $300,000 and the
issuance of a non-interest bearing $700,000 note as well as the
issuance of warrants to purchase 180,000 shares of the Old SportsTrac's
common stock at an exercise price of $4.17 per share. These warrants
were subsequently assigned and issued to related parties of the
Company.
In accordance with Accounting Principles Board Opinion No. 21,
"Interest on Receivable and Payables," the $700,000 note was discounted
to reflect its present value of $640,460 on September 1, 1995,
utilizing an imputed rate of 12%.
During 1996, Old SportsTrac repaid the $700,000 from the proceeds
received in a bridge financing (NOTE 8). In addition, the licensor is
entitled to a royalty equal to 8.50% of the cash receipts from the sale
of products or services containing the licensed technology, excluding
any revenue from installation, maintenance, consulting or other cash
receipts not directly or indirectly related to such technology.
-F16-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LICENSED TECHNOLOGY (CONTINUED)
In conjunction with the Asset Purchase Agreement, the Company engaged
the services of a third party to perform an independent valuation of
the licensed technology. As a result, the licensed technology was
valued at $2,000,000 and will be amortized over the remaining life of
the sublicensing agreement, approximately 13 years (10 years
remaining).
Amortization was $34,188, $10,399, $66,189 and $66,189 for the periods
ended April 30, 1999, March 1, 1999, December 31, 1998 and 1997,
respectively.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
The third phase of the private placement occurred on April 30, 1999
(NOTE 11). The Company recorded a stock subscription receivable in the
amount of $107,976 at April 30, 1999 with its corresponding offset to
additional paid in capital. The monies were subsequently collected on
May 4, 1999. The amount was recorded as a current asset due to the
short term nature of the repayment period.
On March 2, 1999, the Company issued an aggregate of 467,500 shares of
the Company's common stock to certain investors for $0.25 per share.
The purchase price was funded with the proceeds of a non-recourse loan
from the Company. The loan bears interest at a rate of 6% per annum and
matures on December 31, 2000, at which time the principal plus accrued
interest is due. The loan is collateralized by a pledge of the common
stock purchased. The amount was recorded in stockholders' equity and
offset with the amount of subscription receivable.
NOTE 5 - PROPERTY AND EQUIPMENT
December 31,
-----------------------------
April 30, 1999 March 1, 1999 1998 1997
-------------- ------------- -------------- ------------
Computer equipment $ 69,713 $ 66,326 $ 100,475 $ 75,719
Less accumulated
depreciation 3,799 3,799 39,960 21,970
-------------- ------------- ------------- -------------
$ 65,914 $ 62,527 $ 60,515 $ 53,749
============== ============= ============= =============
Depreciation was $3,799, $3,799, $17,990 and $11,909 for the periods
ended April 30, 1999, March 1, 1999, December 31, 1998 and 1997,
respectively. Property and equipment are located in Boulder, Colorado
and Manhattan Beach, California.
-F17-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - OTHER ASSETS
December 31,
-----------------------------
April 30, 1999 March 1, 1999 1998 1997
-------------- ------------- -------------- ------------
Security deposits $ 1,353 $ 3,846 $ 3,846 $ 2,493
Income tax deposits -- 1,636 1,636 1,636
Other -- 4,306 2,750 1,250
-------------- ------------- -------------- ------------
$ 1,353 $ 9,788 $ 8,232 $ 5,379
============== ============= ============== ============
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
-----------------------------
April 30, 1999 March 1, 1999 1998 1997
-------------- ------------- -------------- ------------
Accounts payable $ 113,548 $ 116,872 $ 68,054 $ 42,999
Accrued interest 27,300 576,227 576,227 310,297
Payroll and
payroll taxes 14,000 280,500 263,500 179,500
Accrued other -- -- -- 10,000
-------------- ------------- -------------- ------------
$ 154,848 $ 973,599 $ 907,781 $ 542,796
============== ============= ============== ============
NOTE 8 - LONG-TERM DEBT / BRIDGE NOTES PAYABLE
During January and February 1996, Old SportsTrac received $320,000 in
bridge financing bearing interest at 8% per annum. In exchange for
making the loans to the Company, each bridge lender received a "bridge
note" and a "bridge unit". Each bridge unit is comprised of one share
of common stock and five Class A Warrants. Each Class A Warrant is
exercisable into one share of common stock at an exercise price of
$6.50 per share during the four year period commencing one year from
the effective date and may be redeemed if the market price of the
common stock exceeds $9.00 per share. On March 2, 1999, these notes,
which had been amended various times, were assumed as a result of the
Asset Purchase Agreement (NOTE 2L). Upon assumption of these notes, the
Company issued common stock in satisfaction of the debt.
On April 19, 1996, Old SportsTrac received an advance of $350,000 from
a third party. This advance accrued interest at the rate of 15% per
annum and was used to pay off a portion of the note payable as
disclosed in Note 3. This advance was assumed by the Company as a
result of the Asset Purchase Agreement. Concurrently, the note was
amended to bear interest at the rate of 10% per annum and matures on
December 31, 2000, at which time principal and all accrued interest is
due. As of April 30, 1999, this note is still outstanding.
On August 22, 1996, Old SportsTrac received an advance of $350,000 from
one of the bridge lenders, who is also a shareholder in the Company.
This advance accrued interest at the rate of 15% per annum and was used
to pay off the balance of the note payable as disclosed in Note 3. The
note, which had been amended various times, was assumed in connection
with the Asset Purchase Agreement. Upon assumption of this note, the
Company issued common stock in satisfaction of the debt.
-F18-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT / BRIDGE NOTES PAYABLE (CONTINUED)
On October 11, 1996 and December 12, 1996, Old SportsTrac received
advances of $50,000 each from one of the bridge lenders, who is also a
shareholder in the Company. These advances accrued interest at the rate
of 10% per annum. The notes, which had been amended various times, were
assumed in connection with the Asset Purchase Agreement. Upon
assumption of these notes, the Company issued common stock in
satisfaction of the debt.
During 1997, Old SportsTrac received advances aggregating $587,000 from
one of the bridge lenders, who is also a shareholder in the Company.
The notes, which had been amended various times, were assumed in
connection with the Asset Purchase Agreement. Upon assumption of these
notes, the Company issued common stock in satisfaction of the debt.
During 1998, Old SportsTrac received advances aggregating $749,500 from
one of the bridge lenders, who is also a shareholder in the Company. In
addition, during January and February 1999, Old SportsTrac received
further advances of $107,000 which were repaid by the Company during
March 1999. These notes accrued interest at rates ranging between 10%
to 15% per annum. The notes, which had been amended various times, were
assumed in connection with the Asset Purchase Agreement. Upon
assumption of these notes, the Company issued common stock in
satisfaction of $280,500 of this debt. The remaining $469,000 note was
concurrently amended to bear interest at the rate of 10% per annum and
matures on December 31, 2000, at which time principal and all accrued
interest is due. As of April 30,1999, this note is still outstanding.
Interest expense on all indebtedness was $28,595, $44,500, $265,929 and
$209,009 for the periods ended April 30, 1999, March 1, 1999, December
31, 1998 and 1997, respectively.
NOTE 9 - INCOME TAXES
The benefit for income taxes is as follows:
April 30, 1999
--------------
Current:
Federal $ -0-
State -0-
--------------
-0-
--------------
Deferred:
Federal -0-
State -0-
-0-
--------------
Income Tax Expense $ -0-
==============
-F19-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
Reconciliation of the differences between income taxes computed at
federal statutory tax rates and the provision for income taxes is as
follows:
April 30, 1999
--------------
Tax at federal statutory rate 34.0%
Increase (decrease) in tax:
Net Operating Loss (34.0)
-------------
Effective tax rate 0%
=============
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at April 30, is presented below:
April 30, 1999
--------------
Deferred Tax Assets:
Depreciation $ 496
Net Operating Losses 8,671
-------------
9,167
Deferred Tax Liabilities:
Licensed Technology (3,843)
-------------
Net Deferred Tax Asset 5,324
Less Valuation Allowance (5,324)
-------------
Deferred Tax Asset $ -0-
=============
At April 30, 1999, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $27,000 which, if
unused, will start expiring in the year 2019.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is exposed to various asserted and unasserted potential
claims encountered in the normal course of business. In the opinion of
management, the resolution of these matters should not have a material
effect on the Company's financial position or the results of its
operations.
-F20-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASE
The Company leases office space for the Colorado location under an
operating lease which expires in December, 2000. Additionally, the
Company rents office space for the California location on a
month-to-month basis. Minimum future rental payments under the lease
are as follows:
Years ending December 31,
1999 $ 10,824
2000 16,727
-------------
$ 27,551
=============
Rent expense on all operating leases was approximately $3,000, $3,000,
$29,000 and $26,000 for the periods ended April 30, 1999, March 1,
1999, December 31, 1998 and 1997, respectively.
FRAUDULENT CONVEYANCE RISKS
The Company purchased substantially all of the assets of Old
SportsTrac pursuant to the Asset Purchase Agreement (NOTE 2L). As part
of the purchase, the Company assumed most, but not all, of the
liabilities of Old SportsTrac. Any creditor of Old SportsTrac whose
obligation was not assumed may challenge the purchase as a fraudulent
transfer and could seek a judgment against the Company for the lesser
of the value of the transferred assets or for the amount of the
creditor's claim, a lien upon the transferred assets to the extent of
the creditor's claim, or the avoidance of the transfer to the extent
necessary to satisfy the creditor's claim. Although the elements of
proof necessary to successfully prosecute a claim under the various
laws applicable to fraudulent transfers may vary depending upon the
state in which an action is brought, a number of defenses to such
claims exist. The Company would vigorously assert those defenses in
the event any claims are brought and, in addition, would assert all
defenses available upon the claim of the underlying indebtedness. The
Company's expenditure of legal fees in connection with any such
proceeding could also have a material adverse effect on the Company.
The accompanying financial statements do not reflect any adjustments
for this uncertainty.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The SportsTrac System relies on the Critical Tracking Task ("CTT")
technology. The CTT is sublicensed to the Company by Biofactors, Inc.,
a subsidiary of NHancement Technologies, Inc. Biofactors, Inc. uses
the CTT pursuant to a license granted to it by Systems Technology,
Inc. ("STI") which is not affiliated with the Company or Biofactors,
Inc. The CTT is considered one of the benchmark measures of human
hand-eye performance. The Company utilizes the CTT technology in the
SportsTrac System.
-F21-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
POTENTIAL LOSS OF LICENSED TECHNOLOGY
The sublicense with Biofactors, Inc. expires on November 24, 2008
(assuming the exercise of all available extensions), as does
Biofactors, Inc.'s license from STI. If the Company does not market,
sell or manufacture products other than the SportsTrac System and any
other products relying upon the CTT technology, the expiration of the
license could have a material adverse effect on the Company's revenue.
There can be no assurance that the Company will be able to extend the
term of the Sublicense beyond November 24, 2008 or that the Company
will be able to market, sell or manufacture any products which do not
rely on the CTT technology. Old SportsTrac assigned to the Company an
agreement that Old SportsTrac negotiated with Biofactors, Inc. and
STI, which will allow the Company (as assignee of Old SportsTrac) to
assume Biofactors, Inc.'s rights and obligations should Biofactors,
Inc.'s license with STI terminate earlier. Certain members of the
Company's management have a relationship with Nhancement Technologies,
Inc. and therefore may have a conflict of interest in enforcing the
terms of the sublicense.
CONSULTING AGREEMENT
On May 1, 1999, the Company entered into a consulting agreement with a
director of the Company, expiring in one year, whereby the consultant
will render advice to the Company concerning the business operations,
organization, management, strategic planning, marketing, products and
services, acquisitions, mergers and related financial requirements as
the Company may, from time to time, desire during the term of the
agreement.
The Company will pay a fee of $4,000 per month. One-half of the
monthly fee is to be paid in cash and the remaining one-half is
deferred by the Company and shall be paid at such time and in such
manner as is mutually agreed by the Company and the consultant. In
addition, the Company will issue a ten year option to the consultant
to purchase up to 30,000 shares of the Company's common stock at an
initial exercise price of $1.00 per share. The consultant is also
entitled to reimbursement by the Company for reasonable expenses
incurred on the Company's behalf.
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)
LOSS PER SHARE
Loss per share is computed by dividing net loss by the weighted
average number of outstanding shares of common stock. Net loss per
share for the periods presented does not include the effects of stock
options and warrants because their effects would be anti-dilutive.
-F22-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
LOSS PER SHARE (CONTINUED)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
January 1, January 1,
1998 1997
March 2, 1999 January 1, 1999 Through Through
Through Through December 31, December 31,
April 30, 1999 March 1, 1999 1998 1997
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss $ (219,719) $ (168,987) $(1,209,059) $ (863,009)
========== =========== =========== ==========
Basic and diluted:
Weighted average common
shares outstanding used in
computing basic net loss
per share 7,567,784 2,916,000 2,916,000 2,916,000
========== =========== =========== ==========
Basic and diluted net loss
per share $ (.03) $ (.06) $ (.41) $ (.30)
========== =========== =========== ==========
</TABLE>
COMMON STOCK
The Company's Certificate of Incorporation, as amended, authorizes
14,000,000 shares of common stock.
The holders of the Company's common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. The holders
of common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors
out of funds legally available. In the event of a liquidation,
dissolution or wound-up of the Company, the holders of common stock
are entitled to share ratably in any assets remaining after the
payment of liabilities and any distribution to preferred stock. The
common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund
provisions available to the common stock.
The Company will have reserved 2,179,948 shares of its common stock
for issuance upon exercise of options, the exercise of the Class A
redeemable common stock purchase warrants, the conversion of certain
indebtedness, and the exercise of certain warrants to be issued to the
managing underwriter.
-F23-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Each Class A redeemable common stock purchase warrant ("Warrants") is
convertible into one share of common stock for $7.20 per share. The
Warrants can only be exercised from the date of the public offering
and for a two year period. They may be redeemed beginning 13 months
after the date of the offering if the closing bid quotation of the
Company's common stock is $10.80 or above on 20 consecutive trading
days ending on the third day before the Company gives notice of
redemption.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended, authorizes
1,000,000 shares of "blank check" preferred stock, whereby the Board
of Directors of the Company shall have the authority, without further
action by the holders of the outstanding Common Stock, to issue shares
of Preferred Stock from time to time in one or more classes or series,
to fix the number of shares constituting any class or series and the
stated value thereof, if different from the par value, and to fix the
term of any such series or class, including dividend rights, dividend
rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption
price and the liquidation preference of such class or series. There
are no shares of Preferred Stock issued or outstanding.
PRIVATE PLACEMENT
The Company entered into a placement agent agreement on December 1,
1998 with Fairchild Financial Group, Inc. (the "Placement Agent") with
respect to the sale by the Company of up to 3,000,000 shares of common
stock, at a purchase price of $1.00 per share. The offering was solely
to accredited investors as that term is defined under Rule 501 of
Regulation D of the Securities Act of 1933.
The private placement occurred in three separate phases dated March 2,
1999, April 15, 1999 and April 30, 1999, at which time 366,000,
995,500 and 132,500 shares, respectively, of the Company's common
stock were sold at a purchase price of $1.00 per share.
NOTE 12 - FAIR VALUE
The Company has estimated the fair value of its financial instruments
at April 30, 1999, March 1, 1999, December 31, 1998 and 1997, as
required by Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments." The carrying
values of cash, accounts receivable, stock subscription receivable,
accounts payable and accrued expenses and debt are reasonable
estimates of their fair values.
-F24-
<PAGE>
SPORTSTRAC SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS
The Company has approved a reverse stock split of 3.604 for 1 to be
effective simultaneously with the offering. The accompanying financial
statements do not reflect the effect of the reverse stock split.
-F25-
<PAGE>
[LOGO] SPORTSTRAC(R)
585,000 UNITS
SPORTSTRAC SYSTEMS, INC.
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
TWO CLASS A COMMON STOCK PURCHASE WARRANTS
---------------------------
PROSPECTUS
---------------------------
SUITE 100
6654 GUNPARK DRIVE
BOULDER, COLORADO 80301
_____________, 1999
Until _________________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
SportsTrac is incorporated under the laws of the State of Delaware. The
Certificate of Incorporation of SportsTrac limits the liability of directors for
monetary damages for breaches of fiduciary duty to the fullest extent permitted
by Delaware General Corporation Law. Under Section 102 of the Delaware
Corporation Law, liability is not eliminated for:
* any breach of the director's duty of loyalty to SportsTrac or its
stockholders;
* acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
* unlawful payment of dividends or stock purchases or redemptions;
or
* any transaction from which the director derived an improper
personal benefit.
Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons who were, are, or are threatened
to be made, parties to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person is or was an officer, director, employee, or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee, or agent of another corporation of enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit, or proceeding, provided such person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, were, or are
threatened to be made, a party to any threatened, pending, or completed action
or suit by or in the right of the corporation by reasons of the fact that such
person was a director, officer, employee, or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee,
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests, and
provided that no indemnification is permitted without judicial approval if the
officer, director, employee, or agent is adjudged to be liable to the
corporation. Where an officer, director, employee, or agent is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
II-1
<PAGE>
corporation or enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity arising out of his or her status as
such, whether or not the corporation would otherwise have the power to indemnify
him under Section 145.
SportsTrac's Certificate of Incorporation and Bylaws provide that
SportsTrac will indemnify all of its directors and officers to the full extent
permitted by the Delaware General Corporation Law. Under such provisions, any
director or officer, who in his or her capacity as such, is made or threatened
to be made a party to any suit or proceeding, may be indemnified if the board of
directors determines such director or officer acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interest of SportsTrac. The Certificate of Incorporation and the Delaware
General Corporation Law further provide that such indemnification is not
exclusive of any other rights to which such individuals may be entitled under
the Certificate, any agreement, vote of stockholders or disinterested directors,
or otherwise.
All of SportsTrac's directors and officers will be covered by insurance
policies maintained by it against certain liabilities for actions taken in their
capacities as such.
The underwriters have agreed to indemnify SportsTrac and its officers
and directors and each person, if any, who controls us within the meaning of the
Securities Act of 1933, against certain liabilities resulting from information
contained in the "Underwriting" section of the prospectus provided by the
underwriters.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling
SportsTrac pursuant to the foregoing provisions, SportsTrac has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SportsTrac will incur and pay the following costs of this transaction.
All amounts other than the Securities and Exchange Commission registration fee
are estimated.
Securities and Exchange Commission registration fee $ 4,363
Boston Stock Exchange filing fee *
NASDAQ filing fee *
Blue Sky Fees *
Legal fees and expenses *
Underwriters Expenses *
Accounting fees and expenses *
Printing expenses *
Transfer Agent and Registrar fees and expenses *
Miscellaneous *
--------
Total $203,700
*To be provided by amendment.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following lists all sales of securities of SportsTrac since its
incorporation on June 15, 1998. Prior to the closing of this offering,
SportsTrac will complete a 3.604-for-1 reverse stock split of its issued and
outstanding common stock.
INCORPORATION. In connection with its incorporation, on June 15, 1998,
SportsTrac sold 27 shares (100 shares pre-reverse stock split) of its common
stock, to Marc R. Silverman, at a price of $.90 per share ($0.25 per share
pre-reverse stock split per share). SportsTrac did not register the common stock
issued in reliance upon the exemption provided in Section 4(2) of the Securities
Act of 1933.
SHARES PURCHASED WITH NON-RECOURSE LOANS. On January 20, 1999,
SportsTrac agreed to issue an aggregate of 129,714 shares (467,500 shares
pre-reverse stock split) of its common stock to four investors at a price of
$.90 per share ($0.25 per share pre-reverse stock split). The purchase price was
funded with the proceeds of a non-recourse loan from SportsTrac. The loan bears
interest at a rate of 6% per annum, matures on December 31, 2000, and is secured
by a pledge of the common stock issued. SportsTrac did not register the common
stock issued in reliance upon the exemption provided in Section 4(2) of the
Securities Act of 1933.
CONVERSION OF DEBT OF OUR PREDECESSOR COMPANY. On March 2, 1999,
SportsTrac purchased certain of the assets of its predecessor company and in
connection therewith assumed certain liabilities of its predecessor company.
Many of the liabilities were converted into shares of common stock as follows:
* 84,972 shares (306,250 shares pre-reverse stock split) were
issued to eight creditors for cancellation of debt in the amount
of $306,250. One share of common stock was issued for every $3.60
($1.00 pre-reverse stock split) of debt cancelled.
* 88,788 shares (320,000 shares pre-reverse stock split) were issued
to eight creditors for cancellation of debt in the amount of
$320,000. One share of common stock was issued for every $3.60
($1.00 pre-reverse stock split) of debt cancelled.
* 1,052,650 shares (3,793,750 shares pre-reverse stock split) were
issued to one creditor for cancellation of debt in the amount of
$1,517,500. One share of common stock was issued for every $1.44
($.40 pre-reverse stock split) of debt cancelled.
* 138,624 shares (499,604 shares pre-reverse stock split) were
issued to Michael Mellman, M.D. for cancellation of $124,901 of
his deferred salary not paid by
II-3
<PAGE>
our predecessor company. One share of common stock was issued to
Dr. Mellman for every $.90 ($.25 pre-reverse stock split) of
deferred salary cancelled.
* 190,504 shares (686,580 shares pre-reverse stock split) were
issued to Marc R. Silverman for cancellation of $171,645 of his
deferred salary not paid by Our predecessor company. One share of
common stock was issued to Mr. Silverman for every $.90 ($.25
pre-reverse stock split) of deferred salary cancelled.
SportsTrac did not register the common stock issued in reliance upon the
exemption provided in Section 4(2) of the Securities Act of 1933.
PRIVATE PLACEMENT. Pursuant to a Private Placement Memorandum dated
December 1, 1998, supplemented February 11, 1999, SportsTrac sold the following
shares of common stock at a price of $3.60 per share ($1.00 per share
pre-reverse stock split):
* March 2, 1999: 101,546 shares (366,000 pre-reverse stock split
shares)
* April 15, 1999: 276,201 shares (995,500 pre-reverse stock split
shares)
* April 30, 1999: 36,761 shares (132,500 pre-reverse stock split
shares)
In connection with the sale, Fairchild Financial Group, Inc. had an exclusive
arrangement to offer the shares on behalf of SportsTrac. Fairchild is the
managing underwriter in this offering. For common stock sold by or through
Fairchild, Fairchild received:
* cash compensation equal to 12% of the gross offering price
($179,280);
* non-deductible expense allowance equal to 3% of the gross offering
price ($44,820); and
* SportsTrac engaged Fairchild to provide certain consulting
services to SportsTrac for 12 months. SportsTrac paid Fairchild at
closing of the private placement an up-front consulting fee equal
to 3% of the gross offering price ($44,820).
The offering was made to accredited investors pursuant to a private placement
memorandum dated December 1, 1998 as supplemented February 11, 1999. SportsTrac
did not register the common stock in reliance upon Regulation D under the
Securities Act of 1933.
ITEM 27. EXHIBITS
Exhibit Exhibit
Number Description
1.1 Form of Underwriting Agreement
1.2 Form of Agreement among Underwriters
1.3 Form of Selected Dealer Agreement
II-4
<PAGE>
1.4 Form of Warrant Exercise Fee Agreement
1.5 Form of Underwriter Consulting Agreement
3.1 Certificate of Incorporation of Applied Sports Technologies, Inc.
(now SportsTrac Systems, Inc.) filed June 15, 1998
3.2 Certificate of Amendment of Certificate of Incorporation of
Applied Sports Technologies, Inc. (now SportsTrac Systems, Inc.)
filed December 2, 1998
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of sportstrac.com, inc. (now SportsTrac Systems,
Inc.) filed May 24, 1999
3.4 Bylaws of Applied Sports Technologies, Inc. (now SportsTrac
Systems, Inc.)
4.1* Form of Common Stock Certificate
4.2 Form of Class A Common Stock Purchase Warrant Agreement and
Certificate
4.3 Form of Underwriter's Unit Warrant
4.4 Promissory Note dated March 2, 1999 made by sportstrac.com, inc.
(now SportsTrac Systems, Inc.) payable to the order of The Holding
Company
4.5 Promissory Note dated March 2, 1999 made by sportstrac.com, inc.
(now SportsTrac Systems, Inc.) payable to the order of Swiss
American Bank
5.1* Form of Opinion of Doerner, Saunders, Daniel & Anderson, L.L.P.
10.1 Asset Purchase Agreement dated as of September 1, 1998 between
Applied Sports Technologies, Inc. (now SportsTrac Systems, Inc.)
and SportsTrac, Inc. Schedule 2.2 omitted, to be provided to
Securities and Exchange Commission upon request) and Amendment
thereto dated March 2, 1999
10.2 Sublicense Agreement dated August 30, 1995 between BioFactors,
Inc. and Bogart-International Associates, Inc. (now assigned to
SportsTrac Systems, Inc.)
10.3 STI Novation Agreement dated August 30, 1995 among BioFactors,
Inc., Bogart-International Associates, Inc. (now assigned to
SportsTrac Systems, Inc.), and Systems Technology, Inc.
10.4 1999 Stock Incentive Plan of sportstrac.com, inc. (now SportsTrac
Systems, Inc.)
10.5 Consulting Agreement dated May 1, 1999 between Joshua S. Kanter
and SportsTrac Systems, Inc.
10.6 Registration Rights Agreement dated May 1, 1999 by sportstrac.com,
inc. (now SportsTrac Systems, Inc.) and certain holders of its
Common Stock
23.1 Consent of Morrison, Brown, Argiz & Co.
23.2* Consent of Doerner, Saunders, Daniel & Anderson, L.L.P. (contained
in opinion filed as Exhibit 5.1)
23.3 Consent of The Mentor Group, Appraisers
24.1 Power of Attorney (contained on signature page II-8)
27.1 Financial Data Schedule
* To be filed by amendment.
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
SportsTrac hereby undertakes the following:
(a) SportsTrac will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or event which,
individually or together, represent a fundamental
change in the information in the registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(b) For determining liability under the Securities Act, SportsTrac will
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.
(c) SportsTrac will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(d) SportsTrac will provide to 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.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers, and/or persons controlling the registrant pursuant to the
foregoing provisions, SportsTrac has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by SportsTrac of expenses incurred or paid by a director, officer, or
controlling person of SportsTrac 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, SportsTrac 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.
II-6
<PAGE>
(f) SportsTrac will:
(i) 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 and contained in
a form of prospectus filed by the small business
issuer 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 Commission declared it
effective.
(ii) For determining any liability under the Securities
Act, treat each post-effective amendment that
contains a form of prospectus as a new registration
statement for the securities offered in the
registration statement, and that offering of the
securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Boulder,
State of Colorado, on July 14, 1999.
SportsTrac Systems, Inc.
By: /s/ Marc R. Silverman
---------------------------------------
Marc R. Silverman
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Marc R. Silverman and Joshua S. Kanter,
and each of them, either of whom may act without the joinder of the other, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any or all amendments (including post-effective
amendments and amendments thereto) to this registration statement, including any
registration statement filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, and each of
them, or the substitute or substitutes of any or all of them, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
Name Title Date
/s/ Michael Mellman, M.D. Chairman of the Board and Director July 14, 1999
- -------------------------
Michael Mellman, M.D.
/s/ Marc R. Silverman Chief Executive Officer, President, July 14, 1999
- ------------------------- Chief Financial Officer, and Director
Marc R. Silverman (Principal Executive Officer, Principal
Financial Officer, and Principal
Accounting Officer)
/s/ Elliott Steinberg Director July 14, 1999
- -------------------------
Elliott Steinberg
/s/ Solomon A. Weisgal Director July 14, 1999
- -------------------------
Solomon A. Weisgal
/s/ Joshua S. Kanter Secretary and Director July 14, 1999
- -------------------------
Joshua S. Kanter
II-8
<PAGE>
INDEX TO EXHIBITS
Exhibit Exhibit
Number Description
1.1 Form of Underwriting Agreement
1.2 Form of Agreement among Underwriters
1.3 Form of Selected Dealer Agreement
1.4 Form of Warrant Exercise Fee Agreement
1.5 Form of Underwriter Consulting Agreement
3.1 Certificate of Incorporation of Applied Sports Technologies, Inc.
(now SportsTrac Systems, Inc.) filed June 15, 1998
3.2 Certificate of Amendment of Certificate of Incorporation of
Applied Sports Technologies, Inc. (now SportsTrac Systems, Inc.)
filed December 2, 1998
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of sportstrac.com, inc. (now SportsTrac Systems,
Inc.) filed May 24, 1999
3.4 Bylaws of Applied Sports Technologies, Inc. (now SportsTrac
Systems, Inc.)
4.1* Form of Common Stock Certificate
4.2 Form of Class A Common Stock Purchase Warrant Agreement and
Certificate
4.3 Form of Managing Underwriter Warrant Agreement and Certificate
4.4 Promissory Note dated March 2, 1999 made by sportstrac.com, inc.
(now SportsTrac Systems, Inc.) payable to the order of The Holding
Company
4.5 Promissory Note dated March 2, 1999 made by sportstrac.com, inc.
(now SportsTrac Systems, Inc.) payable to the order of Swiss
American Bank
5.1* Form of Opinion of Doerner, Saunders, Daniel & Anderson, L.L.P.
10.1 Asset Purchase Agreement dated as of September 1, 1998 between
Applied Sports Technologies, Inc. (now SportsTrac Systems, Inc.)
and SportsTrac, Inc. Schedule 2.2 omitted, to be provided to
Securities and Exchange Commission upon request) and Amendment
thereto dated March 2, 1999
10.2 Sublicense Agreement dated August 30, 1995 between BioFactors,
Inc. and Bogart-International Associates, Inc. (now assigned to
SportsTrac Systems, Inc.)
10.3 STI Novation Agreement dated August 30, 1995 among BioFactors,
Inc., Bogart-International Associates, Inc. (now assigned to
SportsTrac Systems, Inc.), and Systems Technology, Inc.
10.4 1999 Stock Incentive Plan of sportstrac.com, inc. (now SportsTrac
Systems, Inc.)
<PAGE>
10.5 Consulting Agreement dated May 1, 1999 between Joshua S. Kanter
and SportsTrac Systems, Inc.
10.6 Registration Rights Agreement dated May 1, 1999 by sportstrac.com,
inc. (now SportsTrac Systems, Inc.) and certain holders of its
Common Stock
23.1 Consent of Morrison, Brown, Argiz & Co.
23.2* Consent of Doerner, Saunders, Daniel & Anderson, L.L.P. (contained
in opinion filed as Exhibit 5.1)
23.3 Consent of The Mentor Group, Appraisers
24.1 Power of Attorney (contained on signature page II-8)
27.1 Financial Data Schedule
* To be filed by amendment.
EXHIBIT 1.1
SPORTSTRAC SYSTEMS, INC.
SUITE 100
6654 GUNPARK DRIVE
BOULDER, CO 80301
UNDERWRITING AGREEMENT
Fairchild Financial Group, Inc. ___________, 1999
99 Wall Street, 4th Floor
New York, New York 10005
Gentlemen:
SportsTrac Systems, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to Fairchild Financial Group, Inc. ("Fairchild" or the
"Representative") and to each of the other underwriters named in Schedule I
hereto (the "Underwriters"), for each of whom you are acting as Representative,
an aggregate of 585,000 Units (each Unit consisting of one share of Common
Stock, ("Common Stock"), and two Class A Common Stock Purchase Warrants (the
"Warrants") of the Company) at a public offering price of $6.00 per Unit. Each
Warrant shall entitle the holder to purchase one share of Common Stock for a two
year period commencing one year after the Effective Date (hereinafter defined)
at a price of $7.20 per share. The Warrants will not be detachable from the
Common Stock until the close of business on __________, 2000 unless Fairchild
permits earlier separation. The Warrants may be called by the Company commencing
thirteen months from Effective Date upon at least thirty days prior written
notice at a price of $.10 per Warrant at any time provided the closing bid for
the Common Stock is at least $10.80 per share during the twenty consecutive (20)
trading day period ending three days preceding the date of the written notice.
The 585,000 Units are hereinafter sometimes referred to as the "Firm Units."
Upon the request of the Representative, and as provided in Section 3 hereof, the
Company will also issue and sell to the Underwriters up to a maximum of an
additional 87,750 Units for the purpose of covering over-allotments. Such
additional Units are hereinafter sometimes referred to as the "Optional Units."
Both the Firm Units and the Optional Units are sometimes collectively referred
to herein as the "Units." All of the securities which are the subject of this
Agreement are more fully described in the Prospectus of the Company described
below. In the event that the Representative does not form an underwriting group
but decides to act as the sole Underwriter, then all references to Fairchild
herein as Representative shall be deemed to be to it as such sole Underwriter
and Section 14 hereof shall be deemed deleted in its entirety.
The Company understands that the Underwriters propose to make a public
offering of the Units as soon as the Representative deems advisable after the
Registration
<PAGE>
Statement hereinafter referred to becomes effective. The Company hereby confirms
its agreement with the Representative and the other Underwriters as follows:
SECTION 1. Description of Securities. The Company's authorized and
outstanding capitalization when the public offering of securities contemplated
hereby is permitted to commence, under the Securities Act of 1933, as amended
(the "Act"), and at the Closing Date (hereinafter defined) and the terms of the
Warrants will be as set forth in the Prospectus (hereinafter defined).
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to, and agrees with, the Underwriters as follows:
(a) A Registration Statement on Form SB-2 and amendments thereto
(No. 333-________) with respect to the Units, including a form of prospectus
relating thereto, copies of which have been previously delivered to you, have
been prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act.
The Company, subject to the provisions of Section 6(a) hereof, may file one or
more amendments to such Registration Statement and Prospectus. The Underwriters
will receive copies of each such amendment.
The date on which such Registration Statement is declared
effective under the Act and the public offering of the Units as contemplated by
this Agreement is therefore authorized to commence, is herein called the
"Effective Date." The Registration Statement and Prospectus, as finally amended
and revised immediately prior to the Effective Date, are herein called
respectively the "Registration Statement" and the "Prospectus." If, however, a
prospectus is filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations which differs from the Prospectus, the term "Prospectus" shall also
include the prospectus filed pursuant to Rule 424(b).
(b) The Registration Statement (and Prospectus), at the time it
becomes effective under the Act, (as thereafter amended or as supplemented if
the Company shall have filed with the Commission an amendment or supplement),
and, with respect to all such documents, on the Closing Date (hereinafter
defined), will in all material respects comply with the provisions of the Act
and the rules and regulations promulgated thereunder, and will not contain an
untrue statement of a material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subsection (b) shall extend to the Underwriters in respect of
any statements in or omissions from the Registration Statement and/or the
Prospectus, based upon information furnished in writing to the Company by the
Underwriters specifically for use in connection with the preparation thereof.
2
<PAGE>
(c) The Company has been duly incorporated and is now, and on the
Closing Date will be, validly existing as a corporation in good standing under
the laws of the State of Delaware, having all required corporate power and
authority to own its properties and conduct its business as described in the
Prospectus. The Company is now, and on the Closing Date will be, duly qualified
to do business as a foreign corporation in good standing in all of the
jurisdictions in which it conducts its business or the character or location of
its properties requires such qualifications except where the failure to so
qualify would not materially adversely affect the Company's business, properties
or financial condition. The Company has no subsidiaries, except as are set forth
in the Prospectus.
(d) The financial statements of the Company included in the
Registration Statement and Prospectus present fairly the financial position and
results of operations and changes in financial condition of the Company at the
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved, and
are in accordance with the books and records of the Company.
(e) To the best of the Company's knowledge, Morrison, Brown, Argil &
Co. independent auditors, who have given their report on certain financial
statements which are included as a part of the Registration Statement and the
Prospectus are independent public accountants as required under the Act and the
rules and regulations promulgated thereunder.
(f) Subsequent to the respective dates as of which information is
given in the Prospectus and prior to the Closing Date and, except as set forth
in or contemplated in the Prospectus, (i) the Company has not incurred, nor will
it incur, any material liabilities or obligations, direct or contingent, nor has
it, nor will it have entered into any material transactions, in each case not in
the ordinary course of business; (ii) there has not been, and will not have
been, any material change in the Company's certificate of incorporation or in
its capital stock or funded debt; and (iii) there has not been, and will not
have been, any material adverse change in the business, net worth or properties
or condition (financial or otherwise) of the Company whether or not arising from
transactions in the ordinary course of business.
(g) Except as otherwise set forth in the Prospectus, the real and
personal properties of the Company as shown in the Prospectus and Registration
Statement to be owned by the Company are owned by the Company by good and
marketable title free and clear of all liens and encumbrances, except those
specifically referred to in the Prospectus, and except those which do not
materially adversely affect the use or value of such assets and except the lien
for current taxes not now due, or are held by the Company by valid leases, none
of which is in default. Except as disclosed in the Prospectus and Registration
Statement, the Company in all material respects has full right and licenses,
permits and governmental authorizations required to maintain and operate its
business and properties as the same are now operated and, to its best knowledge,
none of the activities or
3
<PAGE>
business of the Company is in material violation of, or causes the Company to
violate any laws, ordinances and regulations applicable thereto, the violation
of which would have a material adverse impact on the condition (financial or
otherwise), business, properties or net worth of the Company.
(h) The Company has no material contingent obligations, nor are its
properties or business subject to any material risks, which may be reasonably
anticipated, which are not disclosed in the Prospectus.
(i) Except as disclosed in the Prospectus and Registration
Statement, there are no material actions, suits or proceedings at law or in
equity of a material nature pending, or to the Company's knowledge, threatened
against the Company which are not adequately covered by insurance, which might
result in a material adverse change in the condition (financial or otherwise),
properties or net worth of the Company, and there are no proceedings pending or,
to the knowledge of the Company, threatened against the Company before or by any
federal or state commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially adversely affect the business, properties or net worth or financial
condition or income of the Company, which are not disclosed in the Prospectus.
(j) All of the outstanding shares of Common Stock are duly
authorized and validly issued and outstanding, fully paid, and non-assessable,
and are free of preemptive rights. The Common Stock and the shares of Common
Stock issuable upon exercise of the Warrants, when paid for, issued and
delivered in accordance with this Agreement and the Warrant Agreement between
the Company and its transfer/warrant agent will be duly authorized, validly
issued, fully paid and non-assessable and will not be issued in violation of any
preemptive rights. The Underwriters will receive good and marketable title to
the Units purchased by them from the Company, free and clear of all liens,
encumbrances, claims, security interests, restrictions, stockholders' agreements
and voting trusts whatsoever. Except as set forth in the Prospectus, there are
no outstanding options, warrants, or other rights, providing for the issuance
of, and no commitments, plans or arrangements to issue, any shares of any class
of capital stock of the Company, or any security convertible into, or
exchangeable for, any shares of any class of capital stock of the Company. All
of the securities of the Company to which this Agreement relates conform to the
statements relating to them that are contained in the Registration Statement and
Prospectus.
(k) The certificate or certificates required to be furnished to the
Underwriters pursuant to the provisions of Section 11 hereof will be true and
correct.
(l) The execution and delivery by the Company of this Agreement has
been duly authorized by all necessary corporate action and it is a valid and
binding obligation of the Company, enforceable against it in accordance with its
terms except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws pertaining to creditors
rights generally.
4
<PAGE>
(m) No default exists, and no event has occurred which, with notice
or lapse of time, or both, would constitute a default in the due performance and
observance of any material term, covenant or condition by the Company or any
other party, of any material indenture, mortgage, deed of trust, note or any
other material agreement or instrument to which the Company is a party or by
which it or its business or its properties may be bound or affected, except (i)
as disclosed in the Prospectus, (ii) such defaults as have been waived by all
parties who would otherwise have a remedy or right with respect thereto or (iii)
such defaults which will not cause any material adverse change in the business,
net worth, properties or conditions (financial or otherwise), of the Company.
The Company has full power and lawful authority to authorize, issue and sell the
Units to be sold by it hereunder on the terms and conditions set forth herein
and in the Registration Statement and in the Prospectus. No consent, approval,
authorization or other order of any regulatory authority is required for such
authorization, issue or sale, except as may be required under the Act or state
securities laws. The execution and delivery of this Agreement, the consummation
of the transactions herein contemplated, and compliance with the terms hereof
will not conflict with, or constitute a default under any indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company is
now a party or by which it or its business or its properties may be bound or
affected; the certificate of incorporation and any amendments thereto; the
by-laws of the Company, as amended; or any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court,
domestic or foreign, having jurisdiction over the Company or its business or
properties.
(n) No officer or director of the Company has taken, and each
officer and director has agreed that he will not take, directly or indirectly,
any action designed to stabilize or manipulate the price of the Units, the
Common Stock or the Warrants in the open market following the Closing Date or
any other type of action designed to, or that may reasonably be expected to
cause or result in such stabilization or manipulation, or that may reasonably be
expected to facilitate the initial sale, or resale, of any of the securities
which are the subject of this Agreement.
(o) The Warrants to purchase Units to be issued to the
Representative (the "Underwriters' Unit Warrants") hereunder will be, when
issued, duly and validly authorized and executed by the Company and will
constitute valid and binding obligations of the Company, legally enforceable in
accordance with their terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
pertaining to creditors rights generally), and the Company will have duly
authorized, reserved and set aside the shares of its Common Stock issuable upon
exercise of the Underwriters' Unit Warrants and the underlying warrants, and
such stock, when issued and paid for upon exercise of the Underwriters' Unit
Warrants and the underlying warrants in accordance with the provisions thereof,
will be duly authorized and validly issued, fully-paid and non-assessable.
(p) All of the aforesaid representations, agreements, and warranties
shall survive delivery of, and payment for, the Units.
5
<PAGE>
SECTION 3. Issuance, Sale and Delivery of the Firm Units, the Optional
Units and the Underwriters' Warrants.
(a) Upon 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 number of the Firm Units set forth opposite the respective
names of the Underwriters in Schedule I hereto, plus any additional Units which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 14 hereof.
The purchase price of the Units to be paid by the several
Underwriters shall be $5.40 per Unit ($6.00 per Unit less a ten percent
discount).
In addition, and upon the same basis, and subject to the same
terms and conditions, the Company hereby grants an option to you to purchase,
but only for the purpose of covering over-allotments, upon not less than two
days' notice from the Representative, the Optional Units, or any portion
thereof, at the same price per Unit as that set forth in the preceding sentence;
and each Underwriter agrees, severally and not jointly, to purchase Optional
Units in the same proportion in which it has agreed to purchase Firm Units.
Notwithstanding anything contained herein to the contrary, you individually and
not as Representative may purchase all or any part of the Optional Units and are
not obligated to offer the Optional Units to the other Underwriters. The
Optional Units may be exercised at any time, and from time to time, thereafter
within a period of 45 calendar days following the Effective Date. The time(s)
and date(s) (if any) so designated for delivery and payment for the Optional
Units shall be set forth in the notice to the Company. Such dates are herein
defined as the Additional Closing Date(s).
(b) Payment for the Firm Units shall be made by certified or
official bank checks in New York Clearing House funds, payable to the order of
the Company, at the offices of the Representative, or its clearing agent, or at
such other place as shall be agreed upon by the Representative and the Company,
upon delivery of the Firm Units to the Representative for the respective
accounts of the Underwriters. In making payment to the Company, the
Representative may, at its option, first deduct all sums due to it for the
non-accountable expense allowance and under the Financial Consulting Agreement
(as hereinafter defined). Such delivery and payment shall be made at 10:00 A.M.,
New York City Time on the third business day after the first trade date (i.e.
T+3) which may be extended by the Representative to not later than the fifth
business day after the trade date (i.e. T+5) (unless postponed in accordance
with the provisions of Section 14 hereof), or at such other time as shall be
agreed upon by the Representative and the Company. The time and date of such
delivery and payment are hereby defined as the Closing Date. It is understood
that each Underwriter has authorized the Representative, for the account of such
Underwriter, to accept delivery of, receipt for, and make payment of the
purchase price for, the Firm Units which it has agreed to purchase. You,
individually, and not as Representative may (but shall not be obligated to) make
payment of the purchase price for
6
<PAGE>
the Firm Units to be purchased by any Underwriter whose check shall not have
been received by the Closing Date, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from its obligations hereunder.
(c) Payment for the Optional Units shall be made at the offices of
the Representative, or its clearing agent or at such other place as shall be
agreed upon by the Representative and the Company, in accordance with the notice
delivered pursuant to Section 3(a) which shall be no later than five business
days from the expiration of the forty-five day option period.
(d) Certificates for the Firm Units and for the Optional Units shall
be registered in such name or names and in such authorized denominations as the
Representative may request in writing at least two business days prior to the
Closing Date, and the Additional Closing Date(s) (if any). The Company shall
permit the Representative to examine and package said certificates for delivery
at least one full business day prior to the Closing Date and prior to the
Additional Closing Date(s). The Company shall not be obligated to sell or
deliver any of the Firm Units except upon tender of payment by the Underwriters
for all of the Firm Units agreed to be purchased by them hereunder. The
Representative, however, shall have the sole discretion to determine the number
of Optional Units, if any, to be purchased.
(e) At the time of making payment for the Firm Units, the Company
also hereby agrees to sell to the Representative, Underwriters' Unit Warrants to
purchase 58,500 Units for an aggregate purchase price of $100. Each Unit
issuable upon exercise of the Underwriters' Unit Warrants shall be identical to
the Units sold to the public, except that the exercise price of the underlying
warrants shall be 165% of the then effective exercise price of the publicly held
Class A Warrants. Each Underwriters' Unit Warrant shall entitle the owner
thereof to purchase one Unit of the Company at an exercise price of $9.90 per
Unit (165% of the initial public offering price per Unit). Such Underwriters'
Unit Warrants are to become exercisable immediately after from the Effective
Date, and thereafter shall remain exercisable for a period of five years. For a
period of one year after the Effective Date, the Underwriters Unit Warrants
shall not be transferable except to co-underwriters, selling group members and
their officers or partners. The Underwriters Unit Warrants shall contain
customary clauses protecting the holders thereof in the event the Company pays
stock dividends, effects stock splits, or effects a sale of assets, merger or
consolidation.
(f) On and subject to the Closing Date, the Company will give
irrevocable instructions to its transfer agent named in the Prospectus to
deliver to the Representative (at the Company's expense) for a period of five
years from the Closing Date, daily advice sheets showing any transfers of Units,
shares of common stock and Warrants and from time to time during the aforesaid
period a complete stockholders' list will be promptly furnished by the Company
when requested by the Representative on not more than two occasions per year.
Furthermore, the Company will give irrevocable instructions to Depository Trust
Company for a period of five years from the Closing Date to deliver
7
<PAGE>
weekly transfer sheets showing any transfers of Units, shares of common stock
and Warrants, at the sole expense of the Company.
SECTION 4. Public Offering. The several Underwriters agree, subject to the
terms and provisions of this Agreement, to offer the Units to the public as soon
as practicable after the Effective Date, at the initial offering price of $6.00
per Unit and upon the terms described in the Prospectus. The Representative may,
from time to time, decrease the public offering price, after the initial public
offering, to such extent as the Representative may determine, however, such
decreases will not affect the price payable to the Company hereunder.
SECTION 5. Registration Statement and Prospectus. The Company will furnish
the Representative, without charge, two signed copies of the Registration
Statement and of each amendment thereto, including all exhibits thereto and such
amount of conformed copies of the Registration Statement and Amendments as may
be reasonably requested by the Representative for distribution to each of the
Underwriters and Selected Dealers.
The Company will furnish, at its expense, as many printed
copies of a Preliminary Prospectus and of the Prospectus as the Representative
may request for the purposes contemplated by this Agreement. If, while the
Prospectus is required to be delivered under the Act or the rules and
regulations promulgated thereunder, any event known to the Company relating to
or affecting the Company shall occur which should be set forth in a supplement
to or an amendment of the Prospectus in order to comply with the Act (or other
applicable law) or with the rules and regulations promulgated thereunder, the
Company will forthwith prepare, furnish and deliver to the Representative and to
each of the other Underwriters and to others whose names and addresses are
designated by the Representative, in each case at the Company's expense, a
reasonable number of copies of such supplement or supplements to or amendment or
amendments of, the Prospectus.
The Company authorizes the Underwriters and the selected
dealers, if any, in connection with the distribution of the Units and all
dealers to whom any of the Units may be sold by the Underwriters, or by any
Selected Dealer, to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Units and in
accordance with the applicable provisions of the Act and the applicable rules
and regulations promulgated thereunder and applicable state securities laws.
SECTION 6. Covenants of the Company. The Company covenants and agrees with
each Underwriter that:
(a) After the date hereof, the Company will not at any time, whether
before or after the Effective Date, file any amendment to the Registration
Statement or the Prospectus, or any supplement to the Prospectus, of which the
Representative shall not previously have been advised and furnished with a copy,
or to which the Representative or the Underwriters' counsel shall have
reasonably objected in writing on the ground that it is not in compliance with
the Act or the rules and regulations promulgated thereunder.
8
<PAGE>
(b) The Company will use its best efforts to cause the Registration
Statement to become effective (provided, however, the Company shall not cause
the Registration Statement to become effective without the written consent of
Fairchild) and will advise the Representative, (i) when the Registration
Statement shall have become effective and when any amendment thereto shall have
become effective, and when any amendment of or supplement to the Prospectus
shall be filed with the Commission, (ii) when the Commission shall make request
or suggestion for any amendment to the Registration Statement or the Prospectus
or for additional information and the nature and substance thereof, and (iii) of
the issuance by the Commission of an order suspending the effectiveness of the
Registration Statement or of the initiation of any proceedings for that purpose,
and will use its best efforts to prevent the issuance of such an order, or if
such an order shall be issued, to obtain the withdrawal thereof at the earliest
possible moment.
(c) The Company will prepare and file with the Commission, promptly
upon the request of the Representative, such amendments, or supplements to the
Registration Statement or Prospectus, in form and substance satisfactory to
counsel to the Company, as in the reasonable opinion of Lester Morse P.C., as
counsel to the Underwriters, may be necessary or advisable in connection with
the offering or distribution of the Units, and will diligently use its best
efforts to cause the same to become effective.
(d) The Company will, at its expense, when and as requested by the
Representative, supply all necessary documents, exhibits and information, and
execute all such applications, instruments and papers as may be required, in the
opinion of the Underwriters' counsel, to qualify the Units or such part thereof
as the Representative may determine, for sale under the so-called "blue sky"
laws of such states as the Representative shall designate, and to continue such
qualification in effect so long as required for the purposes of the distribution
of the Units, provided, however, that the Company shall not be required to
qualify as a foreign corporation or dealer in securities or to file a consent to
service of process in any state in any action other than one arising out of the
offering or sale of the Units.
(e) The Company will, at its own expense, file and provide, and
continue to file and provide, such reports, financial statements and other
information as may be required by the Commission, or the proper public bodies of
the states in which the Units may be qualified for sale, for so long as required
by applicable law, rule or regulation and will provide the Representative with
copies of all such registrations, filings and reports on a timely basis.
(f) So long as Fairchild is a market maker of the Company's
Securities, the Company will deliver to Fairchild a copy of each annual report,
proxy statement, information statement and news release of the Company, and will
deliver to Fairchild (i) within 50 days after the end of each of the Company's
first three quarter-yearly fiscal periods, a balance sheet of the Company as at
the end of such quarter-yearly period, together with a statement of its income
and a statement of changes in its cash flow for such period (Form 10-QSB or Form
10-Q), all in reasonable detail, signed by its principal
9
<PAGE>
financial or accounting officer, (ii) within 105 days after the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with a statement of its income and statement of cash flow for such
fiscal year (Form 10-KSB or Form 10-K), such balance sheet and statement of cash
flow for such fiscal year to be in reasonable detail and to be accompanied by a
certificate or report of independent public accountants, (who may be the regular
accountants for the Company), (iii) as soon as available a copy of every other
report (financial or other) mailed to the stockholders, and (iv) as soon as
available a copy of every non-confidential report and financial statement
furnished to or filed with the Commission or with any securities exchange
pursuant to requirements by or agreement with such exchange or the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any regulations of the Commission thereunder.
(g) The Company represents that with respect to the Warrants and the
shares of Common Stock included in the Units, it will prepare and file a
Registration Statement with the Commission pursuant to Section 12(g) of the 1934
Act, prior to the Effective Date with a request that such Registration Statement
will become effective on the Effective Date. The Company understands that, to
register, it must prepare and file with the Securities and Exchange Commission a
General Form of Registration of Securities (Form 8-A or Form 10). In addition,
the Company agrees to qualify its Units, Common Stock and the Warrants for
listing on the Nasdaq system and Boston Stock Exchange on the first trading date
of each respective security and will take all reasonable and necessary and
appropriate action so that the securities continue to be listed for trading in
the Nasdaq system and Boston Stock Exchange for at least five years from the
Effective Date provided the Company otherwise complies with the prevailing
maintenance requirements. In addition, at such time as the Company qualifies for
listing its securities on the National Market System of Nasdaq, the Company will
use its best efforts to have the Company's Units and components thereof listed
on the National Market System of Nasdaq in lieu of listing as Small-Cap Issues
on Nasdaq and Boston Stock Exchange. For so long as the Company is a reporting
company under the 1934 Act, the Company shall comply with all periodic reporting
and proxy solicitation requirements imposed by the Commission pursuant to the
1934 Act.
(h) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than 15 months after the
Effective Date, an earnings statement of the Company (which need not be audited)
in reasonable detail, covering a period of at least twelve months beginning
after the Effective Date, which earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) The Company will, on or about the Effective Date, apply for
listing in Standard and Poor's Corporation Records and Standard & Poor's Monthly
Stock Guide and shall use its best efforts to have the Company listed in such
reports for a period of not less than five (5) years from the Closing Date. The
Company will request accelerated treatment in the Daily News Supplement of
Standard and Poor's Corporation Records.
10
<PAGE>
(j) The Company shall appoint American stock Transfer & Trust Co.,
Brooklyn, New York, as transfer agent for the Common Stock (the "Transfer
Agent") and as warrant agent for the Warrants.
(k) Prior to the Effective Date, the Company will enter into an
employment contract with Marc Silverman in the form approved by the
Representative. Such employment contract shall provide that within ninety (90)
days subsequent to the Effective Date, the Company will furnish "Key Man" Life
Insurance in the amount of $1,000,000 on the life of Marc Silverman with the
Company as the beneficiary thereof and the Company shall pay the annual
premiums, therefore, for a period of not less than three years from the
Effective Date.
(l) Until such time as the securities of the Company are listed on
the New York Stock Exchange, the American Stock Exchange or Nasdaq/Nms, the
Company shall cause its legal counsel or an independent third party acceptable
to the Representative to provide the Representative with a survey with the first
one to be delivered at Closing, to be updated at least annually, of those states
in which the securities of the Company may be traded in non-issuer transactions
under the blue sky laws of the states and the basis for such authority.
(m) As soon as practicable after the Closing Date, the Company will
deliver to the Representative and its counsel a total of two bound volumes of
copies of all documents relating to the public offering which is the subject of
this Agreement.
(n) Stock certificates and Warrant certificates shall be first
submitted to the Representative for approval prior to printing. The Company
shall, as promptly as possible, after filing the Registration Statement with the
Commission, obtain a CUSIP number for the Units, Common Stock and Warrants and
have each of the securities eligible for closing through the facilities of
Depository Trust Company.
(o) The Company will not offer its securities pursuant to Regulation
S of the Act, for a period of three years from the Effective Date without the
Representative's prior written consent.
SECTION 7. Expenses of the Company.
The Company shall be responsible for and shall bear all expenses directly
and necessarily incurred in connection with the proposed financing, including:
(i) the preparation, printing and filing of the Offering Documents and
amendments thereto, including Nasd, Sec, Boston Stock Exchange and Nasdaq filing
and/or application fees, preliminary and final Prospectus and the printing of
the Underwriting Agreement, the Agreement Among Underwriters and the Selected
Dealers' Agreement, a blue sky memorandum, material to be circulated to the
Underwriters by us and other incidental
11
<PAGE>
material; (ii) the issuance and delivery of certificates representing the Common
Stock and Warrants, including original issue and transfer taxes, if any; (iii)
the qualifications of the Company's Units (covered by the "firm commitment"
offering) under state securities or blue sky laws, including counsel fees of the
Representative relating thereto in the sum of Thirty Thousand ($30,000) Dollars,
none of which has been paid prior to the Effective Date, together with
appropriate state filing fees plus disbursements relating to, but not limited
to, long-distance telephone calls, photocopying, messengers, excess postage,
overnight mail and courier services; (iv) the fees and disbursements of counsel
for the Company and the accountants for the Company; and (v) any other costs of
qualifying the Units and components thereof for listing on Nasdaq and the Boston
Stock Exchange. State filing fees and disbursements shall be paid by the Company
as incurred. The fees of Lester Morse P.C. shall be paid at the closing or
termination of the Offering, whichever event first occurs.
The Company shall, upon receipt of an invoice from the Representative,
reimburse the Representative for any costs of otherwise unreimbursed postage and
including mailing of preliminary and final prospectuses incurred by or on behalf
of the Representative and the Underwriters in preparation for, or in connection
with the offering and sale and distribution of the Units on an accountable
basis. After closing of the public offering, the Company shall bear the costs of
tombstone announcements not to exceed $10,000.
SECTION 8. Payment of Underwriters' Expenses.
On the Closing Date and Additional Closing Date(s) (if any)
the Company will pay to Fairchild an expense allowance equal to three (3%)
percent of the total gross proceeds derived from the public offering
contemplated by this Agreement for the fees and disbursements of counsel to the
Underwriters and for costs of otherwise unreimbursed advertising, traveling,
postage, telephone and telegraph expenses and other miscellaneous expenses
incurred by or on behalf of the Representative and the Underwriters in
preparation for, or in connection with the offering and sale and distribution of
the Units; and Fairchild shall not be obligated to account to the Company for
such disbursements and expenses. In the event that the Company terminates this
agreement pursuant to the provisions of Section 12(b), the Representative shall
be entitled to reimbursement of all of its expenses on an accountable basis.
SECTION 9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters, and each person who controls each of the Underwriters within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses, or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law or
otherwise, and to reimburse persons indemnified as above for any reasonable
legal or other expense (including the cost of any
12
<PAGE>
investigation and preparation) incurred by them (as incurred), or any of them,
in connection with investigating, defending against or appearing as a third
party witness in connection with any claim or litigation, whether or not
resulting in any liability, but only insofar as such losses, claims,
liabilities, expenses or litigation arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented, if amended
or supplemented), or in any "blue sky" application, or arising out of or based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading;
provided, however, that the indemnity agreement contained in this subsection (a)
shall not apply to amounts paid in settlement of any such claims or litigation
if such settlement is effected without the consent of the Company, nor shall it
apply to the Underwriters or any person controlling the Underwriters in respect
of any such losses, claims, damages, expenses, liabilities or litigation arising
out of, or based upon, any such untrue statement or alleged untrue statement, or
any such omission or alleged omission, if such statement or omission was made in
reliance upon and in conformity with written information furnished in writing to
the Company by such Underwriter, or on its behalf, specifically for use in
connection with the preparation of the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto or any such blue sky
application.
(b) Each of the Underwriters severally agrees, in the same manner
and to the same extent as set forth in subsection (a) above, to indemnify and
hold harmless the Company, each of the directors and officers who have signed
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement, or the Prospectus (as amended or as
supplemented, if amended or supplemented), or in any "blue sky" application, if
such statement or omission was made in reliance upon and in conformity with
written information furnished in writing to the Company by such Underwriter, or
on its behalf, specifically for use in connection with the preparation of the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, or any such application. An Underwriter shall not be liable
for amounts paid in settlement of any such claim or litigation if such
settlement was effected without its consent.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to
13
<PAGE>
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the defendants in any such action include both the indemnified and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party or parties), it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party which firm shall be
designated in writing by the indemnified party.
(d) The respective indemnity agreements between the Underwriters and
the Company contained in subsections (a) and (b) above, and the representations
and warranties of the Company set forth in Section 2 hereof or elsewhere in this
Agreement, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters or by or on behalf of
any controlling person of the Underwriters or the Company or any such officer or
director or any controlling person of the Company, and shall survive the
delivery of the Units. Any successor of the Company, or of the Underwriters, or
of any controlling person of the Underwriters or the Company, as the case may
be, shall be entitled to the benefit of such respective indemnity agreements.
(e) In order to provide for just and equitable contribution under
the Act in any case in which (i) any person entitled to indemnification under
this Section 9 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
14
<PAGE>
Section 9, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, expenses or liabilities to
which they may be subject (after any contribution from others) in such
proportions so that the Underwriters are responsible in the aggregate for the
proportion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discounts and commissions appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon, and the Company is responsible for the remaining portion; provided,
that, in any such case, 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 was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contributing party"), notify
the contributing party, in writing, of the commencement thereof, but the
omission so to notify the contributing party will not relieve it from any
liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any
party, and such party so notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid twenty days, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such contributing
party shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such contributing party. The
contribution provisions contained in this Section 9 are in addition to any other
rights or remedies which either party hereto may have with respect to the other
or hereunder.
SECTION 10. Effectiveness of Agreement. This Agreement shall become
effective (i) at 10:00 A.M., New York Time, on the first full business day after
the Effective Date, or (ii) at the time of the initial public offering by the
Underwriters of the Units, whichever shall first occur. The time of the initial
public offering by the Underwriters of the Units for the purposes of this
Section 10, shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Units,
or the time, after the Registration Statement becomes effective, when the Units
are first released by the Representative for offering by the Underwriters or
dealers by letter or telegram, whichever shall first occur. The Representative
agrees to notify the Company immediately after it shall have taken any action,
by release or otherwise, whereby this Agreement shall have become effective.
This Agreement shall, nevertheless, become effective at such time earlier than
the time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 11. Conditions of the Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the Units which the
Underwriters have agreed to purchase hereunder are subject to: the accuracy, as
of the date hereof and as
15
<PAGE>
of the Closing Dates, of all of the representations and warranties of the
Company contained in this Agreement; the Company's compliance with, or
performance of, all of its covenants, undertakings and agreements contained in
this Agreement that are required to be complied with or performed on or prior to
each of the Closing Dates and to the following additional conditions:
(a) On or prior to the Closing Date, no order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or be pending or, to the
knowledge of the Company, shall be threatened by the Commission; any request for
additional information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Commission; and neither the Registration
Statement nor any amendment thereto shall have been filed to which counsel to
the Underwriters shall have reasonably objected, in writing.
(b) The Representative shall not have disclosed in writing to the
Company that the Registration Statement or Prospectus or any amendment or
supplement thereto contained, as of the date thereof, an untrue statement of a
fact which, in the opinion of counsel to the Underwriters, is material, or omits
to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein, or is necessary to make the statements therein
not materially misleading.
(c) Between the date hereof and the Closing Date, the Company shall
not have sustained any loss on account of fire, explosion, flood, accident,
calamity or other cause, of such character as materially adversely affects its
business or property, whether or not such loss is covered by insurance.
(d) Between the date hereof and the Closing Date, there shall be no
litigation instituted or threatened against the Company, and there shall be no
proceeding instituted or threatened against the Company before or by any federal
or state commission, regulatory body or administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling, decision
or finding would materially adversely affect the business, licenses, permits,
operations or financial condition or income of the Company.
(e) Other than as contemplated herein or as set forth in the
Registration Statement and Prospectus, during the period subsequent to the
Effective Date and prior to the Closing Date, (A) the Company shall have
conducted its business in the usual and ordinary manner as the same was being
conducted on the date of the filing of the initial Registration Statement and
(B) the Company shall not have incurred any material liabilities or obligations
(direct or contingent), or disposed of any of its assets, or entered into any
material transaction, except in the ordinary course of business and (C) the
Company shall not have suffered or experienced any material adverse change in
its business, affairs or in its condition, financial or otherwise. On the
Closing Date, the capital stock and surplus accounts of the Company shall be
substantially as great as at its last financial report
16
<PAGE>
without considering the proceeds from the sale of the Units except to the extent
that any decrease is disclosed in or contemplated by the Prospectus.
(f) The authorization of the Units, the Common Stock and the
Warrants, the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement,
shall be reasonably satisfactory in all respects to counsel to the Underwriters.
(g) The Company shall have furnished to the Representative the
opinions, dated the Closing Date, and Additional Closing Date(s), addressed to
you, of Doerner, Sanders, Daniel & Anderson LLP counsel for the Company, that:
(i) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware
with full corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and Prospectus;
it has authorized and outstanding capital as set forth in the Registration
Statement and Prospectus; and the Company is duly licensed or qualified as a
foreign corporation in all jurisdictions in which the ownership or leasing of
its properties requires such qualification or license, except where failure to
be so qualified or licensed would have no material adverse effect on the
business of the Company.
(ii) All of the outstanding shares of Common Stock are duly
authorized, validly issued, fully paid, and non-assessable, and do not have any
preemptive rights. The Company will have duly authorized, reserved and set aside
shares of Common Stock issuable upon exercise of the Warrants and any other
outstanding options, warrants or stock option plans and when issued in
accordance with the terms contained therein against payment therefor, will be
duly and validly issued, fully paid and non-assessable.
(iii) The Common Stock, Warrants and the Underwriter's Unit
Warrant conform to descriptions thereof under "Description of Securities"
contained in the Prospectus.
(iv) The Underwriters will receive good and marketable title
to the Units purchased by them from the Company in accordance with the terms and
provisions of this Agreement, to the best of such counsel's knowledge, free and
clear of all liens, encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever.
(v) Except as set forth in the Prospectus, there are no
outstanding options, warrants, or other rights, providing for the issuance of,
and, to the best of the knowledge of such counsel, no commitments, plans or
arrangements to issue, any shares of any class of capital stock of the Company,
or any security convertible into, or exchangeable for, any shares of any class
of capital stock of the Company.
17
<PAGE>
(vi) To the best of such counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or other regulatory
authorities are necessary for the valid authorization, issue or sale of the
Units hereunder, except such as may be required under the Act or state
securities or blue sky laws.
(vii) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no order suspending
the effectiveness of the Registration Statement is in effect and no proceedings
for that purpose have been instituted or are pending before or threatened by,
the Commission;
(viii) To the best of such counsel's knowledge and based upon
the investigation described below, the Registration Statement and Prospectus,
and each amendment thereof and supplement thereto, comply as to form in all
material respects with the applicable requirements of the Act and the rules and
regulations promulgated thereunder (except that no opinion need be expressed as
to financial statements, notes thereto, and financial data contained in the
Registration Statement or Prospectus). Such counsel has participated in
conferences with officers and representatives of the Company and with its
certified public accountants in the preparation of the Registration Statement
and the Prospectus. At such conferences counsel has made inquiries of such
officers, representatives and accountants, and discussed the contents of the
Registration Statement and the Prospectus. Such counsel has not independently
verified, and, accordingly, does not assume any responsibility for, the
accuracy, completeness or fairness of the information contained in the
Registration Statement or the Prospectus, other than as set forth the Prospectus
insofar as such statements relate to the contents of particular documents
therein described. On the basis of the foregoing, nothing has come to the
attention of such counsel to cause such counsel to believe that the Registration
Statement, the Prospectus or any amendment or supplement thereto contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make statements therein, in light of the circumstances under which
they were made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial and
statistical data and schedules contained therein, as to which such counsel need
express no opinion); and such counsel is familiar with all contracts referred to
in the Registration Statement or in the Prospectus and such contracts are
sufficiently summarized or disclosed therein, or filed as exhibits thereto, as
required, and such counsel does not know of any other contracts required to be
summarized or disclosed or filed; and such counsel does not know of any legal or
governmental proceedings to which the Company is a party, or in which property
of the Company is the subject, of a character required to be disclosed in the
Registration Statement or the Prospectus which are not so disclosed therein.
(ix) This Agreement has been duly authorized and executed by
the Company and is a valid and binding agreement of the Company enforceable in
accordance
18
<PAGE>
with its terms subject to bankruptcy, insolvency, reorganization, moratorium and
other laws affecting creditors rights generally and except that no opinion need
be given with regard to the enforceability of Section 9 hereof or the
availability of equitable relief.
(x) To the best knowledge of such counsel: (a) no default
exists, and no event has occurred which, with notice or lapse of time, or both,
would constitute a default in the due performance and observance of any material
term, covenant or condition by the Company, of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company is a party
or by which it or its business or its properties may be bound or affected,
except where such default would not have a material adverse effect on the
business of the Company and except as disclosed in the Prospectus; (b) the
Company has full power and lawful authority to authorize, issue and sell the
Units on the terms and conditions set forth herein and in the Registration
Statement and in the Prospectus; (c) no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or state securities laws,
clearance with the NASD and such other consent, approval, authorization or order
as has been obtained and is in full force and effect; and (d) the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, and compliance with the terms hereof will not conflict with, or
constitute a default under, any material indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the Company is now a party or
by which it or its business or its properties may be bound or affected, the
certificate of incorporation and any amendments thereto, the by-laws of the
Company, or any order, rule or regulation, writ, injunction or decree of any
government, governmental instrumentality, or court, domestic or foreign, having
jurisdiction over the Company or its business or properties.
(xi) Except as disclosed in the Registration Statement and
Prospectus, to the best knowledge of such counsel, there are no material
actions, suits or proceedings at law or in equity of a material nature pending,
or to such counsel's knowledge, threatened against the Company which are not
adequately covered by insurance and there are no proceedings pending or, to the
knowledge of such counsel, threatened against the Company before or by any
federal or state commission, regulatory body, or administrative agency or other
governmental body, wherein an unfavorable ruling, decision or finding would
materially and adversely affect the business, operation or condition (financial
or otherwise) of the Company, which are not disclosed in the Prospectus.
(xii) The Underwriters' Unit Warrants to be issued to the
Representative hereunder will be, when issued, duly and validly authorized and
executed by the Company and will constitute valid and binding obligations of the
Company, legally enforceable in accordance with their terms except as
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws pertaining to creditors rights generally and the
Company will have duly authorized, reserved and set aside the shares of its
Common Stock issuable upon exercise of the Underwriters' Unit Warrants and the
underlying warrants and such stock, when issued and paid for upon exercise of
the
19
<PAGE>
Underwriters' Unit Warrants and the underlying warrants in accordance with the
provisions thereof, will be duly and validly issued, fully-paid and
non-assessable.
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement as the Representative shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact.
(h) The Company shall have furnished to the Representative
certificates of the President and a Vice-President of the Company, dated as of
the Closing Date, and Additional Closing Date(s), to the effect that:
(i) Each of the representations and warranties of the Company
contained in Section 2 hereof is true and correct in all material respects at
and as of such Closing Date, and the Company has performed or complied with all
of its agreements, covenants and undertakings contained in this Agreement and
has performed or satisfied all the conditions contained in this Agreement on its
part to be performed or satisfied at the Closing Date;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has been
issued, and, to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and the Prospectus and any amendments and supplements
thereto, and to the best of their knowledge the Registration Statement and the
Prospectus and any amendments and supplements thereto and all statements
contained therein are true and correct in all material respects, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth except changes which the
Registration Statement and Prospectus indicate might occur.
(iv) Except as set forth or contemplated in the Registration
Statement and Prospectus, since the respective dates as of which, or periods for
which, information is given in the Registration Statement and Prospectus and
prior to the date of such certificate (A) there has not been any material
adverse change, financial or otherwise, in the business, business prospects,
earnings, general affairs or condition (financial or otherwise), of the Company
(in each case whether or not arising in the ordinary course of business), and
(B) the Company has not incurred any material liabilities, direct or contingent,
or entered into any material transactions, otherwise than in the ordinary course
20
<PAGE>
of business other than as referred to in the Registration Statement or
Prospectus and except changes which the Registration Statement and Prospectus
indicate might occur.
(i) The Company shall have furnished to the Representative on the
Closing Date, such other certificates of executive officers of the Company
additional to those specifically mentioned herein, as the Representative may
have reasonably requested, as to: the accuracy and completeness of any statement
in the Registration Statement or the Prospectus, or in any amendment or
supplement thereto; the representations and warranties of the Company herein;
the performance by the Company of its obligations hereunder; or the fulfillment
of the conditions concurrent and precedent to the obligations of the
Underwriters hereunder, which are required to be performed or fulfilled on or
prior to the Closing Date.
(j) At the time this Agreement is executed, and on each Closing Date
you shall have received a letter from Morrison, Brown, Argiz & Co., addressed to
the Representative, as representative of the Underwriters, and dated,
respectively, as of the date of this Agreement and as of each Closing Date in
form and substance reasonably satisfactory to the representative, to the effect
that:
(i) They are independent public accountants within the meaning
of the Act and the applicable published rules and regulations promulgated
thereunder;
(ii) In their opinion, the financial statements and related
schedules of the Company included in the Registration Statement and Prospectus
and covered by their reports comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules and
regulations of the Commission issued thereunder;
(iii) On the basis of limited procedures in accordance with
standards established by the American Institute of Certified Public Accountants,
including (1) a reading of the latest available financial statements of the
Company (a copy of which shall be attached to such letter), (2) a reading of the
latest available minutes of the meetings of the stockholders and the Board of
Directors of the Company as set forth in the minute books of the Company,
officials of the Company having advised you and them that the minutes of all
such meetings through that date were set forth therein, (3) consultations with
officials of the Company responsible for financial and accounting matters of the
Company, which procedures do not constitute an examination in accordance with
generally accepted accounting standards, and would not necessarily reveal
material adverse changes in the financial position or results of operations or
inconsistencies in the application of generally accepted accounting principles,
nothing has come to their attention which in their judgment would lead them to
believe that (a) the unaudited financial statements and related schedules of the
Company included in the Registration Statement and Prospectus do not comply as
to form in all material respects with the applicable accounting requirements of
21
<PAGE>
the Act and the published Rules and Regulations of the Commission issued
thereunder, or were not prepared in accordance with generally accepted
accounting principles and practices consistent in all material respects with
those followed in the preparation of the comparable financial statements and
schedules covered by their reports included in the Registration Statement and
Prospectus, or would require any material adjustments for a fair presentation of
the information purported to be shown thereby or (b) during the period from the
date of the Capitalization table included in the Prospectus to a specified date
not more than four business days prior to the date of such letter, there has
been any material change in the capital stock or debt of the Company, or (c)
during the period from the date of the latest balance sheet and related
statements of operations, changes in stockholders' equity and changes in
financial position included in the Prospectus and covered by their reports
contained therein to the date of the letter, there has been any material adverse
change in the financial condition, or results of operations, of the Company; and
(iv) In addition to the examination referred to in their
reports included in the Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are derived from the
general accounting records of the Company which appear in the Prospectus under
the captions "Capitalization", "Management's Discussion and Analysis of
Financial Condition", "Director and Executive Compensation", "Certain
Relationships and Related Transactions", "Selected Financial Information,"
"Dilution," and "Risk Factors," as well as such other financial information as
may be specified by the Representative, and that they have compared such
amounts, percentages and financial information with the accounting records of
the Company and have found them to be in agreement.
All the opinions, letters, certificates and evidence mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel to the Underwriters, whose approval shall not be
unreasonably withheld, conditioned or delayed.
If any of the conditions specified in this Section shall not
have been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the Underwriters hereunder may be terminated
and canceled by the Representative by notifying the Company of such termination
and cancellation in writing or by telegram at any time prior to, or on, the
Closing Date and any such termination and cancellation shall be without
liability of any party hereto to any other party, except with respect to the
provisions of Sections 7 and 8 hereof. The Representative may, of course, waive,
in writing, any conditions which have not been fulfilled or extend the time for
their fulfillment.
SECTION 12. Termination.
22
<PAGE>
(a) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time before it becomes
effective pursuant to Section 10.
(b) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company, at any time after it becomes
effective, in the event that the Company, after notice from the Representative
and an opportunity to cure, shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, including without limitation Section 6(g) hereof, unless
compliance therewith or performance or satisfaction thereof shall have been
expressly waived by the Representative in writing. This Agreement may also be
terminated if (i) qualifications are received or provided by the Company's
independent public accountants or attorneys to the effect of either inabilities
in furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the securities
contemplated or as to corporate proceedings or other matters or (ii) there is
any action, suit or proceeding, threatened or pending, at law or equity against
the Company, or by any federal, state or other commission, board or agency
wherein any unfavorable result or decision could materially adversely affect the
business, property, or financial condition of the Company which was not
disclosed in the Prospectus.
(c) This Agreement may be terminated by the Representative by
written or telegraphic notice to the Company at any time after it becomes
effective, if the offering of, or the sale of, or the payment for, or the
delivery of, the Units is rendered impracticable or inadvisable because (i)
additional material governmental restriction, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such exchange shall have
been suspended or a general banking moratorium shall have been established by
Federal or New York State authorities or (ii) a war or other national calamity
shall have occurred involving the United States or (iii) the condition of the
market for securities in general shall have materially and adversely changed, or
(iv) the condition of any matter materially affecting the Company or its
business or business prospects, is such that it would be undesirable,
impractical or inadvisable to proceed with, or consummate, this Agreement or the
public offering of the Units.
(d) Any termination of this Agreement pursuant to this Section 12
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
hereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 6, 7 and 8, to the
extent therein provided.
23
<PAGE>
SECTION 13. Finder. The Company and the Underwriters mutually represent
that they know of no person who rendered any service in connection with the
introduction of the Company to the Underwriters and that they know of no claim
by anyone for a "finder's fee" or similar type of fee, in connection with the
public offering which is the subject of this Agreement. Each party hereby
indemnifies the other against any such claims by any person known to it, and not
known to the other party hereto, who shall claim to have rendered services in
connection with the introduction of the Company to the Underwriters and/or to
have such a claim.
SECTION 14. Substitution of Underwriters.
(a) If one or more Underwriters default in its or their obligations
to purchase and pay for Units hereunder and if the aggregate amount of such
Units which all Underwriters so defaulting have agreed to purchase does not
exceed 10% of the aggregate number of Units constituting the Units, the
non-defaulting Underwriters shall have the right and shall be obligated
severally to purchase and pay for (in addition to the Units set forth opposite
their names in Schedule I) the full amount of the Units agreed to be purchased
by all such defaulting Underwriters and not so purchased, in proportion to their
respective commitments hereunder. In such event the Representative, for the
accounts of the several non-defaulting Underwriters, may take up and pay for all
or any part of such additional Units to be purchased by each such Underwriter
under this subsection (a), and may postpone the Closing Date to a time not
exceeding seven full business days; or
(b) If one or more Underwriters (other than the Representative)
default in its or their obligations to purchase and pay for the Units hereunder
and if the aggregate amount of such Units which all Underwriters so defaulting
shall have agreed to purchase shall exceed 10% of the aggregate number of Units,
or if one or more Underwriters for any reason permitted hereunder cancel its or
their obligations to purchase and pay for Units hereunder, the non-canceling and
non-defaulting Underwriters (hereinafter called the "Remaining Underwriters")
shall have the right, but shall not be obligated to purchase such Units in such
proportion as may be agreed among them, at the Closing Date. If the Remaining
Underwriters do not purchase and pay for such Units at such Closing Date, the
Closing Date shall be postponed for one business day and the remaining
Underwriters shall have the right to purchase such Units, or to substitute
another person or persons to purchase the same or both, at such postponed
Closing Date. If purchasers shall not have been found for such Units by such
postponed Closing Date, the Closing Date shall be postponed for a further two
business days and the Company shall have the right to substitute another person
or persons, satisfactory to you to purchase such Units at such second postponed
Closing Date. If the Company shall not have found such purchasers for such Units
by such second postponed Closing Date, then this Agreement shall automatically
terminate and neither the Company nor the remaining Underwriters (including the
Representative) shall be under any obligation under this Agreement (except that
the Company shall remain liable to the extent provided in Paragraph 7 hereof).
As used in this
24
<PAGE>
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 14. Nothing in this subparagraph (b) will relieve
a defaulting Underwriter from its liability, if any, to the other Underwriters
for damages occasioned by its default hereunder (and such damages shall be
deemed to include, without limitation, all expenses reasonably incurred by each
Underwriter in connection with the proposed purchase and sale of the Units) or
obligate any Underwriter to purchase or find purchasers for any Units in excess
of those agreed to be purchased by such Underwriter under the terms of Sections
3 and 14 hereof.
SECTION 15. Registration of the Underwriters' Unit Warrants and/or
securities underlying the Underwriter's Unit Warrants. The Company agrees that
it will, upon request by the Representative or the holders of a majority of the
Underwriters' Unit Warrants and underlying securities within the period
commencing one year after the Effective Date, and for a period of five years
from the Effective Date, on one occasion only at the Company's sole expense,
cause the Underwriter's Unit Warrants and/or the underlying securities issuable
upon exercise of the Underwriter's Unit Warrants, to be the subject of a
post-effective amendment or a new Registration Statement, if appropriate
(hereinafter referred to as the "demand Registration Statement"), so as to
enable the Representative and/or its assigns to offer publicly the Underwriter's
Unit Warrants and/or the underlying securities. The Company agrees to register
such securities expeditiously and, where possible, within forty-five (45)
business days after receipt of such requests. The Company agrees to use its
"best efforts" to cause the post-effective amendment or new Registration
Statement to become effective and for a period of nine (9) months thereafter to
reflect in the post-effective amendment or new Registration Statement, financial
statements which are prepared in accordance with Section 10(a)(3) of the Act and
any facts or events arising which, individually or in the aggregate, represent a
fundamental and/or material change in the information set forth in such
post-effective amendment or new Registration Statement. The holders of the
Underwriters' Unit Warrants may demand registration without exercising the
Underwriter's Unit Warrants and, in fact, are never required to exercise same.
The Company understands and agrees that if, at any time within
the period commencing one year after the Effective Date and ending seven years
after the Effective Date of the Company's Registration Statement, it should file
a Registration Statement with the Commission pursuant to the Act, regardless of
whether some of the holders of the Underwriters' Unit Warrants and underlying
securities shall have theretofore availed themselves of the right provided
above, the Company, at its own expense, will offer to said holders the
opportunity to register the Underwriters' Unit Warrants and underlying
securities. This paragraph is not applicable to a Registration Statement filed
by the Company with the SEC on Form S-8 or any other inappropriate form.
For purposes of this Section 15, the term "underlying
securities" shall refer to and include the Common Stock and underlying warrants
issuable and issued upon
25
<PAGE>
exercise of the Underwriters' Unit Warrants as well as any Common Stock issued
upon the exercise of the underlying warrants.
SECTION 16. Warrant Exercise Fee Agreement. Commencing twelve months after
the Effective Date, the Company will pay Fairchild an amount equal to ten (10%)
percent of the aggregate exercise price of each Warrant exercised of which a
portion may be allowed to the dealer who solicited the exercise (which may also
be Fairchild); provided: (1) the market price of the Common Stock on the date
the Warrant was exercised was greater than the Warrant exercise price on that
date; (2) exercise of the Warrant was solicited by a member of the Nasd; (3) the
Warrant was not held in a discretionary account; (4) disclosure of compensation
arrangements was made both at the time of the offering and at the time of
exercise of the Warrant; and (5) the solicitation of the exercise of the Warrant
was not in violation of Regulation M promulgated under the Securities Exchange
Act of 1934 or Rule 2710 of the Nasd Rules of Conduct. The Warrant Exercise Fee
shall be paid in accordance with the provisions of this paragraph and the
Warrant Exercise Fee Agreement filed as an exhibit to the Registration Statement
(the "Warrant Exercise Fee Agreement"). After the Effective Date, the Company
also agrees to execute and deliver the Warrant Exercise Fee Agreement to
Fairchild on or before the Closing Date.
SECTION 17. Designation of a Non-voting Advisor to the Board: Unless
waived by us, we shall have the right to designate a non-voting advisor to the
Board for a period of five years after the Effective Date. Said designee, shall
attend meetings of the Board and receive no more or less compensation than is
paid to other non-management directors of the Company and shall be entitled to
receive reimbursement for all reasonable costs incurred in attending such
meetings, including but not limited to, food, lodging and transportation.
Moreover, to the extent permitted by law, the Company will indemnify the
Representative and its designee for the actions of such designee as an advisor
of the Company. In the event that the Company maintains officer and director
liability insurance, the Company will utilize its best efforts to have
Representative and its non-voting advisor covered by such policy.
SECTION 18. Consulting Fee. At Closing, the Company will enter into a one
year financial consulting agreement pursuant to which it will pay the
Representative in advance in full at closing a fee of $100,000.
SECTION 19. Notice. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail, return
receipt requested, addressed to the Company at Suite 100, 6654 Greenpark Drive,
Boulder, Co 80301 with a copy to the attention of William F. Riggs, Esq. at
Doerner, Saunders, Daniel & Anderson, L.L.P., 320 South Boston Avenue, Suite
500, Tulsa, Oklahoma, 74103 and (B) whenever notice is required by the
provisions hereof to be given to the Underwriters, such notice shall be in
writing addressed to the Representative at the address set forth on the first
page of this Agreement, copy to Steven Morse, Esq., Lester Morse P.C., 111 Great
Neck Road,
26
<PAGE>
Suite 420, Great Neck, New York 11021. Any party may change the address for
notices to be sent by giving written notice to the other persons.
SECTION 20. Representations and Agreements to Survive Delivery. Except as
the context otherwise requires, all representations, warranties, covenants, and
agreements contained in this Agreement shall be deemed to be representations,
warranties, covenants, and agreements as at the date hereof and as at the
Closing Date and the Additional Closing Date(s), and all representations,
warranties, covenants, and agreements of the several Underwriters and the
Company, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any of the Underwriters or the Company or
any of their respective controlling persons, and shall survive any termination
of this Agreement (whensoever made) and/or delivery of the Firm Units and the
Optional Units to the several Underwriters.
SECTION 21. Miscellaneous. This Agreement is made solely for the benefit
of the Underwriters and the Company and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successor" or the term "successors and assigns" as used in
this Agreement shall not include any purchaser, as such, of any of the Units.
This Agreement shall not be assignable by any party without
the other party's prior written consent. This Agreement shall be binding upon,
and shall inure to the benefit of, our respective successors and permitted
assigns. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. The validity,
interpretation and construction of this Agreement, and of each part hereof,
shall be governed by the internal laws of the State of New York, without giving
effect to the conflict of laws provisions thereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall be deemed to be one and the same
instrument. If a party signs this Agreement and transmits an electronic
facsimile of the signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed original of this
Agreement.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
the Company and the Underwriters in accordance with its terms.
Very truly yours,
SPORTSTRAC SYSTEMS, INC.
27
<PAGE>
By:
-----------------------------------
President/Chief Executive Officer
CONFIRMED AND ACCEPTED, as of the
date first above written:
FAIRCHILD FINANCIAL GROUP, INC.
By:
------------------------------------------------
Wendy Chen, Chief Operating Officer
For itself and as the Representative of the
other Underwriters named in Schedule I hereto.
28
<PAGE>
SCHEDULE I
Underwriters Number of Firm Units to be Purchased
- ------------
Fairchild Financial Group, Inc.
Total 585,000
=======
29
EXHIBIT 1.2
SPORTSTRAC SYSTEMS, INC.
585,000 UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON
STOCK AND TWO CLASS A COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
____________, 1999
To each of the Underwriters named in Schedule I
to the attached Underwriting Agreement
Dear Sirs:
1. UNDERWRITING AGREEMENT. SportsTrac Systems, Inc., a Delaware
corporation (the "Company"), proposes to enter into an underwriting agreement in
the form of the Underwriting Agreement attached hereto as Exhibit "A" (the
"Underwriting Agreement") with the underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters"), acting severally and not jointly,
with respect to the purchase from the Company of 585,000 Units, each unit
consisting of one share of Common Stock and two Class A Common Stock Purchase
Warrants (the "Firm Units"). Upon our request, and as provided in Section 3 of
the Underwriting Agreement, the Company will also issue and sell to the
Underwriters up to a maximum of an additional 87,750 Units (the "Optional
Units"). Both the Firm Units and the Optional Units are sometimes collectively
referred to herein as the "Units." All of the Units which are the subject of
this Agreement are more fully described in the Prospectus of the Company
described below. Under the terms of the Underwriting Agreement, each of the
Underwriters will agree, in accordance with the terms thereof to purchase the
aggregate number of Firm Units set forth opposite its name in said Schedule I,
subject to adjustment pursuant to Section 12 hereof and Section 14 of the
Underwriting Agreement.
2. REGISTRATION STATEMENT AND PROSPECTUS. The Units are described in a
registration statement and related prospectus which have been filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). An amendment to such registration statement has
been or will be filed in which you have been or will be named as one of the
Underwriters of the Units. Copies of the registration statement as filed and as
amended have been delivered to you, and you hereby authorize us to approve on
your behalf any further amendments or supplements which may be necessary or
appropriate. The registration statement, as amended at the time it becomes
effective, is called the "Registration Statement" and the final prospectus
1
<PAGE>
relating to the Units as filed by the Company with the Commission pursuant to
Rule 424(b) under the Act is referred to as the "Prospectus."
3. AUTHORITY OF REPRESENTATIVE. You authorize us as your Representative to
execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to the
number of, and price of, the Units to be purchased by you except as provided
herein and therein) and to take such action as in our discretion we may deem
advisable in respect of all matters pertaining to the Underwriting Agreement,
this Agreement, the transactions for the accounts of the several Underwriters
contemplated thereby and hereby, and the purchase, carrying, sale and
distribution of the Units.
4. PUBLIC OFFERING. In connection with the public offering of the Units,
you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement becomes effective), the initial public
offering price, and the concessions and reallowances to dealers, to change the
public offering price and such concessions and reallowances after the initial
public offering, to furnish the Company with the information to be included in
the Registration Statement and the Prospectus (and any amendment or supplement
thereto) with respect to the terms of the public offering, and to determine all
matters relating to the public advertisement of the Units and any communications
with dealers or others;
(b) To reserve all or any part of your Units for sale to retail
purchasers (including institutions) and to dealers selected by us ("Selected
Dealers") among which may be included any Underwriter (including ourselves) and
each of which shall be a member of the National Association of Securities
Dealers, Inc., and each of which shall agree that in making sales to purchasers
in the United States it will conform to the Rules of Fair Practice of said
Association (or, in the case of a foreign dealer not eligible for membership in
such Association, which shall agree not to reoffer, resell or deliver Units in
the United States, its territories or its possessions, or to persons whom it has
reason to believe are citizens thereof or residents therein), such reservations
for sales to retail purchasers to be as nearly as practicable in proportion to
the respective underwriting obligations of the Underwriters and such
reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Units such Units
retained by you remaining unsold and to release to you any of your Units
reserved but not sold;
(c) To sell reserved Units as nearly as practicable in proportion to
the respective reservations to retail purchasers at the public offering price,
and to Selected Dealers at the public offering price less the Selected Dealer's
concession pursuant to the Selected Dealers Agreement in substantially the form
attached; and
2
<PAGE>
(d) To buy Units for your account from Selected Dealers at the
public offering price less such amount not in excess of the Selected Dealer's
concession as we may determine.
After advice from us that the Units are released for public offering, you
will offer to the public in conformity with the terms of offering set forth in
the Prospectus, or any amendment or supplement, such of your Units as we advise
you are not reserved.
You recognize the importance of a broad distribution of the Units among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Units to Selected Dealers we will take
such action as we deem appropriate to effect a broad distribution.
5. REPURCHASE OF UNITS NOT EFFECTIVELY PLACED FOR INVESTMENT. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
Underwriter prior to termination of the provisions referred to in Section 11 of
this Agreement, shall be purchased by you upon demand from us at the cost of
such purchase plus brokerage commissions and transfer taxes on redelivery. Units
delivered on such repurchase need not be identical to those purchased by you. In
lieu of demand repurchase by you we may in our discretion (i) sell for your
account the Units so purchased by us, at such price and upon such terms as we
may determine, and debit or credit your account with the loss and expense or net
profit resulting from such sale, or (ii) charge your account with an amount not
in excess of the Selected Dealer's concession with respect to such Units plus
brokerage commissions and transfer taxes paid in connection with such purchase.
6. PAYMENT AND DELIVERY. We shall give you at least 24 hours prior notice
of the Closing Date. You agree to deliver to us at or before 9:00 a.m., New York
City time, on such Closing Date and at or before 9:00 a.m. New York City time,
on the Additional Closing Date referred to in the Underwriting Agreement if the
Optional Units are purchased, at the office of Fairchild FinancialGroup, Inc.,
99 Wall Street, 4th Floor, New York, New York 10005 (or such other office as we
may direct), a certified check or bank cashier's check payable in New York
Clearing House funds to the order of Fairchild Financial Group, Inc., as
Representative, for the full purchase price of the Units which you shall have
agreed to purchase from the Company less the concession to selected dealers. If
you are a member or clear through a member of the Depository Trust Company
("DTC"), you may, in your discretion, deliver payment and receive Units through
the facilities of DTC. The proceeds shall be delivered in the amounts required
in each case for payment of the full purchase price by us to the Company against
delivery of the Units to us for your account. We are authorized to accept that
delivery and to give a receipt therefor. We may in our
3
<PAGE>
discretion make such payment on your behalf with our own funds, in which event
you will reimburse us promptly upon request. You authorize us, as your
custodian, to take delivery of your Units, registered as we may direct in order
to facilitate deliveries. You also authorize us to hold for your account such of
your Units as we have reserved for sale to retail purchasers and to Selected
Dealers, and to deliver your reserved Units against such sales. We will deliver
your unreserved Units to you promptly and, after we receive payment for reserved
Units sold by us for your account, we will remit to you, as promptly as
practicable, an amount equal to the price paid by you for such Units. As soon as
practicable after termination of Sections 4, 5 and 9 and the first and
penultimate sentences of Section 8 of this Agreement (pursuant to Section 11
hereof) we will deliver to you any of your Units reserved but not sold. All
Units delivered to you pursuant to this Section will be evidenced by
certificates in such denominations as you shall direct by written notice
received by us not later than the second full business day preceding the Closing
Date.
7. AUTHORITY TO BORROW. In connection with the purchase or carrying of any
Units purchased hereunder for your account, you authorize us, in our discretion,
to advance funds for your account, charging current interest rates, or to
arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Units. Any lender may rely on our instructions in all matters relating to
any such loan. Any of your Units held by us for your account may be delivered to
you for carrying purposes only, and subject to our further direction.
8. STABILIZATION AND OVER-ALLOTMENT. To facilitate the distribution of the
Units, you authorize us during the term of this Agreement, or for such longer
period as may be necessary in our discretion, to make purchases and sales of the
Units for your account in the open market or otherwise, for long or short
account, on such terms as we deem advisable and, in arranging sales, to
over-allot. You also authorize us to cover any short position incurred pursuant
to this Section on such terms as we deem advisable. Included in the authority
granted to us by you is the authority to exercise the over-allotment option to
purchase the Optional Units granted by Section 3 of the Underwriting Agreement.
Except with respect to the exercise of such over-allotment option, all such
purchases and sales (other than purchases and sales of the Optional Units) shall
be made for the accounts of the several Underwriters as nearly as practicable in
proportion to their respective underwriting obligations. Your net commitment
under this Section shall not, at the end of any business day, exceed 15% of your
maximum underwriting obligation. You will on our demand take up at cost or
deliver against payment any Units purchased or sold or over-allotted for your
account and, if any such other Underwriter defaults in its corresponding
obligation, you will assume your proportionate share of such obligation without
relieving the defaulting Underwriter from liability. You will be obligated in
respect to purchases and sales made for your account hereunder whether or not
the proposed purchase of the Units is consummated. Upon request you will advise
us of Units retained by you and unsold and will sell to us for the account of
one or more of the Underwriters
4
<PAGE>
such of your unsold Units as we may designate, at the public offering price
thereof less such amount as we may determine, but not in excess of the Selected
Dealer's concession with respect thereto. Until the termination of this
Agreement pursuant to Section 11 hereof, or prior notification by us, we shall
have the sole right to effect stabilizing transactions in the Units. You agree
that until such time you will not make any purchases or sales of any of such
Units except as provided in Section 9 hereof. You also agree to timely provide
us with the information required by Rule 17a-2(d) under the Securities Exchange
Act of 1934, as amended (the "1934 Act").
9. OPEN MARKET TRANSACTIONS. You agree not to bid for, purchase, attempt
to induce others to purchase, or sell, directly or indirectly, any Units, except
as brokers pursuant to unsolicited orders and as otherwise provided in this
Agreement or in the Underwriting Agreement. You further agree not to offer the
Units for sale until notified by us, as the Representative of the Underwriters,
that they are released for that purpose.
10. EXPENSES AND SETTLEMENT. We may charge your account with Selected
Dealer's concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement, in excess of those reimbursed by the Company pursuant to
Section 8 of the Underwriting Agreement, or in connection with the purchase,
carrying, sale or distribution of the Units. Our determination of the amount and
allocation of expenses shall be conclusive. As soon as practicable after
termination of the provisions referred to in Section 11, the accounts hereunder
will be settled, but we may reserve from distribution such amount as we deem
advisable to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (i)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association, partnership,
unincorporated business or other separate entity, and of any expenses incurred
by us, or by any other Underwriter with our approval, in contesting any such
liability, and (ii) any transfer taxes which may be assessed and paid after such
settlement on account of any sale or transfer for your account.
11. TERMINATION AND SETTLEMENT. This Agreement will terminate (a) at the
close of business on the 30th day after the date of the Underwriting Agreement;
or (b) on such earlier or later date, not more than 30 days after the date
specified in (a), as we may determine; or (c) on the date of termination of the
Underwriting Agreement, if the same shall be terminated as provided by its
terms.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder will cease, except (a) the mutual obligation to settle
accounts hereunder, (b)
5
<PAGE>
your obligation to pay any claims referred to in the last paragraph of this
Section, (c) the obligations with respect to indemnity set forth in Section 15
hereof (all obligations of which will continue until fully discharged), and (d)
your obligation with respect to purchases which may be made by us from time to
time thereafter to cover any short position with respect to the offering, all of
which will continue until fully discharged, and except our authority with
respect to matters to be determined by us, or by us and the Company, pursuant to
the terms of the Underwriting Agreement, which will survive the termination of
this Agreement.
The accounts arising pursuant to this Agreement will be settled and paid
as soon as practicable after termination. The determination by us of the amounts
to be paid to or by you will be final and conclusive.
Notwithstanding any settlement upon the termination of this Agreement, you
will pay your proportionate share of any amount asserted against and discharged
by the Underwriters, or any of them, based upon the claim that the Underwriters
constitute an association, unincorporated business or other separate entity, or
based upon or arising out of a claim that this Agreement or the Underwriting
Agreement is invalid or illegal for any reason, including any expense incurred
in defending against such claim, and will pay any transfer taxes which may be
assessed thereafter on account of any sale or transfer of Units for our account.
12. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters hereunder
or under the Underwriting Agreement shall not release the other Underwriters
from their obligations or affect the liability of any defaulting Underwriter to
the other Underwriters for damages resulting from such default. In case of
default under the Underwriting Agreement by one or more Underwriters, we may
arrange for the purchase by others, including non-defaulting Underwriters, of
Units not taken up by such defaulting Underwriter and you will, at our request,
increase pro rata with the other non-defaulting Underwriters the aggregate
principal amount of Units which you are to purchase, or both, by an amount not
exceeding one-ninth of your original underwriting obligations. In the event any
such arrangements are made, the respective Units to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. POSITION OF REPRESENTATIVE. We shall be under no liability to you for
any act or omission except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred. Nothing
shall constitute the
6
<PAGE>
Underwriters, or any of them, an association, partnership, unincorporated
business or other separate entity and the rights and liability of ourselves and
each of the Underwriters are several and not joint.
14. COMPENSATION TO REPRESENTATIVE. As compensation for our services as
Representative, you agree to pay us $____ per Unit out of the aggregate
underwriting discount attributable to Units which you agree to purchase from the
Company under the Underwriting Agreement. We are authorized to charge your
account with such an amount.
15. INDEMNIFICATION. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act to the extent and upon the terms by which each
Underwriter agrees to indemnify the Company in the Underwriting Agreement. Such
indemnity agreement shall survive the termination of any of the provisions of
this Agreement.
In the event that at any time any claim shall be asserted against us as or
as a result of our having acted as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
16. BLUE SKY MATTERS. We shall not have any responsibility with respect to
the right of any Underwriter or other person to sell Units in any jurisdiction,
notwithstanding any information we may furnish in that connection. You hereby
authorize us to take such action as may be necessary or advisable to qualify the
Units for offering and sale in any jurisdiction. We have caused to be filed
Further State Notices respecting the Units to be offered to the public in New
York in the form required by, and pursuant to, the provisions of Article 23A of
the General Business Law of the State of New York.
17. TITLE TO UNITS. The Units purchased for the respective accounts of the
several Underwriters shall remain the property of those Underwriters until sold;
and no title to such Units shall in any event pass to us, as Representative, by
virtue of any of the provisions of this Agreement.
7
<PAGE>
18. CAPITAL REQUIREMENTS. Unless the provisions of clause (b) of the
second sentence of the last paragraph of this Agreement are applicable to you,
you confirm that your commitment hereunder will not result in any violation of
Section 8(b) or 15(c) of the 1934 Act or in any violation of any of the rules
and regulations promulgated under the 1934 Act, including, without limitation,
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which you are subject or of any restriction imposed upon you by such
exchange.
19. NOTICES AND GOVERNING LAWS. Any notice from you to us shall be mailed
or transmitted by any standard form of written telecommunication to us at 99
Wall Street, 4th Floor, New York, NY 10005. Any notice from us to you shall be
mailed or transmitted by any standard from of written telecommunication to you
at your address as set forth in your Underwriter's Questionnaire. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are (a) a member
in good standing of such Association or (b) a foreign dealer which is not
eligible for membership in such Association, in which event you will make sales
of any Units only outside the United States and its territories and possessions
to persons who are not citizens or residents of the United States or its
territories or possessions, and that in making any such sales, you will comply
with such Association's Interpretation with respect to Free-Riding and
Withholding. You further represent that: (i) you will notify each of your
customers with respect to whose account you have investment discretion and to
whose account you intend to sell any Units that you propose to sell Units to
such account as a principal and you will obtain the customer's written consent
to such sale; and (ii) you will comply with the requirements of Rule 15c2-8
under the 1934 Act and have distributed or are distributing copies of a
Preliminary Prospectus to all persons to whom you then expected to mail
confirmations of sale, not less than 48 hours prior to the time it is expected
to mail such confirmations.
Very truly yours,
FAIRCHILD FINANCIAL GROUP, INC.
By:
--------------------------------------
As Representative of the several
Underwriters
Confirmed and accepted as of
the date first above written.
8
<PAGE>
- -------------------------------
Attorney-in-fact for the several
Underwriters named in Schedule I
to the Underwriting Agreement
9
EXHIBIT 1.3
FAIRCHILD FINANCIAL GROUP, INC.
99 WALL STREET, 4TH FLOOR
NEW YORK, NY 10005
SPORTSTRAC SYSTEMS, INC.
585,000 UNITS
SELECTED DEALER AGREEMENT
Dear Sirs: ____________, 1999
We, as the Underwriter named in the below referred to Prospectus (the
"Underwriter") have agreed, subject to the terms and conditions of the
Underwriting Agreement dated this date (the "Underwriting Agreement") to
purchase from SportsTrac Systems, Inc. (the "Company") at the price set forth on
the cover of such Prospectus, 585,000 Units and up to an additional 87,750 Units
from the Company being called the "Units"). The Units and certain of the terms
on which they are being purchased and offered are more fully described in the
enclosed Prospectus (the "Prospectus"). Additional copies of the Prospectus will
be supplied to you, in reasonable quantities upon request.
We, as the Underwriter, are offering to certain dealers ("Selected
Dealers"), among whom we are pleased to include you, part of the Units, at the
public offering price less a concession of $___ per Unit. The offering to
Selected Dealers is made subject to the issuance and delivery of the Units to us
and their acceptance by us, to the approval of legal matters by our counsel, and
to the terms and conditions hereof, and may be made by us on the basis of the
reservation of Units or an allotment against subscription, or otherwise in our
discretion.
The initial public offering price of the Units is set forth in the
Prospectus. With our consent, Selected Dealers may allow a concession of not in
excess of $___ per Unit in selling the Units to other dealers meeting the
requirements of the specifications set forth in the affirmation of dealers
contained in the attached Acceptance and Order. Upon our request, you will
notify us of the identity of any dealer to whom you allow such a discount and
any Selected Dealer from whom you receive such a discount.
All orders will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part, to
accept or reject orders in the order of their receipt or otherwise, and to
allot. You are not authorized to give any information or make any representation
other than as set forth in the Prospectus in connection with the sale of any of
the Units. No dealer is authorized to act as agent for the Underwriter or for
the Company, when offering any of the Units. Nothing contained herein shall
constitute the Selected Dealers partners with us or with one another.
1
<PAGE>
Upon release by us, you may offer the Units at the public offering price,
subject to the terms and conditions hereof. We may, and the Selected Dealers
may, with our consent, purchase Units from and sell Units to each other at the
public offering price less a concession not in excess of the concession to
Selected Dealers.
Payment for Units purchased by you is to be made at our office (or at such
other place as instructed) at the public offering price, on such date as we may
advise, on one day's notice to you, by certified or official bank check in New
York Clearing House funds payable to our order. Delivery to you of certificates
for Units will be made as soon as is practicable thereafter. Unless specifically
authorized by us, payment by you may not be deferred until delivery of
certificates to you. The concession payable to you will be paid as soon as
practicable after the closing.
This Agreement shall terminate at the close of business on the 30th day
after the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Dealers based upon the claim that the Underwriter and the
Selected Dealers, or any of them, constitute a partnership, association,
unincorporated business or other entity, including in each case your
proportionate share of expenses incurred in defending against any such claim or
liability.
In the event that, prior to the termination of this Agreement we purchase
in the open market or otherwise any Units delivered to you, you agree to repay
to us for the account of the Underwriter the amount of the above concession to
Selected Dealers plus brokerage commissions and any transfer taxes paid in
connection with such purchase; which amounts can be withheld from the concession
otherwise payable to you hereunder. Certificates for Units delivered on any such
purchase need not be the identical certificates originally issued to you.
At any time prior to the termination of this Agreement, you will, upon our
request, report to us the number of Units purchased by you under this Agreement
which then remain unsold and will, upon our request, sell to us for the account
of the Underwriter the number of such unsold Units that we may designate, at the
public offering price less an amount to be determined by us not in excess of the
concession allowed you.
We shall have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the offering, including, without
limitation, stabilization and over-allotment. We shall be under no liability to
you except for our lack of good faith and for obligations assumed by us in this
Agreement, except that you do not waive any rights that you may have under the
Securities Act of 1933 (the "1933 Act") or the rules and regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Units are
qualified for sale under, or are
2
<PAGE>
exempt from the requirements of, their respective securities laws, but we assume
no responsibility with respect to your right to sell Units in any jurisdiction.
We have filed a Further State Notice with respect to the Units with the
Department of State of the State of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Rule 10b-6 under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Rule in connection with this offering.
Any notice from us shall be deemed to have been duly given if telephoned,
and subsequently mailed or transmitted by any standard form of written
tele-communication to you at the address to which this Agreement is mailed, or
if so mailed or transmitted in the first instance.
Please advise us promptly by telephone or any standard form of written
tele-communication of the principal amount of Units ordered by you and confirm
your agreement hereto by signing the Acceptance and Order on the enclosed
duplicate hereof and returning promptly such signed duplicate copy to Fairchild
Financial Group, Inc., 99 Wall Street, 4th Floor, New York, NY 10005. Upon
receipt thereof, this instrument and such signed duplicate copy will evidence
the agreement between us.
Very truly yours,
FAIRCHILD FINANCIAL GROUP, INC.
By:
--------------------------------------
Wendy Chen, Chief Operating Officer
3
<PAGE>
ACCEPTANCE AND ORDER
Fairchild Financial Group, Inc.
99 Wall Street, 4th Floor
Oyster Bay, NY 10001
Dear Sirs:
We hereby enter our order for ______ Units of SportsTrac Systems, Inc.
under the terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above Units
and we further state that in entering this order we have relied upon said
Prospectus and no other statements whatsoever, written or oral. We affirm that
we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories, or possessions
and not registered under the Securities Exchange Act of 1934 and not eligible
for membership in the NASD, who hereby agrees to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein, and in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding, as well as all other
pertinent interpretations of the NASD that may be applicable to us. We also
affirm and agree that we will promptly re-offer any Units purchased by us in
conformity with the terms of the offering and in conformity with the Rules of
Fair Practice of the NASD, (including, without limitation, Sections 8, 24, 25
and 36 Article III thereof) and all applicable Rules and Regulations promulgated
under the Securities Exchange Act of 1934.
Date: , 1999
-----------------------------------------
(Name of Selected Dealer)
By:
--------------------------------------
(Authorized Signature)
Address:
---------------------------------
---------------------------------
4
EXHIBIT 1.4
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated this ___ day of __________, 1999, by and among
Fairchild Financial Group, Inc. ("Fairchild"), SportsTrac Systems, Inc. (the
"Company") and American Stock Transfer & Trust Company (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 585,000 Units, each
Unit consisting one share of Common Stock ("Common Stock") and two Redeemable
Class A Common Stock Purchase Warrants (the "Class A Warrants") of the Company
at a public offering price of $6.00 per Unit, the Company proposes to issue, in
accordance with an agreement dated ________, 1999 by and between the Company and
the Warrant Agent (the "Warrant Agreement"), Class A Warrants to purchase up to
672,750 shares of Common Stock; and
WHEREAS, the parties hereto wish to provide Fairchild a member of
the National Association of Securities Dealers, Inc. ("NASD") with certain
rights on an exclusive basis in connection with the exercise of the Class A
Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Class A Warrants. The Company's Class
A Warrants may be exercised on or after _________, 2000 and expire at 5:00 p.m.
New York City time on _______ 2002 (the "Expiration Date"), subject to the
Company's right to extend the Expiration Date, at which time all rights
evidenced by the Class A Warrants shall cease and the Class A Class A Warrants
shall become void. In accordance with the provisions of the Warrant Agreement,
the holder of each Class A Warrant shall have the right to purchase from the
Company, and the Company shall issue and sell to such holders of Class A
Warrants, one fully paid and non-assessable share of the Company's Common Stock
for every Class A Warrant exercised at an exercise price of $7.20 subject to
adjustment as provided in the Warrant Agreement (the "Exercise Price").
Section 2. Notification of Exercise. Within five (5) days of the
last day of each month commencing ___________, 2000 (one year from the effective
date of the Company's Registration Statement), the Warrant Agent will notify
Fairchild of each Class A Warrant certificate which has been properly completed
and delivered for exercise by holders of Class A Warrants during each such
month, if any, the determination of the proper completion to be in the sole and
absolute reasonable discretion of the Company and the Warrant Agent. The Warrant
Agent will provide Fairchild with such information, in connection with the
exercise of each Class A Warrant, as Fairchild shall reasonably request.
1
<PAGE>
Section 3. Payment to Fairchild. The Company hereby agrees to pay to
Fairchld upon solicitation of the exercise of any Class A Warrant by Fairchild
or any other member of the NASD an amount equal to ten (10%) percent of the
Exercise Price (i.e. $.72 per share based on the initial Exercise Price of the
Class A Warrants) for each Class A Warrant exercised (the "Exercise Fee") a
portion of which may be allowed by Fairchild to the dealer who solicited the
exercise (which may also be Fairchild) provided that:
(a) such Class A Warrant is exercised on or after ________, 2000,
which represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's
Common Stock is higher than the applicable Exercise Price of the Class A Warrant
being exercised;
(c) the holders of Class A Warrants being exercised have indicated
in writing, either in the Form of Election contained on the specimen Class A
Warrant Certificates attached hereto as Exhibits A, or by written documents
signed and dated by the holders and specifically stating that the exercise of
such Class A Warrants were solicited by Fairchild or another member of the NASD;
(d) Solicitation of the exercise was in compliance with NASD Notice
to Members 81-38; and
(e) Fairchild and/or the member of the NASD which solicited the
exercise of Class A Warrants delivers a certificate to the Company within five
(5) business days of receipt of information relating to such exercised Class A
Warrants from the Company or the Warrant Agent in the form attached hereto as
Exhibit B, stating that:
(1) the Class A Warrants exercised were not held in a
discretionary account or, if held in a discretionary account, prior specific
written approval for such exercise has been received from the related customer;
(2) Fairchild or the member of the NASD which solicited the
exercise of Class A Warrants did not, within the applicable number of
business days under Regulation M granted an exemption by the Securities and
Exchange Commission from the provisions thereof), immediately preceding the date
of exercise of the Class A Warrant bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Class A Warrants) or otherwise
engage in any activity that would be prohibited by Regulation M under the
Securities Exchange Act of 1934, as amended, with one engaged in a distribution
of the Company's securities;
(3) in connection with the solicitation, it disclosed the
compensation it would receive as part of the original offering and upon exercise
of the Class A Warrant; and
(4) in connection with the solicitation, it complied with NASD
Notice to Members 81-38.
2
<PAGE>
Section 4. Payment of the Exercise Fee. The Company hereby agrees to
pay over to Fairchild within two (2) business days after receipt by the Company
of the certificate described in Section 3(e) above, but in no event later than
simultaneously with the distribution of proceeds to the Company from such
exercise of Class A Warrant the Exercise Fee out of the proceeds it received
from the applicable Exercise Price paid for the Class A Warrants to which the
certificate relates.
Section 5. Inspection of Records. Fairchild may at any time during
business hours and upon reasonable prior written notice, , at its expense,
examine the records of the Company and the Warrant Agent which relate to the
exercise of the Class A Warrants.
Section 6. Termination. Fairchild shall be entitled to terminate
this Agreement prior to the exercise of all Class A Warrants at any time upon
five (5) business days' prior written notice to the Company and the Agent.
Notwithstanding any such termination notice, Fairchild shall be entitled to
receive an Exercise Fee for the exercise of any Class A Warrant for which it has
already delivered to the Company prior to any such termination the certificate
required by Section 3(e) of this Agreement and shall be entitled to receive such
Exercise Fee simultaneously with the distribution of such proceeds to the
Company.
Section 7. Notices. Any notice or other communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed sufficiently given if sent by first class certified mail, return
receipt requested, postage prepaid, addressed as follows: if to the Company at
Suite 100, 6654 Gunpark Drive, Boulder, CO 80301; if to Fairchild at 99 Wall
Street, Fourth Floor, New York, NY 10005; and if to the Warrant Agent at 40 Wall
Street, New York, NY 10005, or such other address as such party shall have given
notice to the other parties hereto in accordance with this Section. All such
notices or other communications shall be deemed given three (3) business days
after mailing, as aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant
Agent and Fairchild may from time-to-time supplement or amend this Agreement by
a written instrument signed by the party to be charged, without the approval of
any holders of Class A Warrants in order to cure any ambiguity or to correct or
supplement any provisions contained herein or to make any other provisions in
regard to matters or questions arising hereunder which the Company, the Warrant
Agent and Fairchild may deem necessary or desirable and which do not adversely
affect the interests of the holders of Class A Warrants.
Section 9. Assignment. This Agreement may not be assigned by any
party without the express written approval of all other parties, except that
Fairchild may assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under
the laws of the State of New York with respect to matters of contract law and
for all purposes
3
<PAGE>
shall be governed by and construed in accordance with the internal laws of said
state, without regard to the conflicts of laws provisions thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give any person or corporation other than the Company, the
Warrant Agent and Fairchild any legal or equitable right, remedy or claim under
this Agreement; and this Agreement shall be for the sole and exclusive benefit
of, and be binding upon, the Company, the Warrant Agent and Fairchild and their
respective successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and
all prior agreements between the parties with respect to the subject matter
hereof.
Section 14. Exclusive Agreement. It is understood that this
agreement is on an exclusive basis to solicit the exercise of the Warrants and
that the Company may not engage other broker-dealers to solicit the exercise of
Warrants without the consent of Fairchild.
Section 15. Conflict with Warrant Agreement. Any conflict between
any term hereof and any term of the Warrant Agreement shall be resolved in favor
of such provision contained in the Warrant Agreement except that nothing
contained in the Warrant Agreement shall be construed to modify the amount of
compensation payable to Fairchild.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SPORTRTRAC SYSTEMS, INC
By:
--------------------------------------
Marc R. Silverman, President
FAIRCHILD FINANCIAL GROUP, INC.
By:
--------------------------------------
Wendy Chen, Chief Operating Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
-------------------------------
4
<PAGE>
CERTIFICATE
The undersigned, being the ________________ of Fairchild Financial
Group, Inc. ("Fairchild") pursuant to Section 3(e) of the Warrant Exercise Fee
Agreement relating to the exercise of Class A Warrants dated ________, 1999
between SportsTrac Systems, Inc. (the "Company") and American Stock Transfer &
Trust Company (the "Class A Warrant Agent") hereby certifies that:
1. The Company or the Warrant Agent has notified Fairchild that
______________ Class A Warrants (as defined in the Agreement) have been
exercised during _____________, 200__.
2. The exercise of ______________ of such Class A Warrants was
solicited by __________________________.
3. Such Class A Warrants were not held in a discretionary account
or, if held in a discretionary account, prior specific written approval for such
exercise has been received from the related customer.
4. ______________ did not, within _____ business days immediately
preceding _______________ 200__, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Class A Warrants) or otherwise
engage in any activity that would be prohibited by Regulation M under the
Securities Exchange Act of 1934, as amended, with one engaged in a distribution
of the Company's securities.
5. In connection with the solicitation of the exercise of the Class
A Warrants, _____________ disclosed the compensation it will receive to holders
of the Class A Warrants as part of the original offering and upon exercise of
the Class A Warrants.
6. In connection with the solicitation of the exercise of the Class
A Warrants, ____ complied with NASD Notice to Members 81-38.
DATED: _________________, 200__
FAIRCHILD FINANCIAL GROUP, INC.
By:
--------------------------------------
Soliciting Broker-Dealer
By:
--------------------------------------
5
EXHIBIT 1.5
SPORTSTRAC SYSTEMS, INC.
SUITE 100
6654 GUNPARK DRIVE
BOULDER, CO 80301
_____________, 1999
Fairchild Financial Group, Inc.
99 Wall Street, 4th Floor
New York, New York 10005
Gentlemen:
The following sets forth our understanding with respect to your providing
financial advisory services for this corporation.
l. For a period of one (1) year commencing on the date hereof, you will
render financial consulting services to this corporation as such services shall
be required but in no event shall such services require more than two business
days per month. Your services shall include the following:
(a) to advise and assist in matters pertaining to the financial
requirements of our corporation and to assist, as and when required, in
formulating plans and methods of financing;
(b) to prepare and present financial reports required by us and to
analyze proposals relating to obtaining funds for our business, mergers and/or
acquisitions;
(c) to assist in our general relationship with the financial
community including brokers, stockholders, financial analysts, investment
bankers, and institutions; and
(d) to assist in obtaining financial management, and technical and
advisory services, and financial and corporate public relations, as may be
requested or advisable.
2. All services required to be performed hereunder shall be requested by
us in writing and, upon not less than seven business days notice, unless such
notice is waived by you. Such notice shall be to the address specified above or
to such other place as you shall designate to us in writing.
3. For the services to be performed hereunder, and for your continued
availability to perform such services, we will pay you a fee of $100,000, which
sum is payable in full in advance on the closing date of our proposed initial
public offering. Further, we will
<PAGE>
VTR Capital, Inc.
Page 2
reimburse you for such reasonable out-of-pocket expenses as may be incurred by
you on our behalf, but only to the extent authorized by us.
4. This Agreement has been duly approved by our Board of Directors.
5. You shall have no authority to bind this corporation to any contract or
commitment, inasmuch as your services hereunder are advisory in nature.
6. You will maintain in confidence all proprietary, non-published
information obtained by you with respect to our corporation during the course of
the performance of your services hereunder and you shall not use any of the same
for your own benefit or disclose any of the same to any third party, without our
prior written consent, both during and after the term of this Agreement.
7. This Agreement shall not be assignable by either of us without the
other party's prior written consent.
8. This Agreement shall be binding upon, and shall inure to the benefit
of, our respective successors and permitted assigns.
9. The foregoing represents the sole and entire agreement between us with
respect to the subject matter hereof and supersedes any prior agreements between
us with respect thereto. This Agreement may not be modified, amended or waived
except by a written instrument signed by the party to be charged. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of laws of such
State.
Please signify your agreement to the foregoing by signing and returning to
us the enclosed copy of this Agreement which will thereupon constitute an
agreement between us.
Very truly yours,
SPORTSTRAC SYSTEMS, INC.
BY
---------------------------------------
Marc Silverman, President
Agreed and Consented to:
FAIRCHILD FINANCIAL GROUP, INC.
BY
--------------------------------------
<PAGE>
VTR Capital, Inc.
Page 3
Wendy Chen, Chief Operating Officer
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
APPLIED SPORTS TECHNOLOGIES, INC.
NAME
FIRST: The name of the corporation is: Applied Sports Technologies, Inc.
REGISTERED OFFICE AND AGENT
SECOND: The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
The name of the corporation's registered agent at such address is Corporation
Service Company.
PURPOSE
THIRD: The nature of the business or purposes to be conducted or promoted by the
corporation is to engage in any lawful art or activity for which corporations
may be organized under die General Corporation Law of the State of Delaware, as
amended from time to time, or any successor thereto.
AUTHORIZED STOCK
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is Fifteen Million (15,000,000) shares of which Fourteen
Million (14,000,000) shares shall be of a class of common stock, par value of
$0.01 per share ("Common Stock") and One Million (1,000,000) shares shall be of
a class of preferred stock, par value of $0.01 per share ("Preferred stock").
The Preferred Stock, the number of shares, the stated value, dividend
rate, if any, and voting powers, if any, of each series and the designations,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof shall be fixed in the
case of each series by resolution of the Board of Directors at the time of
issuance subject in all cases to the laws of the State of Delaware applicable
thereto, and set forth in a certificate of designations filed and recorded with
respect to each series in accordance with the laws of the State of Delaware.
<PAGE>
INCORPORATOR
FIFTH: The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Dana L. Redburg Barack, Ferrazzano, Kirschbaum,
Perlman & Nagelberg
333 West Wacker Drive
Suite 2700
Chicago, IL 60606
BYLAWS
SIXTH: In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized to make, alter, amend or repeal
the bylaws of the corporation.
WRITTEN BALLOTS
SEVENTH: Election of directors need not be by written ballot unless the bylaws
of the corporation so provide.
AMENDMENTS
EIGHTH: The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
INDEMNIFICATION
NINTH: Each person who is or was a director or officer of the corporation and
each person who serves or served at the request of the corporation as a
director, officer, or partner of another enterprise shall be indemnified by the
corporation in accordance with, and to the fullest extent authorized by, the
General Corporation Law of the State of Delaware, as the same now exists or may
be hereafter amended. No amendment to or repeal of this Article Ninth shall
apply to or have any effect on the rights of any individual referred to in this
Article Ninth for or with respect to acts or omissions of such individual
occurring prior to such amendment or repeal.
PERSONAL LIABILITY OF DIRECTORS
TENTH: To the fullest extent permitted by the General Corporation Law of
Delaware, as the same now exists or may be hereafter amended, a director of the
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article Tenth shall apply to or have any effect on the liability
or alleged liability of any director of the corporation for or with respect to
any acts or omissions of such director occurring prior to the effect date of
such amendment or repeal.
-2-
<PAGE>
CERTAIN ARRANGEMENTS BETWEEN THE
CORPORATION AND ITS CREDITORS
ELEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provision of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provision of Section 2779 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors of class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
DATED as of the 15th day of June, 1998.
/s/ Dana L. Redburg
-----------------------------------------------
Dana L. Redburg
Being the sole incorporator of this corporation
-3-
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
APPLIED SPORTS TECHNOLOGIES INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Applied Sports Technologies Inc.
2. The certificate of the Corporation is hereby amended by striking out
Article First thereof and by substituting in lieu of said Article the following
new Article:
"FIRST: The name of the Corporation is: sportstrac.com, inc."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
DATED as of the 2nd day of December, 1998.
/s/ Marc R. Silverman
-----------------------------------------
Marc R. Silverman, President
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
sportstrac.com, inc.
- --------------------------------------------------------------------------------
sportstrac.com, inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST: That the name of the Corporation is:
sportstrac.com, inc.
SECOND: That the Board of Directors of said corporation, pursuant to
resolutions adopted by said Board, adopted a resolution proposing and declaring
the following Amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the Corporation be, and
hereby is, amended by changing the First Article thereof so that, as
amended, said Article shall read as follows:
FIRST: The name of the corporation is SportsTrac Systems, Inc.
(hereinafter called the "Corporation").
THIRD: That in lieu of a meeting and vote of the stockholders of the
Corporation (the "Stockholders"), certain Stockholders holding a majority of the
Corporation's voting shares have given their written consent to said amendment
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware (notice of which consent having been given to those
Stockholders who have not consented in writing).
FOURTH: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 141, 228 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, sportstrac.com, inc. has caused this Certificate of
Amendment to be signed by Marc Silverman, its President and attested by Joshua
S. Kanter, its Secretary this 24th day of May, 1999.
sportstrac.com, inc.
By: /s/ Marc Silverman
------------------------------------
Marc Silverman, President
ATTEST:
By: /s/ Joshua S. Kanter
----------------------------
Joshua S. Kanter, Secretary
EXHIBIT 3.4
BYLAWS
OF
APPLIED SPORTS TECHNOLOGIES, INC.
Adopted on June 15, 1998
Prepared by:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive, Suite 2700
Chicago, Illinois 60606
<PAGE>
APPLIED SPORTS TECHNOLOGIES, INC. BYLAWS
Table of Contents
ARTICLE I OFFICES............................................................1
SECTION 1.1 PRINCIPAL OFFICES..........................................1
SECTION 1.2 OTHER OFFICES..............................................1
ARTICLE II MEETING OF STOCKHOLDERS...........................................1
SECTION 2.1 ANNUAL MEETING.............................................1
SECTION 2.2 SPECIAL MEETINGS...........................................1
SECTION 2.3 NOTICE.....................................................1
SECTION 2.4 STOCKHOLDER LIST...........................................1
SECTION 2.5 QUORUM.....................................................2
SECTION 2.6 VOTING.....................................................2
SECTION 2.7 WRITTEN CONSENT............................................2
ARTICLE III DIRECTORS.........................................................2
SECTION 3.1 NUMBER.....................................................3
SECTION 3.2 VACANCIES..................................................3
SECTION 3.3 DUTIES OF DIRECTORS........................................3
SECTION 3.4 MEETINGS...................................................3
SECTION 3.5 REGULAR MEETINGS...........................................3
SECTION 3.6 SPECIAL MEETINGS...........................................3
SECTION 3.7 NOTICE.....................................................3
SECTION 3.8 QUORUM.....................................................3
SECTION 3.9 VOTING.....................................................4
SECTION 3.10 UNANIMOUS WRITTENCONSENT...................................4
SECTION 3.11 COMMITTEES OFDIRECTORS.....................................4
SECTION 3.12 RECORDS OFCOMMITTEES.......................................4
SECTION 3.13 COMPENSATION OFDIRECTORS...................................4
ARTICLE IV OFFICERS..........................................................4
SECTION 4.1 NUMBER.....................................................4
SECTION 4.2 ELECTION...................................................5
SECTION 4.3 COMPENSATION...............................................5
SECTION 4.4 TERM.......................................................5
SECTION 4.5 DUTIES OF OFFICERS.........................................5
ARTICLE V CERTIFICATES OF STOCK.............................................7
SECTION 5.1 DESCRIPTION................................................7
SECTION 5.2 FACSIMILE OF SIGNATURE.....................................8
SECTION 5.3 TRANSFER OF STOCK..........................................8
SECTION 5.4 REGISTERED STOCKHOLDERS....................................8
-i-
<PAGE>
ARTICLE VI GENERAL PROVISIONS................................................9
SECTION 6.1 DIVIDENDS..................................................9
SECTION 6.2 STATEMENTS ANDREPORTS......................................9
SECTION 6.3 CHECKS AND NOTES...........................................9
ARTICLE VII FISCAL YEAR.......................................................9
ARTICLE VIII INDEMNIFICATION..................................................10
SECTION 8.1 GENERAL...................................................10
SECTION 8.2 PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION...............................10
SECTION 8.3 PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.........10
SECTION 8.4 INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS
WHOLLY OR PARTLY SUCCESSFUL............................10
SECTION 8.5 INDEMNIFICATION FOR EXPENSES OF A WITNESS.................11
SECTION 8.6 ADVANCEMENT OF EXPENSES...................................11
SECTION 8.7 PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION........................................11
SECTION 8.8 PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS............12
SECTION 8.9 REMEDIES OFINDEMNITEE.....................................13
SECTION 8.10 NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION............................................14
SECTION 8.11 SEVERABILITY..............................................15
SECTION 8.12 CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION
OR ADVANCEMENT OF EXPENSES.............................15
SECTION 8.13 DEFINITIONS...............................................15
SECTION 8.14 NOTICES...................................................16
SECTION 8.15 MISCELLANEOUS.............................................17
ARTICLE IX AMENDMENTS.......................................................17
ARTICLE X NOTICE...........................................................17
SECTION 10.1 NOTICE....................................................17
SECTION 10.2 WAIVER OF NOTICE..........................................17
-ii-
<PAGE>
BYLAWS
OF
APPLIED SPORTS TECHNOLOGIES, INC.
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICES. The principal offices of the
Corporation shall be in the City of Englewood, State of Colorado.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at
such other place both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of stockholders of
the Corporation shall be held on the 15th day in February, of each year if not a
legal holiday, or if a legal holiday, then on the next day that is not a legal
holiday, at 10:00 a.m., or at such other date and time as may be fixed by the
Board of Directors. Such meeting shall be within or without the State of
Delaware, at which meeting the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. If the election of directors shall not be held on the day
designated herein for any annual meeting, or any adjournment thereof, the Board
of Directors shall cause the election to be held at a meeting of the
stockholders as soon thereafter as may be convenient.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 2.3 NOTICE. Written notice of the annual or special meeting
shall be given to each stockholder entitled to vote thereat, in person or by
mailing to him at his last known address, not less than 10 nor more than 60 days
before the date of meeting, unless such notice is waived in writing by each
stockholder entitled thereto.
SECTION 2.4 STOCKHOLDER LIST. The officer who has charge of the
stock ledger of the Corporation shall, not less than 10 nor more than 60 days
prior to any election of directors, prepare a list of all stockholders of record
(the date of such list being hereafter referred to as the ("record date"), which
list shall be in alphabetical order and shall show the address and number of
shares
-1-
<PAGE>
registered in the name of each such stockholder. At such election, each
stockholder of record on the record date shall be entitled to vote the shares
owned by him, as disclosed by such list, irrespective of any transfers thereof
subsequent to the record date. Such list shall also govern the voting of shares;
provided, however, that the Board of Directors may, but shall not be required
to, fix a new record date for any adjourned meeting. Such list shall be open to
the examination of any stockholder or his duly authorized legal representative,
during ordinary business hours, for a period of at least 10 days prior to the
election, either at a place within the city, town or village where the election
is to be held, and which place shall be specified in the notice of the meeting,
or, if not specified, at the place where said meeting is to be held, and the
list shall be produced and kept at the time and place of election during the
whole time thereof, and shall be subject to the inspection of any stockholder
who may be present.
SECTION 2.5 QUORUM. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be presented or represented, at which time any
business may be transacted which might have been transacted at the meeting as
originally notified. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express statutory provision or by
express provision of the certificate of incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
SECTION 2.6 VOTING. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from the date of such proxy, unless the proxy provides for a
longer period.
SECTION 2.7 WRITTEN CONSENT. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken in connection with any
corporate action by any statutory provision or by any provision of the
certificate of incorporation or of these bylaws, such meeting and vote of
stockholders may be dispensed with if a majority of the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken. Prompt notice of the
taking of any corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing,
as required by statutory provision.
ARTICLE III
DIRECTORS
-2-
<PAGE>
SECTION 3.1 NUMBER. The number of directors which shall constitute
the whole Board of Directors shall be determined by the stockholders of the
Corporation, or in the absence of such determination, by the Board of Directors
of the Corporation. The directors shall be elected at the annual or special
meeting of the stockholders (except as provided in Section 2 of this Article),
and each director elected shall hold office until his successor is elected and
qualified or until his or her earlier resignation or removal. The election shall
be decided by a majority vote. Directors need not be stockholders.
SECTION 3.2 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced.
SECTION 3.3 DUTIES OF DIRECTORS. The business of the Corporation
shall be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
bylaws directed or required to be exercised or done by the stockholders.
SECTION 3.4 MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
SECTION 3.5 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held immediately following the annual meeting of the
stockholders. In the event such meeting is not held immediately following the
annual meeting of the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 3.6 SPECIAL MEETINGS. Special meetings of the board may be
called by the President with notice to each of the directors as provided in
Section 7 of Article III hereof; special meetings shall be called by the
President or Secretary in like manner and on like notice on the written request
of two directors.
SECTION 3.7 NOTICE. Regular meetings of the Board of Directors may
be held without notice at such time and at such place as shall from time to time
be determined by the Board. Notice of meetings other than regular meetings shall
be given to each director, in person or by mailing or by telegram. Any such
notice shall be given to a director at his last known address not less than 10
nor more than 60 days prior to the date designated therein for such meeting,
including the date of mailing, unless said notice is waived in writing by such
director. Said notice shall be written, specifying the time and place of such
meeting.
SECTION 3.8 QUORUM. At all meetings of the Board of Directors, a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
-3-
<PAGE>
incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.9 VOTING. At all meetings of the Board of Directors, each
director is to have one vote, irrespective of the number of shares of stock that
he may hold.
SECTION 3.10 UNANIMOUS WRITTEN CONSENT. Unless otherwise restricted
by the certificate of incorporation or by these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the board or
committee.
SECTION 3.11 COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation, which, to the extent provided in the resolution, except as
otherwise provided by statute, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, including the power and authority to declare
dividends, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors.
SECTION 3.12 RECORDS OF COMMITTEES. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
SECTION 3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or by these bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and, subject to the above, may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
SECTION 4.1 NUMBER. The officers of the Corporation shall be chosen
by the Board of Directors and may be a President, a Vice-President, a Secretary
and a Treasurer. The Board of Directors may also choose one or more
Vice-Presidents, one or more Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person. The Board of Directors may
appoint such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
-4-
<PAGE>
SECTION 4.2 ELECTION. The Board of Directors at its first meeting
after each annual meeting of stockholders shall elect a President, a Secretary
and a Treasurer.
SECTION 4.3 COMPENSATION. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors. Any payments made to
or on behalf of any officer of the Corporation (including but not limited to
salary, bonus, rent or reimbursement for expenses) shall be determined by the
Board of Directors in its sole discretion. In the event, however, that any such
payment, whether it shall be in the form of cash, kind or services, which,
subsequent to such payment, is finally determined either by any governmental
taxing authority (with the consent of the Corporation) or any court of competent
jurisdiction as not being a deductible expense by the Corporation for purposes
of computing such taxes, shall be repaid by such officer to the Corporation to
the extent disallowed. The Board of Directors and officers of the Corporation
shall take whatever action is necessary to enforce such repayment. Each officer
of the Corporation shall, upon his entering into office, be formally notified of
this bylaw by the Board of Directors of the Corporation.
SECTION 4.4 TERM. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Anything to the contrary herein
notwithstanding, any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
SECTION 4.5 DUTIES OF OFFICERS. The duties and powers of the
officers shall be as follows:
Chairman of the Board
The Chairman of the Board shall be the chief executive officer of
the Corporation and shall be responsible for formulating general policies and
programs for the Corporation for submission to the Board of Directors, and for
carrying out the programs and policies approved by the Board of Directors. The
Chairman of the Board shall cause to be called regular and special meetings of
the stockholders and Board of Directors in accordance with these bylaws and he
shall preside at all such meetings. The Chairman of the Board shall also have
such other powers and duties as shall be assigned to him by the Board of
Directors.
President
In the absence or disability of the Chairman of the Board, or in the
event for any reason it is impracticable for the Chairman of the Board to act
personally, the President shall have the powers and duties of the Chairman of
the Board. The President shall be the general manager of the Corporation and
shall, in general, be responsible for the administration and operation of all of
the business and affairs of the Corporation.
He shall present annually to the stockholders and directors a report
of the condition of the business of the Corporation.
-5-
<PAGE>
He shall appoint and remove, employ and discharge, and fix the
compensation of all servants, agents, employees, and clerks of the Corporation,
within the scope of his authority as general manager.
He shall sign and make all contracts and agreements in the name of
the Corporation, within the scope of his authority as general manager.
He shall see that the books, reports, statements and certificates
required by the statutes are properly kept, made and filed according to law.
He shall sign all certificates of stock, notes, drafts or bills of
exchange, warrants or other orders for the payments of money duly drawn by the
Treasurer.
He shall enforce these bylaws and perform all the duties incident to
the position and office, and which are required by law and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
Vice-President
The Vice-President, if there shall be one, or if there shall be more
than one, the Vice-Presidents in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election),
shall, in the absence or disability of the Chairman of the Board and the
President, perform the duties and exercise all the powers of the Chairman of the
Board, or the President, and be subject to all the restrictions upon the
Chairman of the Board or the President. The Vice-Presidents shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
Secretary
The Secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or President,
under whose supervision he shall be. He shall have custody of the corporate seal
of the Corporation and he, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary. He
shall also perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature.
Assistant Secretary
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election), shall, in the absence
or disability of the Secretary, perform the duties and exercise the
-6-
<PAGE>
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Treasurer
The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation
and maintain a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
In the event there are no Vice-Presidents of the Corporation, the
Treasurer shall, in the absence of the Chairman of the Board and the President
or in the event of their inability to act, perform the duties of the Chairman of
the Board and the President, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Chairman of the Board and the
President. In addition, the Treasurer shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
Assistant Treasurer
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall be no such determination, then in the order of their election),
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 5.1 DESCRIPTION. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the President or a Vice-President, and countersigned by the
Treasurer or Assistant Treasurer, Secretary or Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation,
and sealed with the seal of the Corporation. If the Corporation shall be
authorized to issue more than one class of stock, or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
-7-
<PAGE>
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class of stock; provided,
however, that except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 5.2 FACSIMILE OF SIGNATURE. Where a certificate is signed
(1) by a transfer agent, or (2) by a transfer clerk, acting on behalf of the
Corporation and a registrar, the signature of any such President,
Vice-President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary
may be facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on any such certificate or
certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Corporation.
SECTION 5.3 TRANSFER OF STOCK. The stock of the Corporation,
irrespective of class, shall be assignable and transferable on the books of the
Corporation only by the person in whose name it appears on said books, or his
legal representatives. In case of transfer by attorney, the power of attorney,
duly executed and acknowledged shall be deposited with the Secretary. In all
cases of transfer, the former certificate must be surrendered up and canceled
before a new certificate be issued; however, in the event of loss, mutilation or
destruction of a certificate, a duplicate certificate may be issued upon such
terms as the Board of Directors shall prescribe. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books, subject, however, to any restrictions or
limitations on the transfer thereof which may be set forth in the certificate of
incorporation or referred to on the certificate so surrendered or which may be
imposed by law or by any agreement to which the holder of such shares is
subject.
SECTION 5.4 REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote or take other action as
such owner, and to hold liable for calls and assessments a person registered on
its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
-8-
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum as the directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose as the
directors shall think conducive to the interest of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
SECTION 6.2 STATEMENTS AND REPORTS. The Board of Directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
SECTION 6.3 CHECKS AND NOTES. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other persons as the Board of Directors may from time to time designate.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of
the Board of Directors.
-9-
<PAGE>
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 GENERAL. The Corporation shall indemnify, and advance
Expenses (as hereinafter defined) to, any Indemnitee (as hereinafter defined) as
provided in this Article and to the fullest extent permitted by applicable law.
SECTION 8.2 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 8.2 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Corporation. Pursuant to this
Section 8.2, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such Proceeding or any claim, issue
or matter therein, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Corporation, and,
with respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful.
SECTION 8.3 PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 8.3 if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant to
this Section 8.3, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation. Notwithstanding the foregoing,
no indemnification against such Expenses 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 if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Corporation
in such event if 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 or is
pending, shall determine.
SECTION 8.4 INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Article, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
-10-
<PAGE>
SECTION 8.5 INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Article, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith.
SECTION 8.6 ADVANCEMENT OF EXPENSES. The Corporation shall advance
all reasonable Expenses incurred by or on behalf of Indemnitee in connection
with any Proceeding within 20 days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, 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 advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
SECTION 8.7 PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Article, 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
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8.7(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, as determined by Independent Counsel, as hereinafter defined
(unless Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case, as determined by the person or
persons or in the manner provided for in clauses (ii) or (iii) of this Section
8.7(b)) in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; (ii) if a Change of Control shall not have occurred:
(A) by the Board of Directors by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined), or (B) if such a quorum of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to Indemnitee or
(C) by the stockholders of the Corporation; or (iii) as provided in Section
8.8(b) of this Article; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within 10 days after
such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
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
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
-11-
<PAGE>
to Indemnitee's entitlement to indemnification) and the Corporation hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8.7(b) of this Article,
the Independent Counsel shall be selected as provided in this Section 8.7(c). If
a Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Corporation shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel, so
selected. If a Change in Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the
Corporation advising it of the identity of the Independent Counsel so selected.
In either event, Indemnitee or the Corporation, as the case may be, may, within
7 days after such written notice of selection shall have been given, deliver to
the Corporation or to Indemnitee, as the case may be, 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 8.13 of this Article, and the objection shall set
forth with particularity the factual basis of such assertion. 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. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 8.7(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Corporation or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Corporation or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is so resolved or
the person so appointed shall act as Independent Counsel under Section 8.7(b)
hereof. The Corporation shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to Section 8.7(b) hereof, and the Corporation shall pay all
reasonable fees and expenses incident to the procedures of this Section 8.7(c),
regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 8.9(a)(iii) of this Article, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
SECTION 8.8 PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Article if Indemnitee has
submitted a request for indemnification in accordance with Section 8.7(a) of
this Article, 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.
-12-
<PAGE>
(b) If the person, persons or entity empowered or selected under
Section 8.7 of this Article to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Corporation of the request therefor, the requisite determination
of entitlement to indemnification shall be deemed to have been made and
Indemnitee shall be entitled to such indemnification, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluation of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 8.8(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8.7(b) of this Article and if (A) within 15
days after receipt by the Corporation of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within 60 days after having been so called and such determination is made
thereat, or (ii) if the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 8.7(b) of this Article.
(c) 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 Article) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner in which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
SECTION 8.9 REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 8.7 of this Article that Indemnitee is not entitled to indemnification
under this Article, (ii) advancement of Expenses is not timely made pursuant to
Section 8.6 of this Article, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8.7(b)
of this Article and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Corporation of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 8.5 of this Article within 10 days after receipt by the Corporation of a
written request therefor, or (v) payment of indemnification is not made within
10 days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8.8 of this Article, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
-13-
<PAGE>
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 8.9(a). The Corporation shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 8.7 of this Article that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8.9 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. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 8.9 the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8.7 or 8.8 of this Article that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8.9,
absent (i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, or (ii) a prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8.9 that
the procedure and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Article.
(e) In the event that Indemnitee, pursuant to this Section 8.9,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under or to recover damages for breach of, this Article, 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 8.13 of this Article) actually and reasonably
incurred by him in such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
SECTION 8.10 NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Article 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, these bylaws, any agreement between the
Corporation and any of its directors, officers, employees or agents, or
otherwise, a vote of stockholders or a resolution of directors or otherwise. No
amendment, alteration or repeal of this Article or of any provision hereof shall
be effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. The provisions of this Article shall continue as to an Indemnitee whose
Corporate Status has ceased and shall inure to the benefit of his heirs,
executors and administrators.
-14-
<PAGE>
(b) To the extent that the Corporation maintains an insurance policy
or policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Article, 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.
(d) The Corporation shall not be liable under this Article 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.
SECTION 8.11 SEVERABILITY. If any provision or provisions of this
Article 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 Article (including without limitation, each portion of any
Section of this Article 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 Article (including, without limitation,
each portion of any Section of this Article containing any such provision held
to be invalid, illegal or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
SECTION 8.12 CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION OR
ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or advancement of Expenses under
this Article with respect to any Proceeding, or any claim therein, brought or
made by him against the Corporation.
SECTION 8.13 DEFINITIONS. For purposes of this Article 8:
(a) "Change in Control" means a change in control of the Corporation
occurring after the Effective Date (as hereinafter defined) of a nature that
would be required to be reported in response to Item 5(f) 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 25% 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 of Directors 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 of Directors in
office immediately prior
-15-
<PAGE>
to such transaction or event constitute less than a majority of the Board of
Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (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 of Directors.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee, agent or fiduciary of the Corporation or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Effective Date" means January 1, 1987.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(f) "Indemnitee" includes any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in Sections 8.2,
8.3, 8.4 or 8.5 of this Article by reason of his Corporate Status.
(g) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation 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 Article.
(h) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 9 of this Article to enforce his
rights under this Article.
SECTION 8.14 NOTICES. Any notice, request or other communication
required or permitted to be given to the Corporation under this Article shall be
in writing and either delivered in person or sent by telex, telegram or
certified or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation and shall be effective only upon receipt by the
Secretary.
-16-
<PAGE>
SECTION 8.15 MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed, or new bylaws may
be adopted, at any regular meeting of the stockholders or the Board of Directors
or at any special meeting of the stockholders or the Board of Directors if
notice of such alteration, amendment, repeal, or adoption of new bylaws be
contained in the notice of such special meeting; provided, however, that this
Article IX, may not be altered, amended or repealed by the Board of Directors of
the Corporation without the consent of the stockholders of the Corporation by
action of the stockholders taken pursuant to these bylaws.
ARTICLE X
NOTICE
SECTION 10.1 NOTICE. Whenever, under any statutory provision or
under the provisions of the certificate of incorporation or these bylaws, notice
is required to be given to any director or stockholder, it shall not be
construed to mean personal notice, but such notice may also be given in writing,
by first class United States mail, postage prepaid, or by prepaid telegram and
mail, addressed to such director or stockholder at his address as it appears on
the records of the Corporation, and such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail or, in the
case of telegrams, when transmitted.
SECTION 10.2 WAIVER OF NOTICE. Whenever any notice is required to be
given under any statutory provision or under the provisions of the certificate
of incorporation or these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
-17-
EXHIBIT 4.2
CLASS A WARRANT AGREEMENT
THIS CLASS A WARRANT AGREEMENT (this "Agreement") is made as of this
____ day of _______, 1999, by and among SPORTSTRAC SYSTEMS, INC. a Delaware
corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST CO., a Delaware
corporation, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, the Company is engaging in an initial public offering (the
"Offering") pursuant to an underwriting agreement (the "Underwriting Agreement")
dated __________, 1999 between the Company and Fairchild Financial Group, Inc.,
a ________ corporation ("Fairchild"), of 585,000 units ("Offering Units") plus
an over-allotment option of 87,750 units, with each Offering Unit consisting of
one share of Common Stock and two Class A Warrants (each as hereinafter
defined); and
WHEREAS, as of the date hereof, the Company issued [______] Class A
Warrants as part of the Offering Units and, in connection therewith, issued to
Fairchild warrants (the "Underwriter Warrants") to purchase [_____] Offering
Units which if exercised will entitle Fairchild to acquire [_____] shares of
Common Stock and [_____] Class A Warrants (such Class A Warrants to be referred
to as the "Fairchild Warrants") the Class A Warrants are to be governed by and
subject to this Agreement; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange, and redemption of the Class A
Warrants, the issuance of certificates representing the Class A Warrants, the
exercise of the Class A Warrants, and the rights of the Registered Holders (as
hereinafter defined);
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Class A Warrants and the certificates representing the Class A
Warrants and the respective rights and obligations thereunder of the Company,
the Registered Holders, and the Warrant Agent, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Adjustment Certificate" shall have the meaning ascribed to it in
Section 9(f) hereof.
(b) "Class A Warrants" shall mean redeemable Common Stock purchase
warrants, each such Class A Warrant entitling the Registered Holder thereof to
purchase one share of Common Stock at the Exercise Price, all on the terms and
conditions set forth herein. The Class A Warrants shall include the Fairchild
Warrants which shall be exercisable at the separate Exercise Price as set forth
in the definition of Exercise Price.
<PAGE>
(c) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of 14,000,000 shares of Common
stock, $.01 par value.
(d) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York City, New York 10005.
(e) "Exercise Date" shall mean the date on which the Warrant Agent
shall have received both (i) the certificate representing a Class A Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, and (ii) payment in cash, or by
official bank or certified check made payable to the Company, of an amount in
lawful money of the United States of America equal to the Exercise Price of the
Class A Warrants being exercised.
(f) "Exercise Price" [1] with respect to all Class A Warrants other
than the Fairchild Warrants shall mean the purchase price per share of Common
Stock to be paid upon exercise of each Class A Warrant in accordance with the
terms hereof, which price shall be $7.20, subject to adjustment from time to
time pursuant to the provisions of Section 9 hereof and [2] with respect to the
Fairchild Warrants shall mean the purchase price per share of Common Stock to be
paid upon exercise of each Fairchild Warrant in accordance with the terms
hereof, which price shall be the lesser of [A] $11.88, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof, or [B] 165% of
the then effective Exercise Price under [1] of this subparagraph (f).
(g) "Expiration Date" shall mean 5:00 P.M. (New York time) on
______________, 2002, or the Redemption Date, whichever is earlier; provided
that if such date shall in the State of New York be a holiday or a day on which
banks are authorized or required to close then 5:00 P.M. (New York time) on the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Expiration Date.
(h) "Redemption Date" shall have the meaning ascribed to it in Section
8(a) hereof.
(i) "Redemption Notice" shall have the meaning ascribed to it in
Section 8(b) hereof.
(j) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Class A Warrants in accordance with the terms hereof,
which price shall be $.10 per Class A Warrant.
(k) "Registered Holder" shall mean as to any Class A Warrant and as of
any particular date, the person in whose name the certificate representing the
Class A Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
2
<PAGE>
(l) "Transfer Agent" shall mean American Stock Transfer & Trust Co., as
the Company's transfer agent, or its authorized successor, as such.
(m) "Warrant Solicitation Fee" shall be ten percent (10%) of the
aggregate exercise price of the Class A Warrants (other than the Fairchild
Warrants) being exercised.
SECTION 2. CLASS A WARRANTS AND ISSUANCE OF CERTIFICATES REPRESENTING
CLASS A WARRANTS.
(a) A Class A Warrant initially shall entitle the Registered Holder of
the certificate representing such Class A Warrant to purchase one share of
Common Stock at the Exercise Price and in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, certificates representing the
number of Class A Warrants sold by the Company as part of Offering Units in the
Offering shall be executed by the Company and delivered to the Warrant Agent
and, upon exercise of the Underwriter Warrants, certificates representing the
number of Class A Warrants issuable upon the exercise of the Underwriter
Warrants shall be executed by the Company and delivered to the Warrant Agent.
Upon written order of the Company signed by its President and by its Secretary,
the certificates representing Class A Warrants shall be countersigned, issued,
and delivered promptly by the Warrant Agent to the investors in the Offering and
to the holder of the Underwriter Warrants.
(c) From time to time, up to the Expiration Date, the Transfer Agent
shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of _________ shares of Common
Stock upon the exercise and surrender of Class A Warrants in accordance with
this Agreement.
(d) From time to time, up to the Expiration Date, the Warrant Agent
shall countersign and deliver certificates representing Class A Warrants in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued upon any transfer or exchange pursuant to Section
6; (iii) those issued in replacement of lost, stolen, destroyed, or mutilated
certificates pursuant to Section 7; and (iv) at the option of the Company, in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Exercise Price or the Redemption Price therefor made
pursuant to Sections 8 or 9 hereof.
SECTION 3. FORM AND EXECUTION OF CLASS A WARRANT.
(a) The certificates representing Class A Warrants (other than the
Fairchild Warrants) shall be substantially in the form attached hereto as
Exhibit A and the certificates representing the Fairchild Warrants shall be
substantially in the form attached hereto as Exhibit B (the provisions of such
Exhibits are hereby incorporated herein) and may have such letters, numbers, or
other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed,
3
<PAGE>
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any national or over-the-counter market on which the
Class A Warrants may be listed. The certificates shall be dated the date of
issuance thereof (whether upon initial issuance, transfer, exchange or in lieu
of mutilated, lost, stolen, or destroyed certificates) and issued in registered
form.
(b) Certificates representing Class A Warrants shall be executed on
behalf of the Company by its President and by its Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. Certificates representing Class A
Warrants shall be countersigned by the Warrant Agent, by manual signature or by
facsimile signature printed thereon, and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the certificates representing Class A Warrants shall cease to be
an officer of the Company or to hold the particular office referenced in the
certificates before the date of issuance of the certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
certificates may nevertheless be countersigned by the Warrant Agent, issued and
delivered with the same force and effect as though the person who signed such
warrant Certificates had not ceased to be an officer of the Company or to hold
such office. After countersignature by the Warrant Agent, certificates
representing Class A Warrants shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company.
SECTION 4. EXERCISE. Each Class A Warrant may be exercised, in whole or
in part, by the Registered Holder thereof at any time prior to the Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable certificate representing the Class A Warrant. A Class A Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the Common Stock
deliverable upon such exercise shall be treated for all purposes as the holder
of such Common Stock upon the exercise of the Class A Warrant as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date, the Warrant Agent shall deposit the proceeds received from the exercise of
a Class A Warrant and shall notify the Company in writing of the exercise of
such Class A Warrant. Promptly following, and in any event within five business
days after the date of such notice from the Warrant Agent, the Warrant Agent, on
behalf of the Company, shall cause to be issued and delivered by the Transfer
Agent, to the person or persons entitled to receive the following documents,
unless prior to the date of issuance of such documents, the Company shall
instruct the Warrant Agent to refrain from causing such issuance pending
clearance of checks received in payment of the Exercise Price pursuant to such
Class A Warrants:
(1) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such exercise in such
name(s) and such denomination(s) as specified on the applicable
exercise form; and
(2) a new certificate representing the applicable Class A
Warrants entitling the Registered Holder to purchase the number of
shares of Common Stock as to which the original certificate was not
exercised and reflecting any changes to the Exercise Price which
4
<PAGE>
have theretofore been effectuated and which certificate shall otherwise
be in form and substance identical to that delivered by the Registered
Holder to the Company for said exercise.
Upon the exercise of any Class A Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit (i) the applicable Warrant Solicitation
Fee, if any, to Fairchild, and (ii) the balance of the payment received for the
Class A Warrant to the Company or as the Company may direct in writing.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon exercise of Class A Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Class A Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Class A Warrants and payment of the Exercise Price therefor
shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed and eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Class A Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise or in
order to comply with federal securities laws, then the Company will endeavor to
secure such registration or approval in accordance with the terms of the
Placement Agent Agreement. The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws.
Notwithstanding the foregoing, Class A Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Class A Warrants, or the issuance or delivery of any shares upon exercise of the
Class A Warrants; provided, however, that if the shares of Common Stock issuable
upon exercise of Class A Warrants are to be delivered in a name other than the
name of the Registered Holder of the certificate representing any Class A
Warrant being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of transfer taxes
or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Class A Warrants, and the
Company will authorize the Transfer Agent to comply with all such proper
requisitions. Whenever the Warrant Agent and the Transfer Agent are
5
<PAGE>
not the same entity, the Company will file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Class A Warrants.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Certificates representing Class A Warrants may be exchanged for
other certificates representing an equal aggregate number of Class A Warrants of
the same class or may be transferred in whole or in part. Certificates
representing Class A Warrants to be exchanged shall be surrendered to the
Warrant Agent at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute and the Warrant Agent shall
countersign, issue, and deliver in exchange therefor the certificate or
certificates representing Class A Warrants which the Registered Holder making
the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its Corporate Office, subject to
such reasonable regulations as it may prescribe, books in which it shall
register certificates representing Class A Warrants and the transfer thereof in
accordance with its regular practice. Upon due presentment for registration of
transfer of a certificate representing Class A Warrants at its Corporate Office,
the Company shall execute promptly, and the Warrant Agent shall issue and
deliver promptly to the transferee or transferees, a new certificate or
certificates representing an equal aggregate number of Class A Warrants of the
same class.
(c) With respect to all certificates representing Class A Warrants
presented for registration of transfer, or for exchange or exercise, the
exercise form on the reverse thereof shall be duly endorsed, or be accompanied
by a written instrument or instruments of transfer and exercise, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) Any service charge imposed by the Warrant Agent for any exchange or
registration of transfer of certificates representing Class A Warrants shall be
borne by the Company; however, the Company may require payment by such
Registered Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All certificates representing Class A Warrants surrendered for
exercise, registration, or transfer or for exchange in case of mutilated
certificates shall be promptly cancelled by the Warrant Agent and thereafter
retained by the Warrant Agent until termination of this Agreement or resignation
as Warrant Agent, or, disposed of or destroyed at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
certificate representing Class A Warrants as the absolute owner thereof and of
each Class A Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary. Class A Warrants issuable as a part of an
Offering Unit will be
6
<PAGE>
immediately detachable from the Common Stock on the close of business _________,
2000, unless Fairchild permits earlier separation, and transferable separately
therefrom.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction, or mutilation of any certificate representing Class A
Warrants and (in case of loss, theft or destruction) of indemnity satisfactory
to them, and (in the case of mutilation) upon surrender and cancellation
thereof, the Company shall execute and the Warrant Agent shall (in the absence
of notice to the Company or Warrant Agent that the certificate has been acquired
by a bona fide purchaser) countersign and deliver to the Registered Holder in
lieu thereof a new certificate of like tenor representing an equal aggregate
number of Class A Warrants. Applicants for a substitute certificate representing
any Class A Warrants shall comply with such regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
SECTION 8. REDEMPTION OF CLASS A WARRANTS.
(a) Redemption. From and after ________________, 2000, all, but not
less than all, of the Class A Warrants may be redeemed, at the option of the
Company, on not less than thirty (30) days prior notice to the Registered
Holders, at the Redemption Price, provided that (i) the closing bid price for
the Common Stock for twenty (20) consecutive trading days prior to the date of
the Redemption Notice (as hereinafter defined), as quoted on any national stock
exchange or over-the-counter market, is at least $10.80 per share (the
"Redemption Price Requirement") and (ii) the notice and other requirements set
forth in Section 8(b) through 8(e) below are satisfied. The Redemption Price
Requirement shall automatically adjust on a pro rata basis upon any adjustment
of the Exercise Price pursuant to Section 9 below. The date fixed for redemption
of Class A Warrants is referred to herein as the "Redemption Date."
(b) If the conditions set forth above in this Section 8 are satisfied
and the Company desires to exercise its right to redeem the Class A Warrants,
the Company shall mail a notice of redemption (the "Redemption Notice") to each
Registered Holder, certified mail, return receipt requested, not later than the
30th day before the Redemption Date, at the Registered Holder's last address as
shall appear on the Warrant Agent's books maintained pursuant to Section 6
hereof.
(c) The Redemption Notice shall specify (i) the Redemption Price, (ii)
the Redemption Date, (iii) the place where certificates representing the
applicable Class A Warrants shall be delivered and the Redemption Price is to be
paid, and (iv) that the right to exercise the applicable Class A Warrants shall
terminate at 5:00 p.m. (New York time) on the business day immediately preceding
the Redemption Date. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption unless the Redemption Notice was not mailed in the manner prescribed
in Section 8(b) or the Redemption Notice did not contain the information
required by this Section 8(c). An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Company that the Redemption Notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
7
<PAGE>
(d) Any right to acquire Common Stock pursuant to the exercise of the
applicable Class A Warrants shall terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the Redemption Date. On and after the
Redemption Date, the Registered Holder shall have no further rights except to
receive, upon surrender of the certificate(s) representing Class A Warrants, the
Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder of certificate(s) representing
the applicable Class A Warrants deliver or cause to be delivered to or upon the
written order of the Registered Holder a sum in cash equal to the Redemption
Price for each such Class A Warrant so presented and surrendered.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
Exercise Price and number of shares of Common Stock that may be purchased upon
exercise of each Class A Warrant shall be subject to adjustment from time to
time as set forth below.
(a) Adjustment for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the date hereof effect a subdivision of
the outstanding Common Stock, the Exercise Price then in effect immediately
before that subdivision shall be proportionately decreased and the number of
shares of Common Stock that may be purchased upon exercise of each Class A
Warrant will be proportionately increased; conversely, if the Company shall at
any time or from time to time after the date hereof reduce the outstanding
shares of Common Stock by combination or otherwise, the Exercise Price then in
effect immediately before the combination shall be proportionately increased and
the number of shares of Common Stock proportionately decreased. Any adjustment
under this Section 9(a) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(b) Adjustment for Certain Dividends and Distributions of Stock. In the
event the Company at any time or from time to time after the date hereof shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Exercise
Price then in effect shall be decreased and the number of shares of Common Stock
that may be purchased upon exercise of each Class A Warrant will be increased by
the number of shares of Common Stock per share of Common Stock so distributed as
of the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date. The Exercise Price shall
be adjusted by multiplying the Exercise Price then in effect by a fraction:
(1) The numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) The denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date,
plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, if such record date shall
have
8
<PAGE>
been fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Exercise Price shall
be recomputed accordingly as of the close of business on such record
date and thereafter the Exercise Price shall be adjusted pursuant to
this Section 9 as of the time of actual payment of such dividends or
distributions.
(c) Adjustment for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the date hereof shall make or
issue or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the Registered Holder shall receive upon
exercise of a Class A Warrant in addition to the number of shares of Common
Stock receivable thereupon, the amount of such other securities of the Company
that it would have received had the Class A Warrant been exercised on the date
of such event and had thereafter, during the period from the date of such event
to and including the exercise date, retained such securities receivable by it as
aforesaid during such period giving application to all adjustments called for
during such period under this Agreement with respect to the rights of the
Registered Holder.
(d) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon the exercise of the Class A Warrant shall be changed
into the same or a different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or other change (other than
a reorganization, merger, consolidation or sale of assets provided for in
Section 9(e) below), then and in each such event, the Registered Holder shall
have the right thereafter to exercise the Class A Warrant into the kind and
amounts of shares of stock and other securities and property receivable upon
such reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which the Class A Warrant might have been
exercised immediately prior to such reclassification, exchange, substitution, or
other change, all subject to further adjustment as provided herein.
(e) Reorganization, Mergers, Consolidations or Sales of Assets. If at
any time or from time to time there shall be a reorganization of the Common
Stock (other than a reclassification, exchange, or substitution of shares
provided for in Section 9(d) above) or a merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation, or sale, provision shall be made so that
the Registered Holder shall thereafter be entitled to receive upon exercise of
the Class A Warrant, the number of shares of stock or other securities or
property of the Company or of the successor corporation resulting from such
reorganization, merger, consolidation, or sale, to which a holder of that number
of shares of Common Stock deliverable upon exercise of the Class A Warrant would
have been entitled on such reorganization, merger, consolidation, or sale. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Agreement with respect to the rights of the Registered Holder
after the reorganization, merger, consolidation, or sale to the end that the
provisions of this Agreement (including adjustment of the number of shares
issuable upon exercise of the Class A Warrant) shall be applicable after that
event as nearly equivalent as may be practicable.
9
<PAGE>
(f) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Exercise Price, the Company, at its expense, shall prepare a
certificate showing such adjustment or readjustment signed by the duly elected
Treasurer or Chief Financial Officer of the Company (the "Adjustment
Certificate") and shall mail the Adjustment Certificate, by first class mail,
postage prepaid, to each Registered Holder at such Registered Holder's address
as shown in the books of the Warrant Agent maintained pursuant to Section 6
hereof. The Adjustment Certificate shall set forth such adjustment or
readjustment, including a brief summary of the facts upon which such adjustment
or readjustment is based including a statement of the Exercise Price, the
Redemption Price Requirement, and the number of shares of Common Stock or other
securities issuable upon exercise of each Class A Warrant immediately before and
after giving effect to the applicable adjustment or readjustment. No failure to
mail the Adjustment Certificate nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the Registered Holder to whom the
Company failed to mail such Adjustment Certificate, or except as to the
Registered Holder whose Adjustment Certificate was defective. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such Adjustment Certificate has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Exercise Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in the
Exercise Price; provided that any adjustments which by reason of this Section
9(g) are not required to be made shall be carried forward and shall be made at
the time of and together with the next subsequent adjustment which, together
with any adjustment(s) so carried forward, shall require an increase or decrease
of at least $.05 in the Exercise Price then in effect hereunder.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Offering Units and shall also include any capital stock of any class of
the Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Class A Warrants shall include only shares of such
class designated in the Company's Articles of Incorporation as Common Stock on
the date of the original issue of the Offering Units or (i) in the case of any
reorganization, change consolidation, merger, sale or conveyance of the
character referred to in Section 9(e) hereof, the stock, securities or property
provided for in Section 9(e) hereof or (ii) in the case of any reclassification
or change in the outstanding shares of Common Stock issuable upon exercise of
the Class A Warrant as a result of a subdivision or combination or consisting or
a change in par value, or from par value to no par value, or from no par value
to par value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Exercise Price
in effect hereunder is required pursuant to this Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon all Registered
Holders and the Company if made in good faith by the Board of Directors of the
Company.
10
<PAGE>
SECTION 10. REGISTERED HOLDERS OF CLASS A WARRANTS NOT DEEMED
STOCKHOLDERS. No holder of Class A Warrants shall, as such, be entitled to vote
or to receive dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of such Class A Warrants for any purpose
whatsoever, nor shall anything contained herein be construed to confer upon the
holder of Class A Warrants, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issue, or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such holder
shall have exercised such Class A Warrants an been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 11. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Class A
Warrants, and any Registered Holder of a Class A Warrant, without consent of the
Warrant Agent or of the holder of any other Class A Warrant, may, in his own
behalf and for his own benefit, enforce against the Company his right to
exercise his Class A Warrants for the purchase of shares of Common Stock in the
manner provided in the certificates representing Class A Warrants and this
Agreement.
SECTION 12. AGREEMENT OF REGISTERED HOLDER. Every Registered Holder, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent,
and every other Registered Holder that:
(a) The Class A Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the certificates representing such Class
A Warrants are surrendered at the Corporate Office of the Warrant Agent, duly
endorsed or accompanied by a proper instrument of transfer satisfactory to the
Warrant Agent and the Company in their sole discretion, together with payment of
any applicable transfer taxes and otherwise strictly in accordance with Section
6 hereof; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the certificate representing Class A Warrants is registered as the
holder and as the absolute, true and lawful owner of the Class A Warrants
represented thereby for all purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice or knowledge to the contrary, except as
otherwise expressly provided in Section 7 hereof.
SECTION 13. CANCELLATION OF CERTIFICATES. If the Company shall purchase
or acquire any Class A Warrants, the certificates evidencing the same shall
thereupon be delivered to the Warrant Agent and cancelled by it and retired. The
Warrant Agent shall also cancel the certificates following exercise of any or
all of the Class A Warrants represented thereby or delivered to it for transfer,
split-up, combination, or exchange.
SECTION 14. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering certificates representing
11
<PAGE>
Class A Warrants or by any other act hereunder be deemed to make any
representations as to the validity, value, or authorization of the certificates
or the Class A Warrants represented thereby or of any securities or other
property delivered upon exercise of any Class A Warrant or whether any Common
Stock issued upon exercise of any Class A Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any Registered Holder to make or cause to be made any
adjustment of the Exercise Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any certificate
representing Class A Warrants or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered, or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder. The Company further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to each Registered Holder at the
Company's expense. Upon such resignation, or any inability of the Warrant Agent
to act as such hereunder, the Company shall appoint a new warrant agent in
writing. If the Company shall fail to make such appointment within a period of
15 days after it has been notified in writing of such resignation by the
resigning Warrant Agent, then the Registered Holder of any certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether
12
<PAGE>
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a nationally recognized stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver 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 resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to each Registered Holder.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or an corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to each Registered Holder.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Class A Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 15. MODIFICATION OF AGREEMENT. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct an defective or inconsistent provision or manifest mistake or error
herein contained; (ii) to the extent approved by a majority of the Board of
Directors of the Company to reduce the Exercise Price, or (iii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the Registered Holders; provided, however, that this Agreement shall not
otherwise be modified, supplemented, or altered in any respect except with the
consent in writing of the Registered Holders representing not less than 50% of
the Class A Warrants then outstanding.
SECTION 16. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
repaid as follows: if to the Registered Holder of a certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company at Suite 100, 6654 Gunpark Drive, Boulder, Colorado 80301,
Attn: President, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
Corporate Office.
13
<PAGE>
SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to its principles of conflict of laws.
SECTION 18. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the Registered Holders from time to time. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy, or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 19. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date or such earlier date upon which all Class A
Warrants have been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 14 hereof shall
survive such termination.
SECTION 20. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SPORTSTRAC SYSTEMS, INC.
By:
------------------------------------
Marc R. Silverman, President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
------------------------------------
Authorized Officer
14
<PAGE>
Exhibit A
VOID AFTER ________, 2002
NUMBER WARRANTS
- ------------------ ------------------
CLASS A WARRANT CERTIFICATE FOR
PURCHASE OF SHARES OF COMMON STOCK
- ------------------ ------------------
SPORTSTRAC SYSTEMS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED -SPECIMEN-
the registered assigns (the "Registered Holder") is the owner of the number of
Class A redeemable common stock purchase warrants ("Warrants") specified above.
Each Warrant represented hereby initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Warrant
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and non-assessable share of Common Stock, $.01 par value, of SportsTrac Systems,
Inc., a Delaware corporation (the "Company"), prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Exercise Form on the reverse hereof duly executed, at the
Corporate Office of American Stock Transfer & Trust Co. as warrant agent or its
successor (the "Warrant Agent"), accompanied by payment of $7.20 per share of
Common Stock, subject to adjustment as provided in the Warrant Agreement (as so
adjusted, the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to SportsTrac
Systems, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ____________,
1999 by and between the Company and the Warrant Agent. Capitalized terms not
defined herein are used herein as defined in the Warrant Agreement.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor which the Warrant Agent shall countersign for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Warrant(s) represented hereby shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the Corporate Office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each such new Warrant Certificate to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
change imposed in connection therewith for registration or transfer of this
Warrant Certificate at such Corporate Office, a new Warrant Certificate or
Warrant Certificates representing an equal aggregate number of Warrants will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrant(s) represented hereby may be redeemed at the option of the
Company at a redemption price of $.10 per Warrant at any time provided the
closing bid price (all as more fully set forth in the Warrant Agreement) for the
Common Stock is at least $10.80 per share, subject to adjustment as provided in
the Warrant Agreement, on 20 consecutive trading days ending on the third day
before notice of redemption is given. Notice of redemption shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrant(s)
represented hereby except to receive the $.10 per Warrant upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
- ------------------------------------ ----------------------------------------
Secretary President
<PAGE>
COUNTERSIGNED
American Stock Transfer & Trust Co.
40 Wall Street
New York, New York 10005
By:
----------------------------------------
Warrant Agent Authorized Signature
<PAGE>
SPORTSTRAC SYSTEMS, INC.
CLASS A WARRANT EXERCISE FORM
To Be Executed by the Registered Holder
in Order to Exercise Class A Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________________________________________ Warrants represented by this
Warrant Certificate and to purchase the securities issuable upon the exercise of
such Warrants and requests that certificates for such securities shall be issued
in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate that a new Warrant Certificate for the balance of such
Warrants be registered in the name of and delivered to the Registered Holder at
the address stated below.
The undersigned represents that the exercise of the within Warrant or
Warrants was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below.
-----------------------------------------------------
(Name of NASD Member)
Dated: X
------------------ ----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Address
-----------------------------------------------------
Taxpayer Identification Number
-----------------------------------------------------
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class A Warrants
FOR VALUE RECEIVED, ____________________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
_____________________ of the Warrants represented by this Warrant Certificate
and hereby irrevocably constitutes and appoints
- --------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Warrant Agent,
with full power of substitution in the premises.
Dated: X
------------------ ----------------------------------------------------
Signature Guaranteed
-------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, BOSTON
STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
<PAGE>
Exhibit B
VOID AFTER ________, 2002
NUMBER WARRANTS
- ------------------ ------------------
CLASS A WARRANT CERTIFICATE FOR
PURCHASE OF SHARES OF COMMON STOCK
- ------------------ ------------------
SPORTSTRAC SYSTEMS, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED -SPECIMEN-
the registered assigns (the "Registered Holder") is the owner of the number of
Class A redeemable common stock purchase warrants ("Warrants") specified above.
Each Warrant represented hereby initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Warrant
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and non-assessable share of Common Stock, $.01 par value, of SportsTrac Systems,
Inc., a Delaware corporation (the "Company"), prior to the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Exercise Form on the reverse hereof duly executed, at the
Corporate Office of American Stock Transfer & Trust Co. as warrant agent or its
successor (the "Warrant Agent"), accompanied by payment of $11.88 per share of
Common Stock, subject to adjustment as provided in the Warrant Agreement, or
such other amount as specified in the Warrant Agreement (the "Purchase Price")
in lawful money of the United States of America in cash or by official bank or
certified check made payable to SportsTrac Systems, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ____________,
1999 by and between the Company and the Warrant Agent. Capitalized terms not
defined herein are used herein as defined in the Warrant Agreement. Each Warrant
represented hereby is a "Fairchild Warrant" as defined in the Warrant Agreement.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor which the Warrant Agent shall countersign for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Warrant(s) represented hereby shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the Corporate Office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each such new Warrant Certificate to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
change imposed in connection therewith for registration or transfer of this
Warrant Certificate at such Corporate Office, a new Warrant Certificate or
Warrant Certificates representing an equal aggregate number of Warrants will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrant(s) represented hereby may be redeemed at the option of the
Company at a redemption price of $.10 per Warrant at any time provided the
closing bid price (all as more fully set forth in the Warrant Agreement) for the
Common Stock is at least $10.80 per share, subject to adjustment as provided in
the Warrant Agreement, on 20 consecutive trading days ending on the third day
before notice of redemption is given. Notice of redemption shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrant(s)
represented hereby except to receive the $.10 per Warrant upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
- ------------------------------------- ----------------------------------------
Secretary President
<PAGE>
COUNTERSIGNED
American Stock Transfer & Trust Co.
40 Wall Street
New York, New York 10005
By:
----------------------------------------
Warrant Agent Authorized Signature
<PAGE>
SPORTSTRAC SYSTEMS, INC.
CLASS A WARRANT EXERCISE FORM
To Be Executed by the Registered Holder
in Order to Exercise Class A Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________________________________________ Warrants represented by this
Warrant Certificate and to purchase the securities issuable upon the exercise of
such Warrants and requests that certificates for such securities shall be issued
in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate that a new Warrant Certificate for the balance of such
Warrants be registered in the name of and delivered to the Registered Holder at
the address stated below.
The undersigned represents that the exercise of the within Warrant or
Warrants was solicited by a member of the National Association of Securities
Dealers, Inc. If not solicited by an NASD member, please write "unsolicited" in
the space below.
-----------------------------------------------------
(Name of NASD Member)
Dated: X
------------------- ---------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Address
-----------------------------------------------------
Taxpayer Identification Number
-----------------------------------------------------
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class A Warrants
FOR VALUE RECEIVED, ____________________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
__________________ of the Warrants represented by this Warrant Certificate and
hereby irrevocably constitutes and appoints
- --------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Warrant Agent,
with full power of substitution in the premises.
Dated: X
------------------ ----------------------------------------------------
Signature Guaranteed
-------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, BOSTON
STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
EXHIBIT 4.3
No sale, offer to sell or transfer of the securities represented by this
certificate or any interest therein shall be made unless a registration
statement under the Federal Securities Act of 1933, as amended (the "Act"), with
respect to such transaction is then in effect, or the issuer has received an
opinion of counsel satisfactory to it that such transfer does not require
registration under that Act.
This Warrant will be void after 5:00 p.m. New York time on ___________,
2004 (i.e. five years from the effective date of the Registration Statement).
Warrant No. 1
UNDERWRITER'S UNIT WARRANT
To Subscribe for and Purchase Units of
SPORTSTRAC SYSTEMS, INC.
(Transferability Restricted as Provided in Paragraph 2 Below)
THIS CERTIFIES THAT, for value received, ____________________________
__________________ or registered assigns, is entitled to subscribe for and
purchase from SPORTSTRAC SYSTEMS, INC., incorporated under the laws of the State
of Delaware (the "Company"), up to ________ fully paid and non-assessable Units
(the "Underwriter's Unit Warrant") consisting of one fully paid and
non-assessable share of Common Stock of the Company and two Class A Common Stock
Purchase Warrants at the "Unit Warrant Price" and during the period hereinafter
set forth, subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant is one of an issue of the Company's
Underwriter's Unit Warrants identical in all respects except as to the names of
the holders thereof and the number of Units purchasable thereunder, representing
on the original issue thereof rights to purchase up to 58,500 Units.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to
the Company's common stock as more fully set forth in Section 5 hereof.
(b) The "Warrant Agreement" shall refer to the Warrant
Agreement dated as of ___________, 1999 between American Stock Transfer & Trust
Company and the Company.
(c) Warrants shall refer to the Warrant(s) included in the
Units offered to the public by the Company through Fairchild Financial Group,
Inc. pursuant to a Registration Statement declared effective by the Securities
and Exchange Commission ("SEC") on __________, 1999 and issued or to be issued
subject to terms and conditions of the Warrant Agreement.
<PAGE>
(d) "Underwriter's Warrants" shall refer to the Warrants
issuable upon exercise of this Warrant to the holder thereof and shall be
identical in all respects to the Class A Warrants issued to the public offering,
except that the exercise price of the Underwriter's Warrants shall be at 165% of
the then effective exercise price of the publicly held Class A Warrants.
(e) "Units" shall consist of one share of Common Stock and two
Underwriter's Warrants. The Common Stock included in the Units and issuable upon
the exercise of the Underwriter's Warrant are subject to adjustment pursuant to
Section 4 hereof and the Warrant Agreement.
(f) "Effective Date" shall mean the date that the Securities
and Exchange Commission declares effective Form SB-2, File No. 333-_________.
(g) "Unit Warrant Price" shall be $9.90 which is subject to
adjustment pursuant to Section 4 hereof.
(h) "Underwriter" shall refer to Fairchild Financial Group,
Inc.
(i) "Underwriting Agreement" shall refer to the Underwriting
Agreement dated ___________, 1999 between the Company and the Underwriter.
(j) "Underwriter's Unit Warrants" shall refer to warrants to
purchase an aggregate of up to 58,500 Units issued to the Underwriter or its
designees by the Company pursuant to the Underwriting Agreement (including the
warrants represented by this Certificate), as such may be adjusted from time to
time pursuant to the terms of Section 4 hereof (and including any warrants
represented by any certificate issued from time to time in connection with the
transfer, partial exercise, exchange of any warrants or in connection with a
lost, stolen, mutilated or destroyed warrant certificate, if any, or to reflect
an adjusted number of Units).
(k) "Underlying Securities" shall refer to and include the
Common Shares and Underwriter's Warrants issuable or issued upon exercise of the
Underwriter's Unit Warrants as well as any Common Shares issued upon the
exercise of the Underwriter's Warrants.
(l) "Holders" shall mean the registered holder of the
Underwriter's Unit Warrants or any issued Underlying Securities.
2. The purchase rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part at any time, and from time to time,
during the period commencing on the Effective Date and expiring on ___________,
2004 (the "Expiration Date"), by the surrender of this Warrant, with the
purchase form attached duly executed, at the Company's office (or such office or
agency of the Company as it may designate in writing to the Holder hereof by
notice pursuant to Section 14 hereof), and upon payment
2
<PAGE>
by the Holder to the Company in cash, or by certified check or bank draft of the
Unit Warrant Price for such Units. The Company agrees that the Holder hereof
shall be deemed the record owner of such Underlying Securities as of the close
of business on the date on which this Warrant shall have been presented and
payment made for such Units as aforesaid. Certificates for the Underlying
Securities so purchased shall be delivered to the Holder hereof within a
reasonable time, not exceeding five (5) days, after the rights represented by
this Warrant shall have been so exercised. If this Warrant shall be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
deliver a new Underwriter's Unit Warrant evidencing the rights of the Holder
hereof to purchase the balance of the Units which such Holder is entitled to
purchase hereunder. Exercise in full of the rights represented by this Warrant
shall not extinguish the rights granted under Section 9 hereof.
In the event that the Underwriter's Warrants have expired, this Warrant
will entitle the holder to purchase only the shares of Common Stock included in
the Units, subject to adjustment as provided for herein.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Underwriter's Unit Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of Units as are
purchasable hereunder; and (ii) this Warrant may be divided or combined with
other Underwriter's Unit Warrants which carry the same rights, in either case,
upon presentation hereof at the aforesaid office of the Company together with a
written notice, signed by the Holder hereof, specifying the names and
denominations in which new Underwriter's Unit Warrants are to be issued, and the
payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of the Warrant Agreement, the
Unit Warrant Price, the exercise price per share of the Underwriter's Warrants
and number of shares of Common Stock included in and issuable in connection with
the Units and the exercise of the Underwriter's Warrants subject to this Warrant
shall be subject to adjustment from time to time on the same basis as the Class
A Warrants as described in the Warrant Agreement.
5. For the purposes of this Warrant, the terms "Common Shares" or
"Common Stock" shall mean (i) the class of stock designated as the common stock
of the Company on the date set forth on the first page hereof or (ii) any other
class of stock resulting from successive changes or re-classifications of such
Common Stock consisting solely of changes in par value, or from no par value to
par value, or from par value to no par value. If at any time, as a result of an
adjustment made pursuant to Section 4, the securities or other property
obtainable upon exercise of this Warrant shall include shares or other
securities of the Company other than Common Shares or securities of another
corporation or other property, thereafter, the number of such other shares or
other securities or property so obtainable shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common
3
<PAGE>
Shares contained in Section 4 and all other provisions of this Warrant with
respect to Common Shares shall apply on like terms to any such other shares or
other securities or property. Subject to the foregoing, and unless the context
requires otherwise, all references herein to Common Shares shall, in the event
of an adjustment pursuant to Section 4, be deemed to refer also to any other
securities or property then obtainable as a result of such adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by
this Warrant may be exercised, the Company shall, at all times, reserve and keep
available out of its authorized capital stock, solely for the purposes of
issuance upon exercise of this Warrant, such number of its Common Shares as
shall be issuable upon the exercise of this Warrant and the exercise of the
Underwriter's Warrants and at its expense will obtain the listing thereof on all
national securities exchanges and NASDAQ on which the Warrants are then listed;
and if at any time the number of authorized Common Shares shall not be
sufficient to effect the exercise of this Warrant and the exercise of the
Underwriter's Warrants included therein, the Company will take such corporate
action as may be necessary to increase its authorized but unissued Common Shares
to such number of shares as shall be sufficient for such purpose; the Company
shall have analogous obligations with respect to any other securities or
property issuable upon exercise of this Warrant.
(b) All Common Shares which may be issued upon exercise of the
rights represented by this Warrant or upon the exercise of the Underwriter's
Warrants will, upon issuance and payment be validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof (except as may be concurrently discharged by the Company or the
Holder); and,
(c) All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant or the Underwriter's Warrants shall be borne by the Company but in no
event shall the Company be responsible or liable for income taxes or transfer
taxes upon the transfer of any Underwriter's Unit Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a shareholder of the Company, except that
the Holder of this Warrant shall be deemed to be a shareholder of this Company
for the purpose of bringing suit on the ground that the issuance of shares of
stock of the Company is improper under the laws of the Company's state of
incorporation.
8. This Warrant shall not be sold, transferred, assigned or
hypothecated for a period of twelve (12) months from the effective date of the
Company's public offering with respect to which this Warrant has been issued,
except to officers of the Underwriter, and/or the other underwriters and/or
selected dealers who participated in such offering, or the officers or partners
of such underwriters and/or selected dealers. In no event shall this
4
<PAGE>
Warrant be sold, transferred, assigned or hypothecated except in conformity with
the applicable provisions of the Securities Act of 1933, as amended (the "Act"),
or any applicable "Blue Sky" laws.
9. The Holder of this Warrant, by acceptance hereof, agrees that, prior
to the disposition of this Warrant or of any Underlying Securities theretofore
purchased upon the exercise hereof, under circumstances that might require
registration of such securities under the Act, such Holder will give written
notice to the Company expressing such Holder's intention of effecting such
disposition, and describing briefly such Holder's intention as to the
disposition to be made of this Warrant and/or the Underlying Securities
theretofore issued upon exercise hereof. Promptly upon receiving such notice,
the Company shall present copies thereof to its counsel and the provisions of
the following subdivisions shall apply:
(a) If, in the opinion of such counsel, the proposed
disposition does not require registration under the Act, or any applicable state
statute of this Warrant and/or Underlying Securities, the Company shall, as
promptly as practicable, notify the Holder hereof of such opinion, whereupon
such holder shall be entitled to dispose of this Warrant and/or such Underlying
Securities theretofore issued upon the exercise hereof, all in accordance with
the terms of the notice delivered by such Holder to the Company.
(b) If, in the opinion of such counsel, such proposed
disposition requires such registration or qualification under the Act, or any
state statute then in effect, of this Warrant and/or the Underlying Securities
issuable or issued upon the exercise of this Warrant, the Company shall promptly
give written notice of such opinion to the Holder hereof and to the then holders
of the Underlying Securities at the respective addresses thereof shown on the
books of the Company. Section 15 of the Underwriting Agreement provides for
certain registration rights which are incorporated herein by reference as if set
forth herein in its entirety.
10. Whenever, pursuant to Section 9 hereof, a registration statement
relating to the Underwriter's Unit Warrant or Underlying Securities is filed
under the Act or any applicable state statute, the Company agrees to indemnify
and hold harmless the holder of this Warrant, or of securities issuable or
issued upon the exercise hereof, from and against any claims and liabilities
arising out of or based upon any untrue statement of a material fact, or
omission to state a material fact required to be stated, in any such
registration statement or prospectus, except insofar as such claims or
liabilities are caused by any such untrue statement or omission based on
information furnished in writing to the Company by such holder, or by any other
such holder affiliated with the holder who seeks indemnification, as to which
the holder hereof, by acceptance hereof, agrees to indemnify and hold harmless
the Company, in the same manner as set forth herein.
11. If this Warrant, or any of the securities issuable pursuant hereto,
require qualification or registration with, or approval of, any governmental
official or authority (other than registration under the Act, or any applicable
state statute at the time in force), before such shares may be issued on the
exercise hereof, the Company, at its expense, will take
5
<PAGE>
all requisite action in connection with such qualification, and will use its
best efforts to cause such securities and/or this Warrant to be duly registered
or approved, as may be required.
12. This Warrant is exchangeable, upon its surrender by the registered
holder at such office or agency of the Company as may be designated by the
Company, for new Underwriter's Unit Warrants of like tenor, representing, in the
aggregate, the right to subscribe for and purchase the number of Units that may
be subscribed for and purchased hereunder, each of such new Underwriter's Unit
Warrants to represent the right to subscribe for and purchase such number of
Units as shall be designated by the registered holder at the time of such
surrender. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of any such
loss, theft or destruction, upon delivery of a bond of indemnity satisfactory to
the Company, or in the case of such mutilation, upon surrender or cancellation
of this Warrant, the Company will issue to the registered holder a new
Underwriter's Unit Warrant of like tenor, in lieu of this Warrant, representing
the right to subscribe for and purchase the number of Units that may be
subscribed for and purchased hereunder. Nothing herein is intended to authorize
the transfer of this Warrant except as permitted under Section 8.
13. Every holder hereof, by accepting the same, agrees with any
subsequent holder hereof and with the Company that this Warrant and all rights
hereunder are issued and shall be held subject to all of the terms, conditions,
limitations and provisions set forth in this Warrant, and further agrees that
the Company and its transfer agent may deem and treat the registered holder of
this Warrant as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
14. All notices required hereunder shall be given by first-class mail,
postage prepaid; if given by the holder hereof, addressed to the Company at
Suite 100, 6654 Gunpark Drive, Boulder, Colorado 80301 or such other address as
the Company may designate in writing to the holder hereof; and if given by the
Company, addressed to the holder at the address of the holder shown on the books
of the Company.
15. 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 another corporation, unless the corporation
resulting from such merger or consolidation (if not the Company), or such
transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement satisfactory in form to the Underwriter, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
6
<PAGE>
16. The validity, construction and enforcement of this Warrant shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws provisions thereof and jurisdiction is hereby vested in the
courts of said state in the event of the institution of any legal action under
this Warrant.
IN WITNESS WHEREOF, SPORTSTRAC SYSTEMS, INC. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, to be dated
_____________, 1999.
SPORTSTRAC SYSTEMS, INC.
By:
-------------------------------------
Marc Silverman, President
Attest:
- ------------------------------------
(Corporate Seal)
7
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the right to purchase Common Shares and
__________ Underwriter's Warrants evidenced by the within Warrant, according to
the terms and conditions thereof, and herewith makes payment of the purchase
price in full. The undersigned requests that certificates for such shares and
warrants shall be issued in the name set forth below.
Dated:
----------------------------------------
Signature
----------------------------------------
Print Name of Signatory
----------------------------------------
Name to whom certificates are to
be issued if different from above
Address:
--------------------------------
----------------------------------------
----------------------------------------
Social Security No. or other
identifying number
If said number of shares and warrants shall not be all the shares and
warrants purchasable under the within Warrant, the undersigned requests that a
new Underwriter's Unit Warrant for the unexercised portion shall be registered
in the name of:
----------------------------------------
Please Print
----------------------------------------
Address:
--------------------------------
----------------------------------------
----------------------------------------
Social Security No. or other
identifying number
----------------------------------------
Signature
8
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby
sells assigns and transfers to , Soc. Sec. No.
[ ] the within Warrant, together with all rights, title and interest
therein, and does hereby irrevocably constitute and appoint attorney to
transfer such Warrant on the register of the within named Company, with full
power of substitution.
----------------------------------------
Signature
Dated:
Signature Guaranteed:
- ---------------------------------------
9
EXHIBIT 4.4
PROMISSORY NOTE
$536,000.00 U.S.D. March 2, 1999
FOR VALUE RECEIVED, sportstrac.com, inc., a Delaware corporation (the
"COMPANY"), promises to pay to the order of The Holding Company ("LENDER"), in
lawful money of the United States of America, in the manner and at the times
provided hereinafter, (i) Principal (as hereinafter defined); (ii) Interest (as
hereinafter defined) and Default Interest (as hereinafter defined), if any; and
(iii) all other amounts due and payable pursuant to and in accordance with the
terms of this Note.
1. PRIOR DEBT. This Promissory Note (the "NOTE") replaces in the entirety
and in the aggregate, any and all of those promissory notes evidencing all
outstanding indebtedness of the Company to Lender, including, without
limitation, any indebtedness of the Company to Lender as assignee of any other
person. Lender agrees and acknowledges that it has received payment in full,
either in the form of cash or other securities, for all other indebtedness from
the Company or Sportstrac, Inc. to Lender other than that indebtedness evidenced
by this Note. Lender agrees that if it locates the promissory notes evidencing
any such existing indebtedness it shall mark such promissory notes as cancelled
and return them promptly to the Company.
2. DEFINITIONS. In addition to the terms defined elsewhere in this Note,
for purposes of this Note, the following terms shall have the following
meanings:
2.1. "DEFAULT INTEREST" shall mean interest computed at 15% per
annum, on (i) the entire principal balance of this Note from time to time unpaid
from and after such amount becomes due and payable (whether by maturity,
acceleration or otherwise), and (ii) any and all other unpaid amounts due
pursuant to the terms and provisions of this Note (including, but not limited
to, accrued but unpaid Interest) from and after the respective dates on which
those amounts become due and payable, whether by maturity, acceleration, or
otherwise; in each case from and after any applicable grace period has expired.
Default Interest shall be computed for the actual number of days elapsed,
predicated on a year consisting of 360 days, and shall be payable on demand.
Notwithstanding anything to the contrary contained herein, for any period in
which Default Interest is accruing on the entire unpaid principal balance
hereunder, Interest shall not accrue.
2.2. "INTEREST" shall mean interest computed at 10% per annum on the
entire principal balance of this Note from time to time unpaid. Interest shall
be computed on the actual number of days elapsed, predicated on a year
consisting of 360 days.
2.3. "LENDER" shall mean the Lender under this Note.
2.4. "LOAN" shall mean the loan evidenced by this Note.
2.5. "MATURITY DATE" shall mean December 31, 2000.
<PAGE>
2.6. "PRINCIPAL" shall mean $536,000.00 or so much thereof as may
from time to time be outstanding hereunder.
3. BORROWINGS, PAYMENTS, MATURITY, SECURITY.
3.1. BORROWINGS. Subject to the terms of this Note, the Company has
borrowed and Lender has lent to the Company $536,000.00.
3.2. INTEREST AND PRINCIPAL. Interest shall accrue commencing on the
date hereof. Interest shall accrue during the entire term of this Note.
3.3. OTHER; MATURITY. Default Interest shall be payable on demand.
All outstanding and unpaid Principal and Interest shall be due and payable on
the Maturity Date, unless otherwise specified herein or unless accelerated in
accordance with the terms or provisions hereof.
4. PREPAYMENT. This Note may be prepaid, in whole or in part, at any time
by the Company without premium or penalty. Any prepayment pursuant to this
SECTION 4 shall be accompanied by payment of any Interest and Default Interest,
if any, accrued and unpaid through the date of such prepayment.
5. EVENTS OF DEFAULT. The following shall constitute events of default
hereunder (an "EVENT OF DEFAULT"): (i) a default in the payment of any amounts
due hereunder occurring on or prior to the Maturity Date, (ii) any assignment
for the benefit of creditors by the Company; (iii) the application for the
appointment of a receiver for the Company or for property of the Company; (iv)
the filing of a petition in bankruptcy by or against the Company; (v) the
issuance of an attachment or the entry of a judgment against the Company; (vi)
the merger, consolidation, termination of existence, dissolution or insolvency
of the Company; (vii) any other breach or default hereunder; or (viii) the
occurrence of any event or events (whether or not covered by insurance),
individually or in the aggregate, having, or that could be reasonably expected
to have, in the reasonable determination of the Lender, a material adverse
effect on the business, operations, prospects, assets, condition (financial or
otherwise) or results of operations of the Company.
6. ACCELERATION. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default, then upon the determination
of the Lender (in its sole discretion), and without further demand or notice of
any kind, the following shall become immediately due and payable:
(a) the principal sum remaining unpaid hereunder;
(b) unpaid Interest;
(c) Default Interest; and
(d) all other indebtedness evidenced by this Note.
2
<PAGE>
7. REMEDIES.
7.1. GENERAL. If the Company fails to pay any amounts when due
hereunder, whether by maturity, acceleration or otherwise, or if there occurs
any event which entitles the Lender to accelerate the indebtedness due under
this Note and any grace period applicable to any such failure to pay or event as
set forth herein expires, then the Lender shall have all of the rights and
remedies provided to them: (i) hereunder, and (ii) at law or in equity. The
remedies of the Lender, as provided herein, shall be cumulative and concurrent,
and may be pursued singularly, successively, or together, at the sole discretion
of the Lender, and may be exercised as often as occasion therefor shall arise.
The Lender may resort for payment hereunder to any of the security for, or any
guaranty of, this Note whether or not the Lender shall have resorted for payment
hereunder to any other security for or guaranty of this Note. No act or omission
of the Lender, including specifically any failure to exercise any right, remedy
or recourse, shall be deemed to be a waiver or release of the same, such waiver
or release to be effected only through a written document executed by the Lender
and then only to the extent specifically recited therein. A waiver or release
with reference to any one event shall not be construed as continuing, as a bar
to, or as a waiver or release of, any subsequent right, remedy, or recourse as
to a subsequent event.
7.2. COSTS AND FEES. If this Note is placed in the hands of an
attorney for amendment, modification, settlement or collection or is collected
on advice of counsel (whether or not any legal proceeding is commenced) or
through any legal proceeding, the Company promises to pay, to the extent
permitted by law, court costs and reasonable attorneys' fees incurred by the
Lender, and all such amounts shall thereafter constitute other indebtedness
evidenced by this Note.
7.3. WAIVERS. Every person and/or entity (including, but not limited
to, the signatories hereof) now or at any time liable, whether primarily or
secondarily, for the payment of the indebtedness evidenced hereby, for such
person and/or entity and for the heirs, legal representatives, successors and
assigns of such person and/or entity, expressly waives presentment for payment,
notice of dishonor, protest, notice of protest and diligence in collection, and
further waives for the benefit of itself and such other parties, to the extent
permitted by law, the benefit of all appraisement, valuation, marshaling,
forbearance, stay, extension, redemption, homestead, exemption and moratorium
laws now or hereafter in force, and agrees that the time of payment of principal
or interest hereof may be extended, without in any way modifying, altering,
releasing, affecting or limiting his, her or its liability hereunder.
8. CONVERSION.
8.1. PROCEDURE. At any time and from time to time, Lender may, by
written notice to the Company, elect to receive shares of the Company's Common
Stock (the "COMMON STOCK") in lieu of repayment of a that portion of Principal,
Interest and Default Interest specified in such notice. Upon such election, the
Company shall issue to the Lender the number of shares of Common Stock equal to
(i) the dollar amount of Principal, Interest and Default Interest that Lender so
elects to convert, divided by (ii) $0.40; provided, however that
3
<PAGE>
such issuance does not violate any federal or state securities laws or
regulation. Upon the issuance of such Common Stock, amounts owing by the Company
to the Lender (including, without limitation, Principal, Interest and Default
Interest) that are not converted shall remain outstanding in accordance with the
terms of this Note.
9. RESTRICTIONS ON CONVERTED STOCK. Lender understands that Common Stock
issued or to-be-issued hereunder (collectively, the "SECURITIES") have been or
will be issued without registration pursuant to the Securities Act of 1933, as
amended (the "ACT") and without registration pursuant to any state securities
laws, in each case in reliance upon an exemption from the registration
requirements of the Act and such state securities laws. As a result, Lender
understands that any document or certificate evidencing any of the Securities
may contain a restrictive legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR OTHER APPLICABLE STATE SECURITIES LAWS. NO TRANSFER OR
SALE OF THESE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT
UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND
SAID STATE SECURITIES LAWS COVERING SAID SECURITIES UNLESS THE
ISSUER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT
SUCH TRANSFER OR SALE DOES NOT REQUIRE REGISTRATION UNDER THE 1933
ACT OR SAID STATE SECURITIES LAWS.
Upon such issuance Lender further agrees, represents and warrants that (a) the
Securities are being acquired for Lender's account, and not with a view to or in
connection with any offering or distribution; (b) no public distribution of the
Securities will be made in violation of the provisions of the Act or applicable
state securities laws; and (c) during such period as delivery of a prospectus
with respect to any of the Securities may be required by the Act, no public
distribution of the Securities will be made in a manner or on terms different
from those set forth in, or without delivery of, a prospectus then meeting the
requirements of the Act and in compliance with all applicable state securities
laws. Lender further agrees that if any transfer or distribution of any
Securities is proposed to be made otherwise than pursuant to registration under
the Act and applicable state securities laws, such action shall be taken only
after submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer or distribution will not be in violation of the Act or of
applicable state securities laws. Furthermore, it shall be a condition to the
transfer of any rights set forth in this Note that any transferee thereof
deliver to the Company said transferee's written agreement to accept and be
bound by all of the terms and conditions of this Note, including, without
limitation, the provisions of SECTION 8 hereof.
4
<PAGE>
Lender is responsible for any transfer taxes or fees due as a result of any
transfer of any Securities.
10. MISCELLANEOUS.
10.1. If any provision of this Note is unenforceable, invalid or
contrary to law, or its inclusion herein would affect the validity, legality or
enforcement of this Note, such provision shall be limited to the extent
necessary to render the same valid or shall be excised from this Note, as the
circumstances require, and this Note shall be construed as if said provision had
been incorporated herein as so limited or as if said provision had not been
included herein, as the case may be.
10.2. Time is of the essence of this Note.
10.3. After the Maturity Date or following the occurrence of an
event which entitles the Lender to accelerate the indebtedness evidenced hereby,
all payments received on account of the indebtedness evidenced hereby shall be
applied, in whatever order, combination and amounts as the Lender, in its sole
discretion, decide, to all costs, expenses, and other indebtedness, if any,
owing to the Lender by reason of this Note; Default Interest; Interest; and
principal.
10.4. This Note, and the terms and provisions hereof, shall be
binding upon the Company and its successors, administrators, and assigns, and
shall inure to the benefit of any holder hereof.
10.5. Any and all payments due hereunder shall be made without
deduction, setoff or counterclaim, the Company expressly waiving any such rights
to deduction, setoff or counterclaim.
10.6. Notwithstanding any provision to the contrary contained in
this Note or in any of the other documents or instruments referred to in this
Note, if at any time or times the interest and any sums considered for such
purpose to be interest, payable under or by reason of this Note or any such
other documents or instruments, should exceed the maximum which, by the laws of
the State having jurisdiction, may be charged with respect to the loan evidenced
hereby, given the nature and all of the pertinent circumstances of such loan,
then all such sums in excess of such maximum shall be deemed not to be interest,
but rather to be payments on account of principal, and without further agreement
of the parties shall be so applied without regard to any other provision of this
Note, provided that Lender may elect instead that no sums shall be payable in
excess of such maximum, whereupon this Note and such other documents and
instruments shall be deemed amended accordingly without further action by any
party.
10.7. This Note shall inure to the benefit of Lender and its
successors and assigns. This Note has been negotiated and delivered at Chicago,
Illinois, and shall be governed by and construed in accordance with the internal
laws of the State of Illinois without reference to (i) its judicially or
statutorily pronounced rules regarding conflict of laws or
5
<PAGE>
choice of law; (ii) where any instrument is executed or delivered; (iii) where
any payment or other performance required by any such instrument is made or
required to be made; (iv) where any breach of any provision of any such
instrument occurs, or any cause of action otherwise accrues; (v) where any
action or other proceeding is instituted or pending; (vi) the nationality,
citizenship, domicile, principal place of business, or jurisdiction or
organization or domestication of any party; (vii) whether the laws of the form
jurisdiction otherwise would apply the laws of a jurisdiction other than the
State of Illinois; or (viii) any combination of the foregoing.
10.8. The Company represents and agrees that the indebtedness
created hereunder constitutes a business loan that comes within the purview of
Chapter 815, Section 205/4(1)(c) of the Illinois Compiled Statutes and, as such,
will not avail itself, by way of defense or otherwise, of any statutory or case
law relief relating to usury or compounding of interest to avoid or defeat the
payment of interest or any other sum in connection with the indebtedness created
hereunder. All agreements between the Company and the Lender are expressly
limited so that in no event whatsoever shall the amount paid or agreed to be
paid to the Lender exceed the highest lawful rate of interest permissible under
the laws of the State of Illinois. If, for any circumstances whatsoever,
fulfillment of any provision hereof, at the time performance of such provision
shall be due, shall involve exceeding the limit of validity prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then ipso
facto, the obligation to be fulfilled shall be reduced to the highest lawful
rate of interest permissible under the laws of the State of Illinois, and if for
any reason whatsoever, Lender shall ever receive as interest an amount that
would be deemed unlawful, such interest shall be applied to the payment of the
principal amount outstanding under this Note (whether or not then due and
payable) and not to the payment of interest.
10.9. COUNTERPARTS. This Note may be executed in any number of
identical counterparts, any or all of which may contain signatures of less than
all of the parties, and all of which shall be construed together as a single
instrument.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first above written.
COMPANY:
sportstrac.com, inc., a Delaware corporation
By: /s/ Marc R. Silverman
--------------------------------------
Name: Marc R. Silverman
--------------------------------------
Its: President
--------------------------------------
AGREED AND ACCEPTED
THE HOLDING COMPANY
By: /s/
--------------------------------------
Name:
--------------------------------------
Its:
--------------------------------------
7
EXHIBIT 4.5
PROMISSORY NOTE
$350,000.00 U.S.D. March 2, 1999
FOR VALUE RECEIVED, sportstrac.com, inc., a Delaware corporation (the
"COMPANY"), promises to pay to the order of Swiss American Bank ("Lender"), in
lawful money of the United States of America, in the manner and at the times
provided hereinafter, (i) Principal (as hereinafter defined); (ii) Interest (as
hereinafter defined) and Default Interest (as hereinafter defined), if any; and
(iii) all other amounts due and payable pursuant to and in accordance with the
terms of this Note.
1. PRIOR DEBT. This Promissory Note (the "NOTE") replaces in the entirety
and in the aggregate, any and all of those promissory notes evidencing all
outstanding indebtedness of the Company to Lender, including, without
limitation, any indebtedness of the Company to Lender as assignee of any other
person. Lender agrees and acknowledges that it has received payment in full,
either in the form of cash or other securities, for all other indebtedness from
the Company or Sportstrac, Inc. to Lender other than that indebtedness evidenced
by this Note. Lender agrees that if it locates the promissory notes evidencing
any such existing indebtedness it shall mark such promissory notes as cancelled
and return them promptly to the Company.
2. DEFINITIONS. In addition to the terms defined elsewhere in this Note,
for purposes of this Note, the following terms shall have the following
meanings:
2.1. "DEFAULT INTEREST" shall mean interest computed at 15% per
annum, on (i) the entire principal balance of this Note from time to time unpaid
from and after such amount becomes due and payable (whether by maturity,
acceleration or otherwise), and (ii) any and all other unpaid amounts due
pursuant to the terms and provisions of this Note (including, but not limited
to, accrued but unpaid Interest) from and after the respective dates on which
those amounts become due and payable, whether by maturity, acceleration, or
otherwise; in each case from and after any applicable grace period has expired.
Default Interest shall be computed for the actual number of days elapsed,
predicated on a year consisting of 360 days, and shall be payable on demand.
Notwithstanding anything to the contrary contained herein, for any period in
which Default Interest is accruing on the entire unpaid principal balance
hereunder, Interest shall not accrue.
2.2. "INTEREST" shall mean interest computed at 10% per annum on the
entire principal balance of this Note from time to time unpaid. Interest shall
be computed on the actual number of days elapsed, predicated on a year
consisting of 360 days.
2.3. "LENDER" shall mean the Lender under this Note.
2.4. "LOAN" shall mean the loan evidenced by this Note.
2.5. "MATURITY DATE" shall mean December 31, 2000.
<PAGE>
2.6. "PRINCIPAL" shall mean $350,000.00 or so much thereof as may
from time to time be outstanding hereunder.
3. BORROWINGS, PAYMENTS, MATURITY, SECURITY.
3.1. BORROWINGS. Subject to the terms of this Note, the Company has
borrowed and Lender has lent to the Company $350,000.00.
3.2. INTEREST AND PRINCIPAL. Interest shall accrue commencing on the
date hereof. Interest shall accrue during the entire term of this Note.
3.3. OTHER; MATURITY. Default Interest shall be payable on demand.
All outstanding and unpaid Principal and Interest shall be due and payable on
the Maturity Date, unless otherwise specified herein or unless accelerated in
accordance with the terms or provisions hereof.
4. PREPAYMENT. This Note may be prepaid, in whole or in part, at any time
by the Company without premium or penalty. Any prepayment pursuant to this
SECTION 4 shall be accompanied by payment of any Interest and Default Interest,
if any, accrued and unpaid through the date of such prepayment.
5. EVENTS OF DEFAULT. The following shall constitute events of default
hereunder (an "EVENT OF DEFAULT"): (i) a default in the payment of any amounts
due hereunder occurring on or prior to the Maturity Date, (ii) any assignment
for the benefit of creditors by the Company; (iii) the application for the
appointment of a receiver for the Company or for property of the Company; (iv)
the filing of a petition in bankruptcy by or against the Company; (v) the
issuance of an attachment or the entry of a judgment against the Company; (vi)
the merger, consolidation, termination of existence, dissolution or insolvency
of the Company; (vii) any other breach or default hereunder; or (viii) the
occurrence of any event or events (whether or not covered by insurance),
individually or in the aggregate, having, or that could be reasonably expected
to have, in the reasonable determination of the Lender, a material adverse
effect on the business, operations, prospects, assets, condition (financial or
otherwise) or results of operations of the Company.
6. ACCELERATION. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default, then upon the determination
of the Lender (in its sole discretion), and without further demand or notice of
any kind, the following shall become immediately due and payable:
(a) the principal sum remaining unpaid hereunder;
(b) unpaid Interest;
(c) Default Interest; and
(d) all other indebtedness evidenced by this Note.
2
<PAGE>
7. REMEDIES.
7.1. GENERAL. If the Company fails to pay any amounts when due
hereunder, whether by maturity, acceleration or otherwise, or if there occurs
any event which entitles the Lender to accelerate the indebtedness due under
this Note and any grace period applicable to any such failure to pay or event as
set forth herein expires, then the Lender shall have all of the rights and
remedies provided to them: (i) hereunder, and (ii) at law or in equity. The
remedies of the Lender, as provided herein, shall be cumulative and concurrent,
and may be pursued singularly, successively, or together, at the sole discretion
of the Lender, and may be exercised as often as occasion therefor shall arise.
The Lender may resort for payment hereunder to any of the security for, or any
guaranty of, this Note whether or not the Lender shall have resorted for payment
hereunder to any other security for or guaranty of this Note. No act or omission
of the Lender, including specifically any failure to exercise any right, remedy
or recourse, shall be deemed to be a waiver or release of the same, such waiver
or release to be effected only through a written document executed by the Lender
and then only to the extent specifically recited therein. A waiver or release
with reference to any one event shall not be construed as continuing, as a bar
to, or as a waiver or release of, any subsequent right, remedy, or recourse as
to a subsequent event.
7.2. COSTS AND FEES. If this Note is placed in the hands of an
attorney for amendment, modification, settlement or collection or is collected
on advice of counsel (whether or not any legal proceeding is commenced) or
through any legal proceeding, the Company promises to pay, to the extent
permitted by law, court costs and reasonable attorneys' fees incurred by the
Lender, and all such amounts shall thereafter constitute other indebtedness
evidenced by this Note.
7.3. WAIVERS. Every person and/or entity (including, but not limited
to, the signatories hereof) now or at any time liable, whether primarily or
secondarily, for the payment of the indebtedness evidenced hereby, for such
person and/or entity and for the heirs, legal representatives, successors and
assigns of such person and/or entity, expressly waives presentment for payment,
notice of dishonor, protest, notice of protest and diligence in collection, and
further waives for the benefit of itself and such other parties, to the extent
permitted by law, the benefit of all appraisement, valuation, marshaling,
forbearance, stay, extension, redemption, homestead, exemption and moratorium
laws now or hereafter in force, and agrees that the time of payment of principal
or interest hereof may be extended, without in any way modifying, altering,
releasing, affecting or limiting his, her or its liability hereunder.
8. CONVERSION.
8.1. PROCEDURE. At any time and from time to time, Lender may, by
written notice to the Company, elect to receive shares of the Company's Common
Stock (the "COMMON STOCK") in lieu of repayment of a that portion of Principal,
Interest and Default Interest specified in such notice. Upon such election, the
Company shall issue to the Lender the number of shares of Common Stock equal to
(i) the dollar amount of Principal, Interest and Default Interest that Lender so
elects to convert, divided by (ii) $0.40; provided, however that
3
<PAGE>
such issuance does not violate any federal or state securities laws or
regulation. Upon the issuance of such Common Stock, amounts owing by the Company
to the Lender (including, without limitation, Principal, Interest and Default
Interest) that are not converted shall remain outstanding in accordance with the
terms of this Note.
9. RESTRICTIONS ON CONVERTED STOCK. Lender understands that Common
Stock issued or to-be-issued hereunder (collectively, the "SECURITIES") have
been or will be issued without registration pursuant to the Securities Act of
1933, as amended (the "ACT") and without registration pursuant to any state
securities laws, in each case in reliance upon an exemption from the
registration requirements of the Act and such state securities laws. As a
result, Lender understands that any document or certificate evidencing any of
the Securities may contain a restrictive legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR OTHER APPLICABLE STATE SECURITIES LAWS. NO TRANSFER OR
SALE OF THESE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT
UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND
SAID STATE SECURITIES LAWS COVERING SAID SECURITIES UNLESS THE
ISSUER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT
SUCH TRANSFER OR SALE DOES NOT REQUIRE REGISTRATION UNDER THE 1933
ACT OR SAID STATE SECURITIES LAWS.
Upon such issuance Lender further agrees, represents and warrants that (a) the
Securities are being acquired for Lender's account, and not with a view to or in
connection with any offering or distribution; (b) no public distribution of the
Securities will be made in violation of the provisions of the Act or applicable
state securities laws; and (c) during such period as delivery of a prospectus
with respect to any of the Securities may be required by the Act, no public
distribution of the Securities will be made in a manner or on terms different
from those set forth in, or without delivery of, a prospectus then meeting the
requirements of the Act and in compliance with all applicable state securities
laws. Lender further agrees that if any transfer or distribution of any
Securities is proposed to be made otherwise than pursuant to registration under
the Act and applicable state securities laws, such action shall be taken only
after submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer or distribution will not be in violation of the Act or of
applicable state securities laws. Furthermore, it shall be a condition to the
transfer of any rights set forth in this Note that any transferee thereof
deliver to the Company said transferee's written agreement to accept and be
bound by all of the terms and conditions of this Note, including, without
limitation, the provisions of SECTION 8 hereof.
4
<PAGE>
Lender is responsible for any transfer taxes or fees due as a result of any
transfer of any Securities.
10. MISCELLANEOUS.
10.1. If any provision of this Note is unenforceable, invalid or
contrary to law, or its inclusion herein would affect the validity, legality or
enforcement of this Note, such provision shall be limited to the extent
necessary to render the same valid or shall be excised from this Note, as the
circumstances require, and this Note shall be construed as if said provision had
been incorporated herein as so limited or as if said provision had not been
included herein, as the case may be.
10.2. Time is of the essence of this Note.
10.3. After the Maturity Date or following the occurrence of an
event which entitles the Lender to accelerate the indebtedness evidenced hereby,
all payments received on account of the indebtedness evidenced hereby shall be
applied, in whatever order, combination and amounts as the Lender, in its sole
discretion, decide, to all costs, expenses, and other indebtedness, if any,
owing to the Lender by reason of this Note; Default Interest; Interest; and
principal.
10.4. This Note, and the terms and provisions hereof, shall be
binding upon the Company and its successors, administrators, and assigns, and
shall inure to the benefit of any holder hereof.
10.5. Any and all payments due hereunder shall be made without
deduction, setoff or counterclaim, the Company expressly waiving any such rights
to deduction, setoff or counterclaim.
10.6. Notwithstanding any provision to the contrary contained in
this Note or in any of the other documents or instruments referred to in this
Note, if at any time or times the interest and any sums considered for such
purpose to be interest, payable under or by reason of this Note or any such
other documents or instruments, should exceed the maximum which, by the laws of
the State having jurisdiction, may be charged with respect to the loan evidenced
hereby, given the nature and all of the pertinent circumstances of such loan,
then all such sums in excess of such maximum shall be deemed not to be interest,
but rather to be payments on account of principal, and without further agreement
of the parties shall be so applied without regard to any other provision of this
Note, provided that Lender may elect instead that no sums shall be payable in
excess of such maximum, whereupon this Note and such other documents and
instruments shall be deemed amended accordingly without further action by any
party.
10.7. This Note shall inure to the benefit of Lender and its
successors and assigns. This Note has been negotiated and delivered at Chicago,
Illinois, and shall be governed by and construed in accordance with the internal
laws of the State of Illinois without reference to (i) its judicially or
statutorily pronounced rules regarding conflict of laws or
5
<PAGE>
choice of law; (ii) where any instrument is executed or delivered; (iii) where
any payment or other performance required by any such instrument is made or
required to be made; (iv) where any breach of any provision of any such
instrument occurs, or any cause of action otherwise accrues; (v) where any
action or other proceeding is instituted or pending; (vi) the nationality,
citizenship, domicile, principal place of business, or jurisdiction or
organization or domestication of any party; (vii) whether the laws of the form
jurisdiction otherwise would apply the laws of a jurisdiction other than the
State of Illinois; or (viii) any combination of the foregoing.
10.8. The Company represents and agrees that the indebtedness
created hereunder constitutes a business loan that comes within the purview of
Chapter 815, Section 205/4(1)(c) of the Illinois Compiled Statutes and, as such,
will not avail itself, by way of defense or otherwise, of any statutory or case
law relief relating to usury or compounding of interest to avoid or defeat the
payment of interest or any other sum in connection with the indebtedness created
hereunder. All agreements between the Company and the Lender are expressly
limited so that in no event whatsoever shall the amount paid or agreed to be
paid to the Lender exceed the highest lawful rate of interest permissible under
the laws of the State of Illinois. If, for any circumstances whatsoever,
fulfillment of any provision hereof, at the time performance of such provision
shall be due, shall involve exceeding the limit of validity prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then ipso
facto, the obligation to be fulfilled shall be reduced to the highest lawful
rate of interest permissible under the laws of the State of Illinois, and if for
any reason whatsoever, Lender shall ever receive as interest an amount that
would be deemed unlawful, such interest shall be applied to the payment of the
principal amount outstanding under this Note (whether or not then due and
payable) and not to the payment of interest.
10.9. COUNTERPARTS. This Note may be executed in any number of
identical counterparts, any or all of which may contain signatures of less than
all of the parties, and all of which shall be construed together as a single
instrument.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first above written.
COMPANY:
sportstrac.com, inc., a Delaware corporation
By: /s/Marc R. Silverman
--------------------------------------
Name: Marc R. Silverman
--------------------------------------
Its: President
--------------------------------------
AGREED AND ACCEPTED
SWISS AMERICAN BANK
By: /s/
--------------------------------------
Name:
--------------------------------------
Its:
--------------------------------------
7
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of September 1, 1998, by and between SPORTSTRAC, INC., a Delaware corporation
("SELLER"), and APPLIED SPORTS TECHNOLOGIES, INC., a Delaware corporation
("BUYER").
R E C I T A L S:
A. Seller is in the business of developing and marketing products designed
to enhance and monitor athletic performance, including, without limitation, The
SportsTrac System, developing software and performing data processing and
analysis services in connection with such products, and developing and marketing
related products and performing related services (the "BUSINESS"); and
B. On the terms and conditions set forth in this Agreement, Buyer desires
to purchase from Seller, and Seller desires to sell to Buyer, substantially all
of the properties, assets, rights and business of Seller, subject to the
assumption by Buyer of certain associated liabilities.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are mutually acknowledged,
the parties agree as follows:
1. DEFINITIONS
1.1. DEFINITIONS. The following terms, when used herein and unless
the context clearly requires otherwise, shall have the following meanings:
"AFFILIATE" shall mean any Person that directly or indirectly controls, is
controlled by or is under common control with the Person in question. As used in
this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"ASSIGNED CONTRACT" shall mean any Contract: (a) under which Seller has or
may acquire any rights; (b) under which Seller has or may become subject to any
obligation or liability; or (c) by which Seller or any of the assets owned or
used by it is or may become bound, in any case except as set forth on SCHEDULE
1.1.
"ASSUMED LIABILITIES" shall have the meaning provided in Section 2.2(a).
"CLOSING" shall have the meaning provided in Section 2.3.
"CLOSING DATE" shall have the meaning provided in Section 2.3.
"CODE" shall mean the Internal Revenue Code of 1986.
<PAGE>
"CONTRACT" shall mean any agreement, contract, obligation, promise or
understanding, whether written or oral and whether express or implied.
"EMPLOYEE BENEFIT PLANS" shall have the meaning provided in Section
3.11(i).
"ENVIRONMENTAL LAWS" shall mean all federal, state and local statutes,
regulations, ordinances, rules, regulations and policies, all court orders and
decrees and arbitration awards, and the common law, which pertain to
environmental matters or contamination of any type whatsoever.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"EXCLUDED ASSETS" shall have the meaning provided in Section 2.1.
"EXCLUDED LIABILITIES" shall have the meaning provided in Section 2.2(c).
"FINANCIAL RECORDS" shall have the meaning provided in Section 3.7.
"FINANCIAL STATEMENTS" shall have the meaning provided in Section 3.7.
"GAAP" means generally accepted accounting principles in effect from time
to time in the United States consistently applied through the periods indicated
and from period to period.
"GOVERNMENTAL AUTHORITY" shall mean any court, agency, commission,
department or body of any national, state, provincial, local, municipal or
federal governmental regulatory unit, entity or authority having jurisdiction or
authority over Seller or any of its Business, assets or operations.
"GOVERNMENTAL AUTHORIZATION" shall mean any approval, consent, license,
certificate, permit, franchise, waiver, right, consent, registration, directive
or other authorization of, with or from any Governmental Authority.
"INTELLECTUAL PROPERTY RIGHTS" shall mean, collectively, all of Seller's
right, title and interest to patents, trademarks, copyrights and service marks,
registrations thereof and applications therefor, and licenses or sublicenses
therefor, and trade and business names, including, without limitation, (i) the
registered trademark "The SportsTrac System," (ii) the exclusive sublicense from
NHancement Technologies, Inc. ("NHancement") to market Critical Tracking Task
technology, and (iii) Seller's agreement with NHancement and Systems Technology,
Inc. ("STI") enabling Seller to assume NHancement's rights and obligations under
NHancement's license from STI upon the terms and conditions set forth in such
agreement.
"KNOWLEDGE" shall mean (a) with respect to an individual, such individual
is actually aware of such fact or other matter after reasonable and diligent
inquiry and investigation; and (b) with respect to any other Person (other than
an individual), any individual who is serving as a director, officer, partner,
executor or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
2
<PAGE>
"LATEST FINANCIAL STATEMENT" shall have the meaning provided in Section
3.7.
"LEASED PREMISES" shall mean Seller's leasehold interest in that parcel of
real property commonly known as 6900 E. Belleview Avenue, Suite 202, Englewood,
Colorado 80111.
"LEGAL REQUIREMENT" shall mean any federal, national, state, provincial,
local, municipal, foreign, international, multinational, or other administrative
order, constitution, law, ordinance, principle of common law, rule, regulation,
statute, or treaty.
"LIENS" shall mean, collectively, liens, claims, charges, restrictions,
voting trusts or comparable arrangements, options, constructive trusts, pledges,
security interests and other encumbrances.
"LOSS" shall mean any loss, damage, liability, penalty, cost or expense.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, association, limited liability company, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"PRIVATE PLACEMENT" shall mean the private placement by Buyer of a minimum
of 1,500,000 and a maximum of 3,000,000, shares of its common stock, $0.01 par
value per share, for the gross cash consideration of $1.00 per share.
"PURCHASED ASSETS" shall have the meaning provided in Section 2.1.
"REGISTRATION STATEMENT" shall mean that certain Amendment No. 11 to Form
SB-2 of Seller, as filed with the U.S. Securities and Exchange Commission on
February 6, 1998.
"TAX" shall mean any tax, including levies, duties, charges, canons,
services or charges for use of municipal properties, services, deductions,
withholdings or liabilities imposed by any federal, state, provincial, local or
municipal authority and any other taxes of any nature imposed in any name and
under any form, including social security withholdings and contributions, as
well as any other charges imposed similarly to taxes, including interest,
penalty or addition thereto, whether or not disputed.
"TAX RETURNS" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto and any amendment thereof.
1.2. PRINCIPLES OF CONSTRUCTION.
(a) In this Agreement, unless otherwise stated or the context
otherwise requires, the following usages apply: (i) unless otherwise provided
herein, actions permitted, but not required, under this Agreement may be taken
at any time and from time to time in the actor's sole discretion; (ii) in
computing periods from a specified date to a later specified date, the words
"from" and "commencing on" (and the like) mean "from and including," and the
words "to,"
3
<PAGE>
"until" and "ending on" (and the like) mean "to, but excluding"; (iii) the
captions and headings of sections and schedules appearing in or attached to this
Agreement have been inserted for convenience of reference only and are not a
part of, nor shall they affect any construction or interpretation of this
Agreement or any of its provisions; (iv) unless otherwise specified, indications
of time of day mean Chicago, Illinois time; (v) all references to sections and
schedules are to sections and schedules in or to this Agreement unless otherwise
specified; (vi) references to a statute shall refer to the statute as amended
from time to time and any successor statute, and to all rules and regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (vii) references to a governmental or quasi-governmental agency,
authority or instrumentality shall also refer to a regulatory body that succeeds
to the functions of the agency, authority or instrumentality; (viii) "including"
means "including, but not limited to"; (ix) unless the context requires
otherwise, all words used in this Agreement in the singular number shall extend
to and include the plural, all words in the plural number shall extend to and
include the singular and all words in any gender shall extend to and include all
genders; and (x) any reference to a document or set of documents in this
Agreement, and the rights and obligations of the parties under any such
documents, shall mean such document or documents as amended or otherwise
modified from time to time, and any and all extensions, renewals, substitutions
or replacements thereof.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the schedules, the statements in the body of
this Agreement shall control.
(c) Where any accounting determination or calculation is required to
be made under this Agreement or the schedules hereto, such determination or
calculation (unless otherwise provided) shall be made in accordance with GAAP.
2. BASIC TERMS OF THE TRANSACTION
2.1. PURCHASED ASSETS. At the Closing, subject to the terms and
conditions set forth herein, Seller shall sell, transfer, convey, assign and
deliver to Buyer, and Buyer shall purchase from Seller, for the consideration
hereinafter set forth, all of Seller's right, title and interest in and to the
Business and all of the assets, properties, rights and interests of Seller
related thereto or arising therefrom (collectively, the "PURCHASED ASSETS"),
free and clear of all Liens, including, without limitation, the following:
(a) all equipment, fixtures, improvements and items of personal
property;
(b) all rights of Seller under any Assigned Contracts;
(c) all accounts receivable and notes receivable of Seller;
(d) all books, files and records relating to the Business and
Seller's operations, including property records, production records, service
records, inventory records, purchasing and sales records, computer programs,
customer and vendor lists, history and files,
4
<PAGE>
correspondence files and records and such other records as Buyer may require in
its conduct of the Business subsequent to the Closing;
(e) all purchase orders, forms, labels, shipment material, catalogs,
brochures, art work, photographs and advertising and marketing material relating
to the Purchased Assets, but not Seller;
(f) the Leased Premises;
(g) all Intellectual Property Rights;
(h) all rights to the corporate name "SportsTrac";
(i) all permits, consents, approval and other authorizations related
to or associated with the Business; and
(j) all cash and cash equivalents, including cash on hand or in bank
accounts, certificates of deposit, commercial paper, marketable securities and
other investments;
provided, however, that the following assets shall be excluded from the
definition of Purchased Assets and shall not be sold, transferred, conveyed,
assigned or transferred to Buyer (collectively, the "EXCLUDED ASSETS"):
(a) the corporate minute books and stock record books of Seller;
(b) all benefits to Seller of this Agreement; and
(c) the tax returns and tax records of Seller and right to tax
refunds, if any.
2.2. PAYMENT OF CASH CONSIDERATION; ASSUMPTION OF LIABILITIES. In
consideration for the Purchased Assets, at the Closing, subject to the terms and
conditions set forth herein, Purchaser (i) shall pay to Seller in cash $5,000.00
and (ii) shall assume and agree to discharge and perform when due, the
liabilities of Seller (and only those liabilities of Seller) which are
enumerated in Section 2.2(a) (the "ASSUMED LIABILITIES"). All claims against and
liabilities and obligations of Seller not specifically assumed by Purchaser
pursuant to Section 2.2(a) or pursuant to the transactions described in Section
7.9 hereof, including the liabilities enumerated in Section 2.2(b), are
collectively referred to herein as the "EXCLUDED LIABILITIES." Seller shall
promptly pay and discharge when due all of the Excluded Liabilities.
(a) Assumed Liabilities. The Assumed Liabilities shall consist of
the following, and only the following liabilities of Seller:
(i) all accrued and unpaid salaries, wages and vacation pay
with respect to those employees of Seller who become employees of
Purchaser immediately after the Closing as of the Closing Date to
the extent incurred in the ordinary course of business;
5
<PAGE>
(ii) liabilities and obligations of Seller under any Assigned
Contract or Governmental Authorization which is assigned or
transferred to Purchaser pursuant to the provisions hereof (but, in
each such case, only to the extent such liabilities and obligations
relate to performance after the Closing Date); and
(iii) all liabilities and obligations of Seller set forth on
SCHEDULE 2.2.
(b) Excluded Liabilities. Notwithstanding Section 2.2(a) (and
without implication that Purchaser is assuming any liability not expressly
excluded by this Section 2.2(b) and, where applicable, without implication that
any of the following would constitute Assumed Liabilities but for the provisions
of this Section 2.2(b)), the following claims against and liabilities of Seller
are excluded and shall not be assumed or discharged by Purchaser:
(i) trade accounts payable and accrued and unpaid expenses of
Seller not specifically set forth on SCHEDULE 2.2;
(ii) any liabilities to any of Seller's Affiliates;
(iii) any liabilities for legal, accounting, audit and
investment banking fees, brokerage commissions not specifically set
forth on SCHEDULE 2.2, other than such expenses incurred by Seller
in connection with the negotiation and preparation of this Agreement
and the sale of the Purchased Assets to Purchaser and related
transactions;
(iv) any liabilities of Seller for Taxes;
(v) any liability for or related to indebtedness of Seller to
banks, financial institutions or other persons or entities with
respect to borrowed money or otherwise not specifically set forth on
SCHEDULE 2.2;
(vi) any liabilities of Seller to the extent that their
existence or magnitude constitutes or results in a breach of a
representation, warranty or covenant made by Seller to Purchaser
herein;
(vii) any liabilities of Seller under those leases, contracts,
insurance policies, commitments, sales orders, purchaser orders, and
Governmental Authorizations which are not assigned to Purchaser
pursuant to the provisions of this Agreement;
(viii) any liabilities for retrospective or similar insurance
adjustments;
(ix) any liabilities of Seller in connection with or arising
out of the transfer or assignment of any Assigned Contract;
(x) any liabilities of Seller under collective bargaining
agreements pertaining to employees of Seller; any liabilities of
Seller to pay severance benefits to employees of Seller whose
employment is terminated prior to the
6
<PAGE>
Closing Date or in connection with or following the sale of the
Purchased Assets pursuant to the provisions hereof; or any liability
under any Federal or state civil rights or similar law, or the
so-called "WARN Act," resulting from the termination of employment
of employees;
(xi) product warranty liabilities of Seller with respect to
products shipped on or prior to the Closing Date and products
constituting finished goods inventory as of the Closing Date;
(xii) liabilities with respect to returns or allowances of
products which were sold on or prior to the Closing Date or which
constitute finished goods inventory as of the Closing Date and
liabilities with respect to recalls of products sold prior to the
Closing Date, whether required by a governmental body or otherwise;
(xiii) any claims against or liabilities of Seller for injury
to or death of persons or damage to or destruction of property
(including, without limitation, any workmen's compensation claim)
regardless of when said claim or liability is asserted, including,
without limitation, any claim or liability for consequential or
punitive damages in connection with the foregoing;
(xiv) any liabilities for medical, dental, and disability
(both long-term and short-term) benefits, whether insured or
self-insured, accruing or based upon exposure to conditions, or
aggravation of disabilities or conditions in existence, on or prior
to the Closing Date or for claims incurred or disabilities
commencing on or prior to the Closing Date, and any liability for
the foregoing, regardless of when accrued and regardless of when any
condition existed, which arises by virtue of any employment
relationship at any time with Seller;
(xv) any liability for or with respect to renegotiation of any
contract which is subject to renegotiation;
(xvi) any liabilities arising out of or in connection with any
of Seller's employee welfare and pension benefit (including profit
sharing) plans;
(xvii) any bonus or other compensation payments to Seller's
employees which are owed by reason of the sale of the Purchased
Assets, and any liabilities for salaries, wages, bonuses, vacation
pay and other compensation which are owed to employees of Seller who
do not become employees of Purchaser;
(xviii) any liabilities arising out of or in connection with
any violation of a statute, regulation or directive of a
Governmental Authority;
(xix) any liabilities or obligations with respect to, or
relating to, any Environmental Laws or environmental matters; and
7
<PAGE>
(xx) without limitation by the specific enumeration of the
foregoing, any liabilities not expressly assumed by Purchaser
pursuant to the provisions of Section 2.2(a).
(c) No Expansion of Third Party Rights. The assumption by Purchaser
of the Assumed Liabilities shall not expand the rights or remedies of any third
party against Purchaser or Seller as compared to the rights and remedies which
such third party would have had against Seller had Purchaser not assumed the
Assumed Liabilities. Without limiting the generality of the preceding sentence,
the assumption by Purchaser of the Assumed Liabilities shall not create any
third party beneficiary rights.
2.3. CLOSING. The closing of the transactions provided for herein
("CLOSING") shall take place at the offices of Barack Ferrazzano Kirschbaum
Perlman & Nagelberg, at 10:00 a.m. on December 31, 1998 (the "CLOSING DATE"), or
at such other time and place as the parties may mutually agree. Subject to the
provisions of Section 9, failure to consummate the transactions contemplated
hereby on the date and time and at the place determined pursuant to this Section
shall not result in the termination of this Agreement and shall not relieve any
party of any obligation under this Agreement.
2.4. BUYER'S DELIVERIES AT CLOSING. At the Closing, Buyer shall
deliver the following items to Seller:
(a) an assumption agreement providing for the assumption by Buyer of
the Assumed Liabilities, in form reasonably acceptable to Seller;
(b) a certificate executed by the President or any Vice President of
Buyer dated the Closing Date stating that: (i) all of the representations and
warranties of Buyer set forth in this Agreement are true and correct with the
same force and effect as if all of such representations and warranties were made
at the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations shall be
true and correct on and as of such earlier date; and (ii) Buyer has performed or
complied with all of the covenants, agreements, obligations and conditions to be
performed or complied with by Buyer under the terms of this Agreement on or
prior to the Closing Date; and
(c) such other instruments and documents as Seller may reasonably
request.
2.5. SELLER'S DELIVERIES AT CLOSING. At the Closing, Seller shall
deliver the following items to Buyer:
(a) a general assignment and bill of sale to convey the Purchased
Assets, in form reasonably acceptable to Buyer;
(b) an assignment(s) of the Intellectual Property Rights, in a
form(s) reasonably acceptable to Buyer;
8
<PAGE>
(c) a certificate executed by the President or any Vice President of
Seller dated the Closing Date stating that: (i) all of the representations and
warranties of Seller set forth in this Agreement are true and correct with the
same force and effect as if all of such representations and warranties were made
at the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date, in which case such representations shall be
true and correct on and as of such earlier date; and (ii) Seller has performed
or complied with all of the covenants, agreements, obligations and conditions to
be performed or complied with by Seller under the terms of this Agreement on or
prior to the Closing Date;
(d) an amendment to Seller's Certificate of Incorporation whereby
Seller changes its name to a name that is not similar to "SportsTrac" or
"Applied Sports Technologies"; and
(e) such other instruments and documents as Buyer may reasonably
request.
2.6. JOINT DELIVERIES. At the Closing, the parties shall execute and
deliver, or cause to be executed and delivered, to each other, all of the
following:
(a) an assignment and assumption of the lease with respect to the
Leased Premises; and;
(b) all legally required bulk sales notices or transfer tax
declarations concerning the Purchased Assets.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, warrants and covenants to Buyer as of the date
hereof and as of the Closing Date, which representations, warranties and
covenants are material, are being relied upon by Buyer (notwithstanding any
independent investigations) and shall survive the Closing as provided herein, as
follows. All representations and warranties of Seller are made subject to and
qualified by the information set forth in the Registration Statement.
3.1. ORGANIZATION AND AUTHORITY. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, has
full power and authority to carry on its business as it is now being conducted
and to own, lease and operate its properties and assets as now owned, leased and
operated, and has full power and authority to take all actions on its part
contemplated to be taken under this Agreement and all other agreements,
instruments and documents referred to herein or contemplated hereby.
3.2. AUTHORIZATION AND ENFORCEABILITY. Seller has full right, power
and authority to enter into, execute and deliver and perform its obligations
under this Agreement and all other agreements, instruments and documents
referred to herein or contemplated hereby to be executed, delivered and
performed by it. This Agreement, and all other agreements, instruments and
documents referred to herein or contemplated hereby and executed by Seller,
constitute valid, binding and enforceable obligations of Seller in accordance
with their respective terms, subject to
9
<PAGE>
the enforcement of involuntary bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equitable principles.
3.3. OWNERSHIP OF PURCHASED ASSETS. Seller has and will convey to
Buyer good, full and marketable title to the Purchased Assets, free and clear of
any Lien.
3.4. NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by Seller
do not and shall not: (a) conflict with its Certificate of Incorporation or
By-Laws, in each case as amended as of the date hereof, (b) conflict with, or
result in a breach or termination of, or constitute a default (or an event
which, with the giving or due notice or lapse of time, or both, would constitute
a default) or cause or permit the acceleration of the maturity of or give rise
to any right to impose any fees or penalties under, any agreement, commitment,
or other instrument, or any order, judgment or decree, to which Seller is a
party or by which it or any of its assets is bound, (c) result in the creation
or imposition of any Lien upon any of its assets, or (d) constitute a violation
by Seller of any Legal Requirement of any Governmental Authority applicable to
Seller or to any of its assets.
3.5. CONSENTS. No consents, approvals, waivers, variances or
authorizations of, notices to or filings with any Person (including any
Governmental Authority) are necessary in connection with the execution and
delivery by Seller of this Agreement or the consummation by Seller of the
transactions contemplated herein.
3.6. LITIGATION. There are no (a) investigations, audits or reviews
by any Governmental Authority pending against or affecting Seller or any of its
assets, (b) claims, actions, suits or proceedings pending or threatened against
or affecting Seller or any of its assets, at law or in equity, before or by any
Governmental Authority or any third party, and there exists no state of facts
that could reasonably be expected to result in any such claims, actions, suits
or proceedings, or (c) outstanding judgments, orders, injunctions or decrees of
any Governmental Authority or any third party against or affecting Seller or any
of its assets, and Seller has not been a party to, or bound by, any such
judgment, order, injunction or decree.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. All the existing
financial statements of or pertaining to Seller since December 31, 1994 (the
"FINANCIAL STATEMENTS") and the records pertaining thereto (the "FINANCIAL
RECORDS") have been provided to Buyer. All the Financial Statements and
Financial Records are true, complete and correct in all material respects and
the Financial Statements have been prepared in accordance with GAAP (subject, in
the case of unaudited financial statements, to changes resulting from normal
year-end adjustments and to the absence of footnote disclosure), and fairly and
accurately present in all material respects the financial condition of Seller,
its cash flows, assets and liabilities and the results of its operations as at
the respective dates and for the respective periods indicated. The Financial
Statements reflect all known material claims against, and debts and liabilities
of, Seller in accordance with GAAP, as of the dates thereof. Except for claims,
debts and liabilities reflected in the unaudited balance sheet and related
income statements of Seller for the six-month period ended June 30, 1998 (the
"LATEST FINANCIAL STATEMENT"), those expressly disclosed in this Agreement and
those incurred in the ordinary course of business since the date of the Latest
Financial Statement, Seller
10
<PAGE>
does not have, nor is it subject to, any claims, debts or liabilities (whether
accrued, absolute, direct, indirect, perfected, known, unknown, contingent or
otherwise).
3.8. COMPLIANCE WITH LAWS. Seller has complied with and shall
continue to comply with through the Closing all applicable Legal Requirements
relating to any of its businesses, properties and assets. No event has occurred
or circumstance exists that (with or without notice or lapse of time) may
constitute or result in a violation by Seller of, or a failure on the part of
Seller to comply with, any Legal Requirement.
3.9. GOVERNMENTAL AUTHORIZATIONS. Seller has all Governmental
Authorizations required in connection with the conduct of its business and the
use of its assets, which Governmental Authorizations are valid and in full force
and effect. Seller is in full compliance with all of the terms and requirements
of each Governmental Authorization, and all filings (including applications for
renewal) required to have been made with respect to such Governmental
Authorizations or the renewal thereof have been duly made on a timely basis with
the appropriate Governmental Authorities. No event has occurred or circumstance
exists that may constitute or result directly or indirectly in (with or without
notice or lapse of time), and Seller has not received, at any time since its
formation, any notice or other communication (whether oral or written) from any
Governmental Authority or any other Person regarding: (i) any actual, alleged,
possible or potential violation of or a failure to comply with any term or
requirement of any Governmental Authorization; or (ii) any actual, proposed,
possible or potential revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any Governmental Authorization.
3.10. TAXES. (a) Seller has timely filed all Tax Returns which are
required to be filed; (b) such Tax Returns are complete, correct and in
accordance with applicable law; (c) Seller has paid all Taxes which have become
due and are imposed by law upon it or any of its property, assets, income,
receipts, imports, payrolls, transactions, capital, net worth or franchises,
other than those not yet due and payable or those being contested in good faith
by appropriate proceedings or for which all applicable statutes of limitation,
if any (including extensions thereof), have expired; (d) no issues, deficiencies
or claims have been asserted or proposed to Seller by any Governmental Authority
in connection with the examination of its Tax Returns which would, if determined
adversely, have an adverse affect on the business, operations or assets of
Seller; (e) no investigation or audit of any Governmental Authority with respect
to Taxes that might give rise to a Lien against any of its assets is in effect
or, to the Knowledge of Seller, has been threatened; and (f) except as otherwise
accrued and adequately reserved for in the books of account and other financial
records and statements of Seller made available to Buyer or its representatives,
no unsatisfied deficiency, delinquency or default for any Taxes that might give
rise to a Lien against any of its assets has been claimed, proposed or assessed
by any Governmental Authority.
3.11. CONTRACTS. Buyer has been supplied by Seller with true,
correct and complete copies of each of the following:
(a) Each lease of real property to which Seller is a party;
11
<PAGE>
(b) each Assigned Contract that was not entered into in the ordinary
course of business;
(c) each lease, rental, license, installment and conditional sale
agreement and other Assigned Contract affecting the ownership of, leasing of,
title to, use of, or any personal property;
(d) each licensing agreement, sub-licensing agreement or other
Assigned Contract with respect to the Intellectual Property Rights, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Rights;
(e) each joint venture, partnership, and other Assigned Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
Seller with any other Person;
(f) each Assigned Contract containing covenants that in any way
purport to restrict the business activity of Seller or any director, officer,
employee or shareholder or limit the freedom of Seller or any such person to
engage in any line of business or to compete with any Person;
(g) each Assigned Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(h) each employment agreement or arrangement with respect to any
officer, director or employee of Seller;
(i) each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Seller for the benefit of
its officers, directors or employees, and all other agreements, contracts or
arrangements under which pensions, deferred compensation or other retirement
benefits are being paid or may become payable by Seller for the benefit of the
employees of Seller (collectively, the "EMPLOYEE BENEFIT PLANS"), and any
current financial or actuarial reports with respect thereto obtained by or for
the benefit of Seller;
(j) each Assigned Contract for capital expenditures;
(k) each written warranty, guaranty or other similar undertaking
with respect to contractual performance extended by Seller other than in the
ordinary course of business; and
(l) each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.
3.12. NO DEFAULTS. Each Assigned Contract provided by Seller to
Buyer or required to be provided by Seller to Buyer pursuant to the terms of
Section 3.11 is in full force and effect and is valid and enforceable in
accordance with its terms. Seller is in full compliance
12
<PAGE>
with all material applicable terms and requirements of each Assigned Contract
under which it has or had any obligation or liability or by which it or any of
the assets owned or used by it is or was bound. Each Person other than Seller
that has or had any obligation or liability under any Assigned Contract is in
full compliance with all material applicable terms and requirements of such
Assigned Contract. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Seller or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Assigned Contract.
Seller has not given to or received from any other Person, at any time since
January 1, 1998, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Assigned Contract.
3.13. ENVIRONMENTAL LAWS. The properties and facilities owned,
occupied or operated by Seller have been and continue to be owned and operated
in full compliance with all Environmental Laws, and none of such properties or
facilities is contaminated with any hazardous, toxic or polluting substances or
hazardous wastes.
3.14. CUSTOMERS AND SUPPLIERS. Seller has not received any notice or
has any reason to believe that as a result of Seller's anticipated sale of the
Purchased Assets to Buyer hereunder or the negotiation of the terms this
Agreement any customer of Seller has ceased, or shall at any time before or
after the Closing Date cease, to use the products, goods or services of the
business of Seller or has substantially reduced, or shall at any time before or
after the Closing Date substantially reduce, the use of such products, goods or
services at any time. Seller has not received any notice or has any reason to
believe that any supplier of Seller has ceased or shall cease to sell supplies,
inventory and other goods to the business of Seller at any time before or after
the Closing Date on terms and conditions substantially similar to those used in
its current sales to Seller, subject only to general and customary price
increases.
3.15. INSURANCE. Seller has provided Buyer or its counsel with true,
correct and complete copies of all insurance policies, including product and
other liability insurance and fire and extended coverage insurance, true,
correct and complete copies of which policies have been provided to Buyer. Such
policies are in full force and effect on the date hereof and shall remain so in
effect through the Closing (except for any expiring policy which is replaced by
coverage in amounts and of a nature at least as extensive as those in effect on
the date hereof). Seller is not in default under any such policy and has paid
all premiums due and payable with respect to each.
3.16. TITLE TO AND CONDITION OF ASSETS. Seller has provided Buyer or
its counsel with true, correct and complete copies of all of the leases under
which Seller holds a leasehold interest in real estate used in connection with
its business. Seller as lessee has the right under valid and existing leases to
occupy, use, possess and control any and all of the respective property leased
by it. All properties leased under such leases have unqualified access to public
roads and have access to all utilities necessary to conduct the business of
Seller as presently constituted. Seller has good title to, or a valid leasehold
interest in, all assets and properties, whether real or personal, tangible or
intangible, used by Seller, located on its premises or shown on the Latest
Financial Statement, free and clear of all Liens of any kind except: (i) minor
defects and irregularities in title and encumbrances which do not materially
impair the use thereof for the
13
<PAGE>
purposes for which they are held, and (ii) as disclosed in the Latest Financial
Statement. The buildings, machinery, equipment and other tangible assets owned
or leased by Seller are structurally sound, are in good operating condition and
repair, and are adequate for the uses to which they are being put, and none of
such buildings, machinery, equipment or assets is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The buildings, machinery, equipment and other
tangible assets of Seller are sufficient for the continued conduct of the
Business after the Closing in substantially the same manner as conducted prior
to the Closing.
3.17. COMPLIANCE WITH ERISA. Seller does not have and has not had
any liability with respect to, and has not contributed to or had any obligation
to contribute to, including any liability which arises from the controlled group
of companies (within the meaning of Code Sections 414(b) and (c)) of which Buyer
is, or was a member during the six-year period prior to the Closing, any (a)
multiemployer plan as defined in Section 3(37) of ERISA, (b) any employee
benefit plan of the type described in Sections 4063 and 4064 of ERISA or in
Section 413(c) of the Code, or (c) any plan or policy which provides health,
life insurance, accident, severance or other welfare benefits to current or
former employees or retirees, their beneficiaries, spouses of departments, other
than in accordance with Section 4980B of the Code or applicable state
continuation coverage law. During the six years preceding the Closing, no
defined benefit plan has been terminated or its assets transferred out of the
controlled group of companies (with the meaning of Code Sections 414(b) and (c))
of which Buyer is or was a member during such six-year period. Seller has fully
complied with the applicable administrative, reporting and substantive
requirements of ERISA and any other Legal Requirement with respect to each
Employee Benefit Plan.
3.18. ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the date of the
Latest Financial Statement, the business of Seller has been conducted in the
ordinary course and consistent with past practice, and there has not been any:
(a) payment or increase by Seller of any bonuses, salaries or other
compensation to any shareholder, director, officer or (except in the ordinary
course of business) employee or entry into any employment, severance or similar
agreement or contract with any director, officer or employee;
(b) adoption, amendment (except for any amendment necessary to
comply with any Legal Requirement) or termination of, or increase in the
payments to or benefits under, any Employee Benefit Plan;
(c) material damage to or destruction or loss of any asset or
property of Seller, whether or not covered by insurance;
(d) entry into, termination or extension of, or receipt of notice of
termination of any joint venture or similar agreement, or any agreement,
contract or transaction involving a total remaining commitment by or to Seller
of at least $5,000;
(e) material change in any existing lease of real or personal
property;
14
<PAGE>
(f) sale (other than any sale in the ordinary course of business),
lease or other disposition of any asset or property of Seller or mortgage,
pledge or imposition of any Lien on any material asset or property of Seller
except for tax and other Liens which arise by operation of law and with respect
to which payment is not past due;
(g) incurrence of any obligation or liability (fixed or contingent)
other than in the ordinary course of business;
(h) cancellation or waiver of any claims or rights with a value to
Seller in excess of $5,000;
(i) merger or consolidation with or into any other Person, or
acquisition of any stock, equity interest or business of any other Person;
(j) transaction for the borrowing or lending of monies, other than
in the ordinary course of business;
(k) material change in the accounting methods used by Seller;
(l) other material adverse changes, or actions or omissions of
Seller which could reasonably be expected to result in a material adverse
change, in the financial condition, earnings, operating results, business
condition and prospects, assets, operations, employee relations or customer or
supplier relations of Seller; or
(m) agreement, whether oral or written, by Seller to do any of the
foregoing.
3.19. BROKERAGE COMMISSIONS. None of Seller or any of its agents has
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
3.20. AFFILIATED TRANSACTIONS. No officer, director, employee or
stockholder of Seller or any individual related by blood, marriage or adoption
to any such individual or any entity in which any such Person owns any
beneficial interest is a party to any agreement, contract, commitment or
transaction with Seller or has any material interest in any material property
used by Seller.
3.21. EMPLOYEE AND LABOR MATTERS. No key employee or group of
employees of Seller has any plans to terminate his or their employment with
Seller. Seller is currently in compliance in all material respects with all
Legal Requirements regarding the employment of personnel and labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of social security and other Taxes, and Seller has no liability
for any past non-compliance with any of the foregoing.
3.22. INTELLECTUAL PROPERTY RIGHTS. (a) Seller is the owner of or
duly licensed to use each of Intellectual Property Rights and its associated
goodwill and each copy of computer software in Seller's possession; (b) each of
the Intellectual Property Rights, and each registration
15
<PAGE>
and application included therein exists, is owned by or licensed to Seller, and
has been maintained in good standing; (c) no other firm, corporation,
association or person claims the right to use in connection with similar or
closely related products or services and in the same geographic area, any mark
which is identical to or confusingly similar to any of the trademarks or service
marks included in the Intellectual Property Rights; (d) there exists no claim or
any reason to believe that any third party asserts ownership rights in any of
the Intellectual Property Rights; (e) there exists no claim or any reason to
believe that Seller's use of any of the Intellectual Property Rights infringes
any right of any third party; and (f) no third party is infringing any of
Seller's rights in any of the Intellectual Property Rights.
3.23. NO MATERIAL OMISSIONS. The representations and warranties of
Seller in this Agreement, and all representations, warranties and statements of
Seller contained in any schedule, financial statement, exhibit, list or document
delivered pursuant hereto or in connection herewith, do not omit to state a
material fact necessary in order to make the representations, warranties or
statements contained herein or therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents, warrants and covenants to Seller as of the date
hereof and as of the Closing Date, which representations, warranties and
covenants are material, are being relied upon by Seller (notwithstanding any
independent investigations) and shall survive the Closing as provided herein, as
follows:
4.1. ORGANIZATION AND AUTHORITY. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has full power and authority to take all actions on its part contemplated to be
taken under this Agreement, in connection with the Private Placement, and all
other agreements, instruments and documents referred to herein or contemplated
hereby.
4.2. ENFORCEABILITY. This Agreement, and all other agreements,
instruments and documents referred to herein or contemplated hereby and executed
by Buyer, constitute valid, binding and enforceable obligations of Buyer in
accordance with their respective terms, subject to the enforcement of
involuntary bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
4.3. NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by Buyer
do not and shall not: (a) conflict with the Certificate of Incorporation or
by-laws of Buyer, in each case as amended as of the date hereof, or (b)
constitute a violation by Buyer of any Legal Requirement of any Governmental
Authority applicable to Buyer or its assets.
4.4. CONSENTS. No consents, approvals, waivers, variances or
authorizations of, notices to or filings with any Person (including any
Governmental Authority) are necessary in connection with the execution and
delivery by Buyer of this Agreement or the consummation by
16
<PAGE>
Buyer of the transactions contemplated herein except those that have been
obtained by Buyer prior to the date hereof.
5. SELLER'S COVENANTS
Seller hereby covenants to Buyer that:
5.1. ORDINARY COURSE. During the period from the date hereof through
the Closing Date or the earlier termination of this Agreement as provided
herein, Seller shall:
(a) conduct its business only in the usual and ordinary course of
business in accordance with past practices;
(b) maintain all of the Purchased Assets in good operating condition
and repair, ordinary wear and tear (not caused by neglect) and damage by fire or
unavoidable casualty excepted, replace and repair such assets in accordance with
customary industry standards, and maintain policies of insurance upon its assets
and with respect to the conduct of its business in amounts and kinds comparable
to that in effect on the date hereof and pay all premiums on such policies when
due;
(c) file in a timely manner all required filings with all
Governmental Authorities and cause such filings to be true and correct in all
material respects, and use reasonable good faith efforts to maintain all
material Governmental Authorizations;
(d) pay all Taxes and other bills and amounts when due and payable,
unless contesting such Taxes in good faith;
(e) maintain its books, accounts and records in the usual, regular
and ordinary manner, on a basis consistent with prior years and complying with
all Legal Requirements;
(f) comply with all material Legal Requirements affecting the
Business and the Purchased Assets; and
(g) use reasonable good faith efforts to maintain the relations,
agreements, understandings and goodwill with suppliers, customers, landlords,
creditors, employees, agents and others having business relationships with
Seller.
5.2. NEGATIVE COVENANTS. Except as otherwise expressly permitted by
this Agreement, Seller shall not, without the prior written consent of Buyer:
(a) make any payments or distributions to its employees, officers or
directors, except such amounts as constitute currently effective compensation
for services rendered or for reimbursement for ordinary and necessary or
out-of-pocket business expenses;
(b) incur or commit to incur any capital expenditures;
17
<PAGE>
(c) prepay any of its material obligations;
(d) incur, assume or guarantee any long-term or short-term
indebtedness;
(e) directly or indirectly, enter into or assume any contract,
agreement, obligation, lease, license or commitment other than in the usual and
ordinary course of business in accordance with past practices;
(f) adopt or amend any Employee Benefit Plan;
(g) increase the compensation payable to any employee;
(h) take any affirmative action, or fail to take any action within
its control, that may result in (A) the bankruptcy, insolvency or reorganization
of Seller, (B) in any way impair Seller's ability to take all actions on its
part contemplated to be taken under this Agreement and all other agreements,
instruments and documents referred to herein or contemplated hereby, (C)
conflict with its Certificate of Incorporation or By-Laws, in each case as
amended as of the date hereof, (D) conflict with, or result in a breach or
termination of, or constitute a default (or an event which, with the giving or
due notice or lapse of time, or both, would constitute a default) or cause or
permit the acceleration of the maturity of or give rise to any right to impose
any fees or penalties under, any agreement, commitment, or other instrument, or
any order, judgment or decree, to which Seller is a party or by which it or any
of its assets is bound, (E) result in the creation or imposition of any Lien
upon any of its assets, or (F) constitute a violation by Seller of any Legal
Requirement of any Governmental Authority applicable to Seller or to any of its
assets;
(i) sell, transfer or otherwise dispose of any material asset or
property except for application of cash in payment of Seller's liabilities in
the usual and ordinary course of business;
(j) amend, terminate or give notice of termination with respect to
any existing agreement to which Seller is a party, or waive any material rights;
(k) enter into any transaction (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of services),
directly or indirectly, with any Affiliate of Seller; or
(l) pay, declare or set aside any dividend or other distribution on
its securities of any class or purchase or redeem any of its securities of an
class.
5.3. ADVICE OF CHANGES. Seller shall promptly notify Buyer in
writing if Seller acquires Knowledge of any fact or condition that causes or
constitutes a breach of any of Seller's representations and warranties as of the
date of this Agreement, or if Seller acquires Knowledge of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Seller shall
promptly notify Buyer of the
18
<PAGE>
occurrence of any breach of any covenant of Seller in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.4. COOPERATION. Seller shall, and shall cause its agents and other
representatives to, fully and promptly and in good faith (a) cooperate and
assist Buyer and its agents and other representatives in connection with any
steps to be taken as part of their obligations hereunder, including in obtaining
such consents and approvals of third Persons (including Governmental
Authorities) necessary to the transactions contemplated hereby, (b) take all
such other actions required pursuant to this Agreement that are necessary to
effectuate the transactions contemplated herein, and (c) furnish Buyer and its
agents and other representatives with such documents or further assurances as
they may reasonably require.
5.5. CHANGE OF CORPORATE NAME. As soon as practicable after the
Closing, Seller shall take all actions reasonably necessary to change its
corporate name such that Buyer will be able to change its corporate name to a
name which includes the word "SportsTrac".
6. BUYER'S COVENANTS
6.1. ADVICE OF CHANGES. Buyer shall promptly notify Seller in
writing if Buyer acquires Knowledge of any fact or condition that causes or
constitutes a breach of any of Buyer's representations and warranties as of the
date of this Agreement, or if Buyer acquires Knowledge of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Buyer shall
promptly notify Seller of the occurrence of any breach of any covenant of Buyer
in this Section 6 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 8 impossible or unlikely.
6.2. COOPERATION. Buyer shall, and shall cause its agents and other
representatives to, use good faith and commercially reasonable efforts to (a)
cooperate and assist Seller and its agents and other representatives in
connection with any steps to be taken as part of their obligations hereunder,
including in obtaining such consents and approvals of third Persons (including
Governmental Authorities) necessary to the transactions contemplated hereby, (b)
take all such other actions required pursuant to this Agreement that are
necessary to effectuate the transactions contemplated herein, and (c) furnish
Seller and its agents and other representatives with such documents or further
assurances as they may reasonably require.
7. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to consummate the transactions contemplated
herein pursuant to the terms of this Agreement are subject to the satisfaction,
at or prior to the Closing, of each of the conditions of this Section 7. Buyer
may waive any or all of these conditions in whole or in part, but no such waiver
shall constitute a waiver by Buyer of any of its other rights or remedies under
this Agreement. No condition shall be deemed to have been waived by Buyer unless
such waiver is contained in a writing specifically referring to this provision
and signed by Buyer.
19
<PAGE>
7.1. REPRESENTATIONS AND WARRANTIES OF SELLER. The representations
and warranties of Seller contained in this Agreement shall be true and correct
in all respects at the Closing with the same force and effect as if made at the
Closing.
7.2. COMPLIANCE. Seller shall have performed, complied with and
fulfilled in all respects all of its covenants, agreements, obligations and
conditions required by this Agreement to be performed, complied with or
fulfilled at or prior to the Closing.
7.3. CONSENTS.
(a) All consents and approvals required in the sole opinion of Buyer
from any party to an Assigned Contract to the consummation of the sale of the
Purchased Assets or the other transactions contemplated by this Agreement shall
have been obtained and shall be reasonably satisfactory to Buyer.
(b) All authorizations, consents, orders, declarations and approvals
of, or filings with, or terminations or expirations of waiting periods imposed
by, any Governmental Authority which the failure to obtain, make or occur could,
in the sole opinion of Buyer, have the effect of making any of the transactions
contemplated by this Agreement illegal or adversely affect the Buyer or the
Business, shall have been made or shall have occurred and shall be reasonably
satisfactory to Buyer.
7.4. PROCEEDING. No suit, proceeding or investigation shall have
been commenced or threatened by any Governmental Authority or private person on
any grounds to restrain, enjoin or hinder, or to seek damages on account of, the
consummation of the transaction contemplated hereby.
7.5. NO MATERIAL ADVERSE CHANGE. In the sole discretion of Buyer,
between the date hereof and the Closing, there shall have been no material
adverse change in Seller or its financial condition, assets, operations,
Business or prospects, including any of Seller (i) ceasing to be solvent or (ii)
suffering the appointment of a receiver, trustee, custodian or similar
fiduciary, or (iii) making an assignment for the benefit of creditors, or (iv)
filing any petition or an order for relief under the bankruptcy code, or (v)
having filed against it any petition for an order for relief and either an order
for relief shall be entered against Seller as a result of such petition or such
proceeding shall continue for more than 30 days, or (vi) making any offer of
settlement, extension or composition to its unsecured creditors generally.
7.6. COMPLIANCE WITH APPLICABLE LAWS. Neither the consummation nor
the performance of any of the transactions contemplated hereby shall, directly
or indirectly (with or without notice or lapse of time), contravene, or conflict
with or result in a violation of, or cause Buyer or any of Buyer's affiliates to
suffer any material adverse consequence under: (a) any applicable Legal
Requirement; or (b) any Legal Requirement that has been published, introduced,
or otherwise proposed by or before any Governmental Authority.
7.7. CLOSING DELIVERIES. Seller shall have delivered all of the
instruments and documents described in Section 2.5 and all of the other
instruments and documents described in
20
<PAGE>
Section 2.6 shall have been delivered, and the form and substance of all such
deliveries shall be reasonably satisfactory in all respects to Buyer and its
counsel.
7.8. SUBSCRIPTIONS. Buyer shall have received bona fide
subscriptions for the common stock, $0.01 par value per share, of Buyer in the
aggregate amount of not less than $1.5 million, which amount shall be in escrow
and shall be payable to Buyer subject only to the Closing.
7.9. CONVERSIONS. Buyer shall have received bona fide, duly executed
and enforceable agreements from holders of outstanding indebtedness of Seller,
pursuant to which such holders agree to exchange outstanding indebtedness in an
aggregate amount of not less than $2,828,775 for the common stock, $0.01 par
value per share, of Buyer, upon terms and conditions satisfactory to Buyer in
its sole discretion, subject only to the Closing.
7.10. LOAN MODIFICATIONS. Buyer shall have received bona fide, duly
executed and enforceable amendments to (i) the loan documents evidencing a
certain $350,000 loan made by Swiss American Bank ("SAB") to Seller which is
part of the Assumed Liabilities and (ii) the loan documents evidencing a series
of loan aggregating $335,000 made by The Holding Company ("THC") to Seller which
are part of the Assumed Liabilities, which amendments shall (a) extend the
maturity date of such loans to December 31, 2000, (b) establish an interest rate
of 10% per annum, (c) provide that interest shall accrue, but shall not be
payable until the maturity date and (d) grant to the holder of such loans the
right to convert all principal and interest into Common Stock of Buyer on the
basis of one share of Common Stock for each $0.40 of indebtedness.
8. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller to consummate the transactions contemplated
herein pursuant to the terms of this Agreement are subject to the satisfaction,
at or prior to the Closing, of each of the conditions of this Section 8. Seller
may waive any or all of these conditions in whole or in part, but no such waiver
shall constitute a waiver by Seller of any of its other rights or remedies under
this Agreement. No condition shall be deemed to have been waived by Seller
unless such waiver is contained in a writing specifically referring to this
provision and signed by Seller.
8.1. REPRESENTATIONS AND WARRANTIES OF BUYER. The representations
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects at the Closing with the same force and effect as if made
at the Closing.
8.2. COMPLIANCE. Buyer shall have performed, complied with and
fulfilled in all material respects all of its covenants, agreements, obligations
and conditions required by this Agreement to be performed, complied with or
fulfilled at or prior to the Closing.
8.3. CONSENTS.
(a) All consents and approvals required in the sole opinion of
Seller from any party to an Assigned Contract to the consummation of the sale of
the Purchased Assets or the
21
<PAGE>
other transactions contemplated by this Agreement shall have been obtained and
shall be reasonably satisfactory to Seller.
(b) All authorizations, consents, orders, declarations and approvals
of, or filings with, or terminations or expirations of waiting periods imposed
by, any Governmental Authority which the failure to obtain, make or occur could,
in the sole opinion of Seller, have the effect of making any of the transactions
contemplated by this Agreement illegal or adversely affect the Seller or the
Business, shall have been made or shall have occurred and shall be reasonably
satisfactory to Seller.
8.4. PROCEEDING. No suit, proceeding or investigation shall have
been commenced or threatened by any Governmental Authority or private person on
any grounds to restrain, enjoin or hinder, or to seek damages on account of, the
consummation of the transaction contemplated hereby.
8.5. CLOSING DELIVERIES. Buyer shall have delivered all of the
instruments, documents and considerations described in Section 2.4 and all of
the instruments and documents described in Section 2.6 shall have been
delivered, and the form and substance of all such deliveries shall be reasonably
satisfactory in all respects to Seller and its counsel.
9. TERMINATION
9.1. REASONS FOR TERMINATION AND ABANDONMENT. This Agreement may, by
prompt written notice given to the other party prior to the Closing, be
terminated:
(a) by mutual consent of Seller and Buyer;
(b) by either Buyer or Seller if a material inaccuracy, untruth,
failure or other breach of any provision of this Agreement has been committed by
the other party and has not been waived;
(c) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date;
(d) by Seller if any of the conditions in Section 8 has not been
satisfied of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Seller to comply with
their obligations under this Agreement) and Seller has not waived such condition
on or before the Closing Date; or
(e) by either Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before the date
which is 60 days after the date of this Agreement or such later date as the
parties may agree upon in writing.
22
<PAGE>
9.2. EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination shall not be an
election of remedies. If this Agreement is terminated pursuant to Section 9.1,
all further obligations of the parties under this Agreement, except for those
obligations specifically designated herein as surviving such termination, shall
terminate.
10. GENERAL PROVISIONS
10.1. EXPENSES. Except as otherwise provided herein, Buyer shall
bear all costs and expenses relating to the transactions contemplated hereby,
including fees and expenses of legal counsel, accountants, consultants or other
representatives for the services used, hired or connected with such
transactions.
10.2. FURTHER ASSURANCES. At the request of any party from time to
time on and after the Closing Date, the other party shall, without further
consideration, execute and/or deliver to or as directed by the requesting party
such documents, and take such actions, as the requesting party may reasonably
request in order to consummate and evidence more effectively the transactions
provided for herein.
10.3. ENTIRE AGREEMENT. This Agreement, together with all of the
other documents referred to herein, supersedes all prior agreements and
constitutes the entire agreement and understanding between the parties with
regard to the subject matter hereof, and there are no other prior or
contemporaneous written or oral agreements, undertakings, promises, warranties,
or covenants respecting such subject matter not expressly set forth or described
herein.
10.4. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
10.5. NOTICES. All notices, requests and other communications
hereunder shall be in writing (which shall include telecopier communication) and
shall be deemed to have been duly given if delivered by hand or by overnight
express delivery service, mailed with first class postage prepaid or telecopied
if confirmed immediately thereafter by also mailing a copy of any notice,
request or other communication by mail with first class postage prepaid:
23
<PAGE>
(a) If to Seller to: SportsTrac, Inc.
6900 E. Belleview Avenue
Suite 202
Englewood, Colorado 80111
Attention: Marc Silverman
(b) If to Buyer to: Applied Sports Technologies, Inc.
6900 E. Belleview Avenue
Suite 202
Englewood, Colorado 80111
Attention: Marc Silverman
or to such other place as any party may designate to the other parties in
writing. Except as otherwise provided herein, all such notices, requests or
other communications shall be effective: (i) if delivered by hand, when
delivered; (ii) if mailed in the manner provided in this paragraph, two business
days after deposit with the United States Postal Service; (iii) if delivered by
overnight express delivery service, on the first business day after deposit with
such service; and (iv) if by telecopier, when telecopied, if also confirmed by
mail in the manner provided in this paragraph.
10.6. MODIFICATION. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto.
10.7. WAIVER. Neither the failure nor any delay by any party in
exercising any right, power or privilege under this Agreement or the documents
referred to in this Agreement shall operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege shall preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law: (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party shall be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one party shall be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
10.8. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10.9. EXHIBITS AND SCHEDULES. All exhibits and schedules referred to
in and attached to this Agreement are incorporated herein and made a part hereof
by this reference in the same manner as if such exhibits and schedules were set
forth at length in the text hereof. In the event of any inconsistency between
the statements in the body of this Agreement and those in the exhibits and
schedules hereto (other than an exception expressly set forth as such in the
exhibits
24
<PAGE>
and schedules with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement shall control.
10.10. SUCCESSORS AND THIRD PARTY BENEFICIARIES. No party may assign
or transfer any of its rights or obligations hereunder except with the prior
written consent of all of the other parties. If assigned in accordance with the
terms hereof, this Agreement shall be binding on, and shall inure to the benefit
of, the parties and their respective successors and assigns. There are no third
party beneficiaries of this Agreement.
10.11. REPRESENTATIONS AND WARRANTIES; SURVIVAL. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by or on behalf of any party to this Agreement.
10.12. REMEDIES CUMULATIVE. All remedies of any party hereunder are
cumulative and not alternative, and are in addition to any other remedies
available at law or otherwise, and may be exercised concurrently or
successively.
10.13. GOVERNING LAW. This Agreement and all transactions
contemplated hereby shall be governed, construed and enforced in accordance with
the laws of the State of Illinois without reference to (i) its judicially or
statutorily pronounced rules regarding conflict of laws or choice of law; (ii)
where any instrument is executed or delivered; (iii) where any payment or other
performance required by any such instrument is made or required to be made; (iv)
where any breach of any provision of any such instrument occurs, or any cause of
action otherwise accrues; (v) where any action or other proceeding is instituted
or pending; (vi) the nationality, citizenship, domicile, principal place of
business, or jurisdiction or organization or domestication of any party; (vii)
whether the laws of the forum jurisdiction otherwise would apply the laws of a
jurisdiction other than the State of Illinois; or (viii) any combination of the
foregoing.
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SPORTSTRAC, INC.
/s/ Michael Mellman
----------------------------------------
Name: Michael Mellman
Title: Chairman of the Board
APPLIED SPORTS TECHNOLOGIES, INC.
/s/ Marc Silverman
----------------------------------------
Name: Marc Silverman
Title: Chief Executive Officer
26
<PAGE>
EXHIBITS AND SCHEDULES
Schedule 1.1 Excluded Contracts
Schedule 2.2 Assumed Liabilities and Obligations
<PAGE>
SCHEDULE 1.1
None
<PAGE>
SCHEDULE 2.2
See Attached
<PAGE>
March 2, 1999
SportsTrac, Inc.
6900 E. Belleview Avenue, Suite 202
Englewood, CO 80111
Attn: Michael Mellman
sportstrac.com, inc.
6900 E. Belleview Avenue, Suite 202
Englewood, CO 80111
Attn: Marc Silverman
Gentlemen:
Reference is made to that certain Asset Agreement (the "Agreement") dated
as of September 1, 1998, by and between SPORTSTRAC, INC., a Delaware corporation
("Seller"), and APPLIED SPORTS TECHNOLOGIES, INC., a Delaware corporation n/k/a
sportstrac.com, inc., a Delaware corporation (the "Company"). All capitalized
terms not defined herein shall have the definitions set forth in the Agreement.
Notwithstanding anything to the contrary contained in the Agreement, the
undersigned agree to the following:
1. "Private Placement" shall mean the private placement by the Company
of a minimum of 250,000 and a maximum of 3,000,000 shares of the
Company's Common Stock, $0.01 par value per share, for the gross
consideration of $1.00 per share.
2. The Company shall assume approximately $3,631,631 in liabilities of
the Seller.
3. The Company will require that holders of at least $2,840,296 of the
Assumed Liabilities agree to accept the Company's Common Stock in
full payment of such liabilities, with between one and four shares
of Common Stock being issued for each $1.00 of Assumed Liabilities.
By executing this letter, the undersigned indicate their agreement to the
foregoing changes.
SPORTSTRAC, INC. sportstrac.com, inc.
/s/ Michael Mellman /s/ Marc Silverman
- -------------------------------- --------------------------------
Name: Michael Mellman Name: Marc Silverman
Title: Chairman of the Board Title: Chief Executive Officer
EXHIBIT 10.2
SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (the "Agreement") is entered into to be
effective as of August 30, 1995, by and between BioFactors, Inc., a Delaware
Corporation, ("BFI") and Bogart-International Associates, Inc. or its assignees
("Bogart").
WHEREAS, BFI holds an exclusive, transferable license of proprietary
computer software and associated protocols and methodology for objectively
testing operator psychomotor skills developed by Systems Technology, Inc., a
California Corporation ("STI") collectively referred to as the "Critical
Tracking Task" ("CTT") technology" or the STI proprietary technology; and
WHEREAS, pursuant to its exclusive license, BE has developed hardware,
software and delivery systems to utilize STI's proprietary technology and is
currently marketing (1) a non-invasive fitness-for-work testing service ("FACTOR
1000 Service") and (2) has developed a prototype on-field athletic performance
system based on the FACTOR 1000 Service ("SportsTrac System" or "SportsTrac"),
defining the correlation between hand-eye coordination as measured by FACTOR
1000 and on-the-field athletic performance; and
WHEREAS, simultaneous herewith the parties herewith are entering into a
novation agreement with STI in connection with this agreement (the "STI Novation
Agreement"); and
WHEREAS, Bogart wishes to obtain the exclusive license to market
SportsTrac to sports markets on a world-wide basis and BFI is willing to grant
to Bogart such a license;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SUBLICENSES AND MARKETING
1.1 Sublicense. BFI hereby grants to Bogart an exclusive and world-wide
sublicense (the "Sublicense") to reproduce, manufacture, use and market directly
and through sub-distributors and/or sublicensees, to commercial end-user
customers, the SportsTrac System solely for sports-related and sports
entertainment applications. Sports-related and sports entertainment applications
shall include athletic performance enhancement, measuring sports diagnostics,
sports rehabilitation and sports related clinical applications and applications
directly related to the foregoing. In no event shall sports-related applications
include fitness-for-work testing. Bogart shall not sublicense to customers the
SportsTrac System, except as permitted by Section 1.2 herein. BFI grants to
Bogart the right to assign or issue sublicenses, except each sublicense shall
include and be limited to all the terms of this agreement. BFI shall not itself
or through agents or third parties license, sublicense, market, or distribute
SportsTrac during the term of this Agreement.
<PAGE>
1.2 Customer Sublicenses. Pursuant to the sublicense granted to Bogart in
Section 1.1, Bogart shall have the rights to grant to its customers (object code
only) or co-venturers and partners non-exclusive and non-transferable
sublicenses to utilize the SportsTrac System.
1.3 Trademark License. BFI has not registered a service mark in connection
with the name, marketing, selling or sublicensing of the SportsTrac System.
Bogart undertakes to use its best efforts to register service mark or trademark
for SportsTrac (under that or any other name selected by Bogart) and such mark
for SportsTrac shall be owned, and inure to the benefit of Bogart. Bogart shall
have no liability in the event it is unable to obtain such service mark or
trademark. This license will not Create any right, title or interest in the
FACTOR 1000 or BioFactors' Service Marks in Bogart. Bogart shall acknowledge
BFI's ownership of the FACTOR 1000 Service Mark in its advertising and other
literature describing SportsTrac in which there is any reference to BFI or the
FACTOR 1000 service. Bogart hereby agrees to promptly provide BFI with copies of
Bogart's service mark use guidelines and all revisions thereto used to govern,
the use by all licensees of sublicensees of the SportsTrac service mark in the
Territory. Bogart further agrees to comply with any requirements as to patent
and trademark notices contained in STI's license to BFI.
1.4 Developments and Associated Products. This license .kill not create
any right, title or interest to BFI in any developments or associated product's
Bogart may produce or develop that do not use the FACTOR 1000 or SportsTrac
systems as defined herein ("Associated Products"). Any use of the name
"SportsTrac" or SportsTrac System" or any other name on an Associated Product
does not of itself create any right title or interest in the Associated Product
to BFI.
ARTICLE II
ROYALTIES AND PAYMENTS
2.1 Initial Royalty License Fee. Bogart shall pay a fee to BFI as follows:
(a) A non-refundable royalty of S1,000,000 payable as follows.
(1) S300,000 upon the execution of this Agreement, of which
$50,000 has already been received as an earnest deposit;
(2) A promissory Note in the amount of $700,000 payable to
BFI. The terms of the note shall provide that $350,000 is due and payable on
March 31, 1996 and S350,000 due and payable on July 31, 1996.
(3) In the event that Bogart undertakes an initial public
offering of its shares prior to the due dates for payment on amounts due under
the promissory note, any proceeds received as a result of such offering shall be
utilized to retire the promissory note.
2.2 Continuing Royalty. A royalty equal to eight and one-half
percent (8 1/2%) of the cash receipts from the sale or license by Bogart of
products or services containing the
-2-
<PAGE>
FACTOR 1000 technology, but not including any revenues derived by Bogart from
installation, maintenance, consulting hardware sales, or any other revenues not
directly or indirectly related to the FACTOR 1000 or CTT technology. BFI shall
have the right to audit Bogart's records, with adequate notice, for the purpose
of verifying royalty payments.
Said royalty shall be due and payable within thirty (30) days after the
conclusion of each calendar quarter commencing with the quarter ending December
31, 1995.
2.3 Other Consideration
(a) Warrants. As additional consideration for this Agreement, Bogart
has authorized the issuance of war-rants (the "War-rants") to purchase up to an
aggregate of seven and one-half (7 1/2%) percent of the fully diluted
outstanding Common Stock of Bogart or any affiliate or subsidiary or other
entity formed by or through Bogart that may be in existence or formed to operate
under this Agreement ("NEWCO") such percentage to be measured at the time of
initial capitalization. It is anticipated that the initial aggregate capital
will be $500,000 on or before September 9, 1995. Such warrants will be promptly
issued and BFI may exercise its Warrants, in whole or in part, at any time
beginning on a date one year from the date of any initial public offering of the
shares of NEWCO, but not later than a date three years from the date of initial
public offering (the "Expiration Date"), at a purchase price equal to the per
share price of the shares offered to the public in the initial public offering.
(b) Capital Stock. BFI (either directly, through its shareholders,
or other designees, as designated by BFI) shall have the right to contribute
capital up to twenty-five (25%) percent of any funds initially contributed to
NEWCO in exchange for up to twenty-five percent of the ownership of said entity
on the same terms and conditions as all other investors, on or before September
8, 1995. Bogart agrees that the initial capitalization NEWCO shall be
approximately S500,000,
(c) Board Representation. BFI shall have be entitled to designate
one member of the Board of Directors of NEWCO. Bogart shall cause NEWCO's other
investors to enter into a voting agreement in form and substance reasonably
satisfactory to BFI in order to effectuate this provision,
ARTICLE III
TERM
3.1 Term. This agreement shall be in effect during the term of BFI's
License Agreement with STI, including all renewals and extensions thereof. The
term of BFI's License Agreement with STI expires on November 24, 2008. BFI shall
use its best efforts to maintain its License Agreement with STI in good standing
and in full force and effect. In the event of any default in BFI's License
Agreement with STI, subject to STI's consent, Bogart shall have the right to
cure said default on behalf of BFI and to the extent such cure requires money
payments, Bogart shall have the right to cure said defaults by paying all
delinquent payments due and offset said payments by Bogart against any royalties
due BFI under this Agreement. After said default
-3-
<PAGE>
is corrected by Bogart the continuing license will be between Bogart and STI
directly, with all future royalty payments paid directly to STI (see Exhibit A,
the STI Novation Agreement). Attached hereto as Exhibit B is a true and correct
copy of the BFI License Agreement with STI.
3.2 Termination. This Agreement shall be terminable by notice in writing
from the party not at fault if any one of the following events shall occur:
(a) Either party's material default under this Agreement which has
not been remedied within thirty (30) days from notice in writing from the party
not in default specifying such default;
(b) Bogart's failure to pay any amounts due to BPI pursuant to
Article II when due and such failure is not cured within thirty (30) days from
written notice after such payment is due;
(c) Bogart's material misrepresentation of the function of the
SportsTrac System to Bogart's customers and said failure is not corrected within
thirty (30) days after written notice from BFI of such failure.
(d) Termination of the STI License Agreement shall automatically
terminate this Sublicense granted to Bogart in Article I of this Agreement and
Bogart's ongoing license will be directly with STI without change in terms (see
Section 3.1 Term and the STI Novation Agreement).
ARTICLE IV
BFI'S OBLIGATIONS AND WARRANTEES
4.1 Obligations of BFI. BFI shall:
(a) Provide Bogart with one complete copy of all its FACTOR 1000
systems and application source code, to be used by Bogart for only the purposes
provided herein.
(b) Provide Bogart with one complete copy of all the source code for
sports related applications completed to date, to be used by Bogart for only the
purposes provided herein.
(c) Provide Bogart with one copy of all written technical
documentation for its FACTOR 1000 and sports related software, including
programmer's notes, file layouts and flow charts, to be used by Bogart for only
the purposes provided herein.
(d) Provide Bogart with all its internal FACTOR 1000 support
software and related documentation, including complete listings of all libraries
and subroutines (both developed internally and provided by third parties.)
Provide all third party vendor's name, address and all documentation detailing
the routine or library's utility.
-4-
<PAGE>
(e) Provide Bogart with its complete FACTOR 1000 database software
system (known as "FMR") at no cost and a suitable operating platform at BFI's
current fully burdened cost, if Bogart chooses to purchase said platform from
BFI.
(f) Provide Bogart with initial technical support and consulting
equal to 40 hours without charge as reasonably required and requested by Bogart,
it being acknowledged by Bogart that BFI's currently available resources for
such support are quite limited. BFI's reasonable out-of-pocket costs, if any,
will be paid by Bogart.
(g) Provide Bogart with reasonable ongoing technical support at
BFI's current fully burdened cost, as requested by Bogart. Such support will
include up to 40 hours per month of Mark Itkonen's engineering expertise during
the first six months of this agreement.
(h) Provide Bogart with all current control panel documentation,
including bills of materials, parts lists, diagrams, schematics, and vendor
lists. BFI grants Bogart the right to have control panels manufactured directly
with BFI's vendor or any other vendor Bogart deems qualified to produce the
control panel.
(i) Sell Bogart reasonable quantities of control panels, which shall
be forecasted quarterly by Bogart, at BFI's current fully burdened cost.
(j) Sell Bogart reasonable quantities of hardware platforms or fill
systems at BFI's current fully burdened cost.
(k) Not incur any liability on behalf of Bogart or in any way to
pledge Bogart credit or accept any order or make any contract binding upon
Bogart without proper written consent.
4.2 Additional Assistance. For additional assistance requested by
Bogart and provided to Bogart or its customers during installation of the
SportsTrac service, Bogart shall pay BFI at BFI's then current published rates
for such assistance. BFI shall also be reimbursed for reasonable out-of-pocket
expenses. Payments due under this section shall be due and payable upon receipt
by Bogart of an invoice for such assistance from BFI.
4.3 BFI Representations and Warranties.
(a) BFI warrants that it has the right to provide the hardware and
sublicense the software to Bogart hereunder and that BFI has not received notice
from any third party that the FACTOR 1000 System and/or the SportsTrac System
infringes any United States or Canadian patent or copyright;
(b) BFI warrants to Bogart that each diskette(s) on which the FACTOR
1000 and/or SportsTrac software is furnished to Bogart and each of the Control
Panels supplied pursuant to section 4.1 will be free from defects in materials
and workmanship under normal use and in good working condition. BFI will replace
any diskette and control panel not meeting the
-5-
<PAGE>
foregoing warranty within five(s) business days of receipt of said alleged
defective diskette or Control Panel by BFI for a period of one year after
shipment;
(c) BFI warrants to Bogart that its License Agreement with STI,
granting BFI, among other things, the night to develop, manufacture, reproduce,
use and market certain proprietary technology and associated protocols and
methodologies which BFI utilizes in the FACTOR 1000 and SportsTrac Services are
in full force and effect, there is no breach of said agreement by either party
and entering into and performing this Agreement will not constitute or result in
a breach under said agreement.
EXCEPT AS PROVIDED FOR IN THIS SECTION 4.3, BFI DISCLAIMS ALL WARRANTIES
ON THE HARDWARE AND SOFTWARE PROVIDED PURSUANT TO THIS AGREEMENT, INCLUDING ANY
AND ALL IMPLIED WARRANTIES OF FITNESS AND/OR MERCHANTABILITY. THE PARTIES AGREE
THAT EXCEPT AS PROVIDED FOR IN THIS SECTION 43, BFI WILL NOT BE LIABLE FOR ANY
DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE HARDWARE OR SOFTWARE FURNISHED BY
BFI.
4.4 Marketing. BFI hereby grants to Bogart the right to copy any manuals
and marketing materials used in connection with its FACTOR 1000 service as are
required or as needed for the marketing and implementation of the SportsTrac
Service to existing and prospective Bogart customers.
4.5 Marketing. Bogart shall have the exclusive authority to deter-mine its
own marketing and sales program for the Territory. This shall include the right
to market directly and through sub-distributors appointed by Bogart from time to
time in its sole discretion; provided that any such sub-distributor shall enter
into an agreement with Bogart by which such sub-distributor agrees to honor the
provisions of Section 5.2 hereof
ARTICLE V
CERTAIN AGREEMENTS OF BOGART
5.1 Bogart's Obligation. Bogart shall:
(a) Use all reasonable efforts to develop, promote and market the
SportsTrac System within its markets.
(b) be solely responsible for all marketing, sales and related
activities in connection with its efforts to solicit and grant sublicenses to
utilize the technology pursuant to this Agreement;
(c) provide BFI with adequate lead time to supply control panels
required for Bogart's client installations, and pay BFI for said control panels
at BFI's current fully burdened cost.
-6-
<PAGE>
(d) provide BFI with advance copies of all advertising and/or
marketing materials it intends to distribute concerning the FACTOR 1000 service,
which materials will be approved by BFI in its sole discretion prior to use by
Bogart;
(e) Bogart shall not solicit or attempt to hire Mark Itkonen, an
employee of BFI, but shall have the right to reasonably retain his services
through BFI at BFI's fully burdened cost for said employee (see Section 4.1g);
(f) During the term of this agreement, Bogart shall not, except with
BFI's prior written consent, engage in any business activity which is directly
in competition with any of the other products or services being sold or
otherwise provided by BFI, as of the date of this agreement.
5.2 Confidentiality.
(a) Proprietary Information. In conducting the activities
contemplated by this Agreement, Bogart may, from time to time, receive from BFI
confidential information and trade secrets ("Secrets"). Bogart acknowledges that
BFI's Secrets include, but are not limited to (1) software source and object
code, certain documentation for its FACTOR 1000 and the SportsTrac Services,
schematics, reports, programs, user lists and/or the date generated by users of
its FACTOR 1000 service, training techniques, formats, specifications and
procedures relating to testing, documentation, algorithms, processes, "look and
feel" of its FACTOR 1000 service and know-how (whether or not reduced to writing
and whether or not copyrightable); (il) any modification of the same; and (ill)
any extraction from the same; and certain other scientific, technical,
financial, marketing and business information, trade secrets and confidential
knowledge of BFI;
(b) Protection. Bogart agrees (i) to hold BFI's Secrets in
confidence; (ii) to refrain from disclosing BFI's Secrets except to its own
personnel and agents who need to know such information to perform their duties
and to licensees of Bogart's who enter into similar confidentiality agreements
with Bogart for the bene-fit of BFI; (iii) to safeguard BFI's Secrets in the
same manner it employs for its own trade secrets, but in no event shall Bogart
exercise less than due care and diligence in accordance with good commercial
practice; and (iv) not to use BFI's Secrets to the detriment of BFI, nor use
BFI's Secrets in any business competitive with or similar to any business of
BFI, which secrets Bogart may have acquired in the course of or incident to the
performance of this Agreement, including, without limitation., any material
available to Bogart or any reproductions or summaries thereof Notwithstanding
the foregoing, Bogart may make such disclosures as may be required by any court
or quasi-judicial administrative body pursuant to any applicable laws, statutes
or regulations, provided that Bogart shall, to the extent possible, give BFI
advance notice of any such demand for information and shall permit BFI to
intervene and make such representations and take such actions to challenge any
such demand as BFI may deem necessary or appropriate; such intervention or other
action being done at BFI's expense. Bogart further agrees to deliver to BFI all
hardware, software, manuals, documentation, confidential information,
proprietary documents, data or calculations, and any copies thereof, in its
possession pertaining to BFI or any of its affiliates at the time of
-7-
<PAGE>
termination of this Agreement. Bogart agrees to notify BFI immediately if it has
knowledge that any unauthorized third party possesses or uses BFI's Secrets or
that BFI's Secrets are being utilized for any unauthorized purpose;
(c) Exclusion. This Section 5.2 shall not apply to secrets that are
or become generally known or used by others in the same or competing business
with BFI other than through breach of this Agreement by Bogart, its employees or
agents,
(d) Copying and Modification. Bogart shall not make any unauthorized
copy of any Secrets disclosed by BFI. Bogart shall not make any unauthorized
copy of any of the proprietary software provided to Bogart pursuant to this
Agreement. Bogart may make modifications but such modifications, enhancements or
derivative works are hereby assigned to BFI, subject to the exclusive license
hereunder in favor of Bogart. Bogart shall take any and all steps from time to
time as may be reasonably necessary to effectuate such assignment.
ARTICLE VI
INDEMNIFICATION
6.1 BFI's Indemnification of Bogart. BFI will indemnify, defend and hold
harmless Bogart, and each of its officers and directors, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof), arising
out of or based on any negligence on the part of BFI or its officers, directors
employees or agents, in the performance of BFI's obligations pursuant to this
Agreement and any breach, breach of warranty or material Misrepresentation of by
BFI- BFI will indemnify, defend and hold harmless Bogart against any claim, suit
or proceeding against Bogart based on (i) any such material breach or
misrepresentation or (ii) a claimed infringement of a United States patent or
copy-right by the software or (iii) a claimed infringement of a United States
service mark or trademark by its FACTOR 1000 service mark.
6.2 Bogart's Indemnification of BFI. Bogart will indemnify, defend and
hold harmless BFI, and each of its officers and directors, against all expenses,
claims, losses, damages and liabilities (or actions `in respect thereof, arising
out of or based on any third party claim resulting from (i) Bogart's marketing
and/or implementation of products containing the FACTOR 1000 or SportsTrac
technology; (ii) services rendered by Bogart hereunder, except to the extent set
forth in section 6.1 above; and (iii) the use or performance of equipment
provided by Bogart; except claims based upon BFI's negligence with respect
thereto. Notwithstanding the foregoing, the liability of Bogart pursuant to the
indemnities set forth in this Section 6.2 shall be limited to the amount of One
hundred Thousand Dollars ($100,000).
6.3 Indemnification Procedures. Each party entitled to indemnification
under this Article VI (the `Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such indemnified Party has actual knowledge of any claim as to which indemnity
may be sought. After notice from the indemnifying Party to the indemnified Party
of the indemnifying Party's assumption of the defense of all such actions or
proceedings, the indemnifying Party shall not be liable to such indemnified
Party for any fees of such indemnified Party's counsel subsequently incurred in
-8-
<PAGE>
connection with the defense of such actions or proceedings, but shall be liable
to the extent described above for all other reasonable expenses incurred by such
indemnified Party. The indemnified Party shall have the right to employ separate
counsel at the indemnifying Party's expense if (i) the indemnifying Party has
agreed to pay such fees and expenses; (ii) the indemnifying Party shall have
failed to promptly assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified Party in such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleased parties) include the indemnified Party and the
indemnifying Party, and the indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to the indemnified Party
which are different from or in addition to those available to the indemnifying
Party and which could result in actual or potential differing interests between
such parties in the conduct of the defense of such actions or proceedings. No
indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by. the claimant or plaintiff to such indemnified Party
of a release from all liability in respect to such claim or litigation.
ARTICLE VII
MISCELLANEOUS
7.1 Independent Agents. Each party to this Agreement shall act as an
independent agent with relation to this Agreement and has no authority to act
for or on behalf of the other or to bind the other to any obligation in any
manner except as expressly set forth herein. Nothing contained herein shall be
construed as creating a joint venture or partnership between the parties.
7.2 Continuing Obligations. All obligations that by nature survive
expiration or termination of this Agreement shall continue subsequent to and
regardless of such expiration or termination until full satisfaction, or until
by nature expire.
7.3 Successors and Assigns. Except to the extent assignment is
specifically limited herein, this Agreement shall inure to the benefit of and be
binding on and be enforceable by the respective successors, assigns and legal
representatives of the parties hereto.
7.4 Entire Agreement; Modifications. This Agreement, including all
Exhibits and Schedules hereto (each of which is incorporated herein by this
reference), contains the entire Agreement between the parties and supersedes any
and all prior agreements, arrangements and understandings between the parties
relating to the subject matter hereof No oral understandings, statements,
promises or inducements contrary to the terms of this Agreement exist. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by the parties hereto. No waiver of any of the provisions of
the Agreement shall be deemed to be or shall constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver. The parties also intend this Agreement to be a complete and exclusive
statement of the terms of their agreement, which may not be explained or
supplemented by evidence of consistent additional terms.
-9-
<PAGE>
7.5 Amendments and Waivers. Any term. of this Agreement may be amended and
the observance of any term hereof may be waived (either prospectively or
retrospectively and either generally or in a particular instance) only with the
written consent of the parties hereto,
7.6 Choice of Law. This Agreement is entered into and is to be performed
in accordance with the laws of the State of Delaware and shall be construed and
enforced in accordance therewith.
7.7 Notices, etc. AR notices and other communications required or
permitted hereunder will be in writing and will be mailed by first-class mail,
postage prepaid, addressed
(a) if to BFI at:
BioFactors, Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Attn.: Douglas S. Zorn, Chief Operating Officer
(303) 271-0505
or at such other address as BFI will have furnished to Bogart in Writing in
accordance with this section, or
(b) Bogart at:
Bogart International Associates, Inc.
750 Lexington Ave.
27th Floor
New York, New York 10022
(212) 593-7901
(212) 980-6653 fax
or at such other address as Bogart will have furnished to BFI in writing in
accordance with this section. Ml notices and other communications to be given
hereunder shall be given in writing. Except as otherwise specifically provided
herein, all notices and other communications hereunder shell be deemed to have
been given if personally delivered to an officer of the party being served, of
by Telex or facsimile machine, at the time they are transmitted, or Three (3)
business days after mailing thereof by registered or certified * mail, return
receipt requested, postage prepaid, to the address of the receiving party set
forth above (until notice of change thereof is served in the mariner provided in
this Section 7.7).
7.9 Separability. In case any provision of this Agreement not material to
the benefits intended to be conferred hereby is invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby.
7.10 Miscellaneous. Except as set forth herein, time is of the essence for
the performance of each and every covenant and the satisfaction of each and
every condition
-10-
<PAGE>
contained in this agreement. The headings and captions of this Agreement are for
the purpose of reference only and shall not limit or define any meaning or terms
hereof. All references to the masculine shall include both the neuter and the
feminine. The singular shall include the plural and vice versa as the context
shall require. This Agreement may be executed in two or more counterparts, each
of which shall he deemed an original, but a of which together shall constitute
one and the same instrument. The provision. of this Agreement shall be
interpreted in accordance with their fair meaning and shall not be construed
strictly for or against a party.
7.11 Authority and Execution. Each person executing this Agreement on
behalf of a party hereto represents and warrants that he is duly and validly
authorized to do so on behalf of such a party, with full right and authority to
execute this Agreement and to bind such party with respect to all of its
obligations hereunder.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by their duly authorized representatives effective as of the date first
set forth above.
BIOFACTORS, INC.
By: /s/
-------------------------------------
Its CEO August 30, 1995
---------------------------------
BOGART INTERNATIONAL ASSOCIATES, INC.
By: /s/
-------------------------------------
Its
---------------------------------
-11-
EXHIBIT 10.3
STI NOVATION AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into to be effective as of
August 30, 1995, by and between BioFactors, Inc., a Delaware Corporation
("BFI"), Bogart-International Associates, Inc. or its assignees ("Bogart") and
Systems Technology, Inc., a California Corporation ("STI").
WHEREAS, BFI holds an exclusive, transferable license of proprietary
computer software and associated protocols and methodology for objectively
testing operator psychomotor skills developed by STI, collectively referred to
as the "Critical Tracking Task" ("CTT") technology" or the STI proprietary
technology; and
WHEREAS, pursuant to its exclusive license, BE has developed hardware,
software and delivery systems to utilize STI's proprietary technology and is
currently marketing (1) a non-invasive fitness-for-work testing service ("FACTOR
1000 Service") and (2) has developed a prototype on-field athletic performance
system based on the FACTOR 1000 Service ("SportsTrac System" or "SportsTrac"),
defining the correlation between hand-eye coordination as measured by FACTOR
1000 and on-the-field athletic performance; and
WHEREAS, Bogart wishes to obtain the exclusive license to market
SportsTrac to sports markets on a world-wide basis and BFI is willing to grant
to Bogart such a license;
NOW, THEREFORE, the parties agree as follows:
1.1 If BFI loses its license with STI or should BFI cease operating as a
business, STI agrees to continue to honor the sublicense of its CTT technology
to Bogart directly, so long as Bogart is not in default under any terms of its
sublicense with BFI.
1.2 In the event that Bogart is required to sublicense directly with STI,
as explained in Section 1.1 herein, Bogart agrees to pay all royalties due
directly to STI. Such royalties shall be in all manners consistent with the
terms of sublicense between BFI and Bogart, as follows:
A royalty equal to eight and one-half percent (8 1/2%) of the cash
receipts from the sale or license by Bogart of products or services
containing the CTT technology, but not including any revenues derived by
Bogart from installation, maintenance, consulting, hardware sales, or any
other cash receipts not directly or indirectly related to the CTT
technology. STI shall have the right to audit Bogart's records, with
adequate notice, for the purpose of verifying royalty payments.
Said royalty shall be due and payable within thirty (30) days after the
conclusion of each calendar quarter commencing with the quarter ending
December 31, 1995.
<PAGE>
1.3 This agreement will remain in force during the life of the sublicense
granted to Bogart by BFI and shall be attached to the Bogart sublicense as
Exhibit B.
1.4 Each person executing this Agreement on behalf of a party hereto
represents and warrants that he is duly and validly authorized to do so on
behalf of such a party, with full right and authority to execute this Agreement
and to bind such party with respect to all of its obligations hereunder.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by their duly authorized representatives effective as of the date first
set forth above.
BIOFACTORS, INC.
By: /s/
-------------------------------------
Its CEO
---------------------------------
Date: August 30, 1995
-------------------------------
BOGART INTERNATIONAL ASSOCIATES, INC.
By: /s/
-------------------------------------
Its
---------------------------------
Date:
-------------------------------
SYSTEMS TECHNOLOGY, INC.
By: /s/
-------------------------------------
Its President
---------------------------------
Date: August 30, 1995
-------------------------------
-2-
EXHIBIT 10.4
================================================================================
sportstrac.com, inc.
1999 STOCK INCENTIVE PLAN
================================================================================
<PAGE>
TABLE OF CONTENTS
Purpose of the Plan............................................................1
Definitions....................................................................1
Administration of the Plan.....................................................3
Shares Subject to the Plan.....................................................4
Stock Options..................................................................4
Restricted Stock Awards........................................................5
Grants.............................................................5
Restriction Period.................................................6
Restrictions Upon Transfer.........................................6
Certificates.......................................................6
Lapse of Restrictions..............................................6
Termination Prior to Lapse of Restrictions.........................6
Stock Appreciation Rights......................................................6
Right of First Refusal.........................................................7
Amendment or Termination of the Plan...........................................7
Term of Plan...................................................................8
Rights as Shareholder..........................................................8
Merger or Consolidation........................................................8
Changes in Capital and Corporate Structure.....................................8
Service........................................................................8
Withholding of Tax.............................................................9
Delivery and Registration of Stock.............................................9
<PAGE>
sportstrac.com, inc.
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The sportstrac.com, inc. 1999 STOCK INCENTIVE PLAN (hereinafter referred to as
the "Plan") is intended to provide a means whereby directors, employees,
consultants and advisors of sportstrac.com, inc., and its Related Corporations
may sustain a sense of proprietorship and personal involvement in the continued
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may permit certain directors, employees, consultants
and advisors to acquire Shares or otherwise participate in the financial success
of the Company, on the terms and conditions established herein.
2. DEFINITIONS
The following terms shall be defined as set forth below:
a. Board. Shall mean the Board of Directors of the Company.
b. Cause. Shall mean the commitment of fraud, the misappropriation of or
intentional material damage to the property or business of the Company, the
substantial failure to fulfill the duties and responsibilities of a regular
position and/or comply with Company policies, rules or regulations, or the
conviction of a felony.
c. Change of Control. Shall mean:
i. the consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the `34 Act of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the `34 Act) of fifty percent (50%) or more
of the combined voting power of the then outstanding voting
securities of the Company; or
ii. the individuals who, as of the date hereof, are members of the
Board cease for any reason to constitute a majority of the
Board, unless the election, or nomination for election by the
stockholders, of any new director was approved by a vote of a
majority of the Board, and such new director shall, for
purposes of this Agreement, be considered as a member of the
Board; or
iii. approval by stockholders of the Company of: (1) a merger or
consolidation if the stockholders, immediately before such
merger or consolidation, do not, as a result of such merger or
consolidation, own, directly or indirectly, more than fifty
percent (50%) of the combined
-1-
<PAGE>
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Company
outstanding immediately before such merger or consolidation;
or (2) a complete liquidation or dissolution or an agreement
for the sale or other disposition of all or substantially all
of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because fifty percent (50%) or more of the combined voting power of the
then outstanding securities of the Company are acquired by: (1) a trustee or
other fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity; or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition.
d. Code. Shall mean the Internal Revenue Code of 1986, and any amendments
thereto.
e. Committee. Shall mean the committee appointed by the Board in
accordance with Paragraph 3 hereof.
f. Company. Shall mean sportstrac.com, inc. and its Related Corporations.
g. Compete. Shall mean within a period of one (1) year after the
termination of service, the direct or indirect competition with the business of
the Company, including, but not by way of limitation, the direct or indirect
owning, managing, operating, controlling, financing or serving as an officer,
employee, director or consultant to, or by soliciting or inducing, or attempting
to solicit or induce, any employee or agent of the Company to terminate
employment and become employed by any person, firm, partnership, corporation,
trust or other entity which owns or operates, a business similar to that of the
Company, except with the express prior written consent of the Company.
h. Disability. Shall mean a physical or mental disability which impairs
the individual's ability to substantially perform his or her current duties for
a period of at least six (6) consecutive months, as determined by the Committee.
i. ERISA. Shall mean the Employee Retirement Income Security Act of 1974,
and any amendment thereto.
j. Incentive Stock Option. Shall mean an award under the Plan that
satisfies the general requirements of Code Section 422, namely: (i) grantees
must be employees; (ii) the exercise price may not be less than the fair market
value of the underlying Shares at the date of grant; (iii) no more than $100,000
worth of Shares may become exercisable in any year; (iv) the maximum duration of
an award may be ten (10) years; (v) awards must be exercised within three (3)
months after termination of employment; and (vi) Shares received upon exercise
must
-2-
<PAGE>
be retained for the greater of two (2) years from the date of grant or one
(1) year from the date of exercise.
k. Nonqualified Options. Shall mean an award under the Plan that is not an
Incentive Stock Option.
l. Related Corporation. Shall mean a corporation which would be a parent
or subsidiary corporation with respect to the Company as defined in Section
424(e) or (f), respectively, of the Code.
m. Restricted Stock. Shall mean an award of Shares under the Plan that are
restricted as to transfer and subject to forfeiture.
n. Rule 16b-3. Shall mean Rule 16b-3 of the '34 Act, and any amendments
thereto.
o. Shares. Shall mean common stock of the Company.
p. Stock Appreciation Rights. Shall mean rights entitling the grantee to
receive the appreciation in the market value of a stated number of Shares.
q. '33 Act. Shall mean the Securities Act of 1933, and any amendments
thereto.
r. '34 Act. Shall mean the Securities Exchange Act of 1934 and any
amendments thereto.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee which shall be comprised solely
of two (2) or more outside directors (within the meaning of Section 162(m) of
the Code) appointed by the Board. The Committee shall have sole authority to:
i. select the directors, employees, consultants and advisors to
whom awards shall be granted under the Plan;
ii. establish the amount and conditions of each such award;
iii. prescribe any legend to be affixed to certificates
representing such awards;
iv. interpret the Plan; and
v. adopt such rules, regulations, forms and agreements, not
inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the Plan.
All decisions made by the Committee in administering the Plan shall be final.
-3-
<PAGE>
4. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares that may be obtained by directors, employees,
consultants and advisors under the Plan shall be 1,000,000 Shares. Any Shares
that remain unissued at the termination of the Plan shall cease to be subject to
the Plan, but until termination of the Plan, the Company shall at all times make
available sufficient Shares to meet the requirements of the Plan.
5. STOCK OPTIONS
a. Type of Options. The Company may issue options that constitute
Incentive Stock Options to employees and Nonqualified Options to directors,
employees, consultants and advisors under the Plan. The grant of each option
shall be confirmed by a stock option agreement that shall be executed by the
Company and the optionee as soon as practicable after such grant. The stock
option agreement shall expressly state or incorporate by reference the
provisions of the Plan and state whether the option is an Incentive Option or a
Nonqualified Option.
b. Terms of Options. Except as provided in Subparagraphs (c) and (d)
below, each option granted under the Plan shall be subject to the terms and
conditions set forth by the Committee in the stock option agreement including,
but not limited to, option price and option term.
c. Additional Terms Applicable to All Options. Each option shall be
subject to the following terms and conditions:
i. Written Notice. An option may be exercised only by giving
written notice to the Company specifying the number of Shares
to be purchased.
ii. Method of Exercise. The aggregate option price shall be paid
in any one or a combination of cash, personal check, Shares
already owned or Plan awards which the optionee has an
immediate right to exercise.
iii. Term of Option. No option may be exercised more than ten (10)
years after the date of grant. No option may be exercised more
than six (6) months after the optionee terminates employment
with the Company, except in the event of Disability or death
as provided in Subparagraph (c)(iv) below.
iv. Disability or Death of Optionee. If an optionee terminates
employment due to Disability or death prior to exercise in
full of any options, he or she or his or her beneficiary,
executor, administrator or personal representative shall have
the right to exercise the options within a period of twelve
(12) months after the date of such termination to the extent
that the right was exercisable at the date of such termination
as provided in
-4-
<PAGE>
the stock option agreement, or subject to such other terms as
may be determined by the Committee.
v. Transferability. No option may be transferred, assigned or
encumbered by an optionee, except: (A) by will or the laws of
descent and distribution; (B) by gifting for the benefit of
descendants for estate planning purposes; or (C) pursuant to a
certified domestic relations order.
d. Additional Terms Applicable to Incentive Options. Each Incentive Option
shall be subject to the following terms and conditions:
i. Option Price. The option price per Share shall be 100% of the
fair market value of such Share on the date the option is
granted. Notwithstanding the preceding sentence, the option
price per Share granted to an individual (hereinafter referred
to as a "10% Shareholder") who, at the time such option is
granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company
shall not be less than 110% of the fair market value of such
Share on the date the option is granted.
ii. Term of Option. No option granted to a 10% Shareholder may be
exercised more than five (5) years after the date of grant.
Notwithstanding any other provisions hereof, no option may be
exercised more than three (3) months after the optionee
terminates employment with the Company, except in the event of
Disability or death as provided in Subparagraph (c)(iv) above.
iii. Annual Exercise Limit. The aggregate fair market value of
Shares which first become exercisable during any calendar year
shall not exceed $100,000. For purposes of the preceding
sentence, the fair market value of each Share shall be
determined on the date the option with respect to such Share
is granted.
iv. Transferability. No option may be transferred, assigned or
encumbered by an optionee, except by will or the laws of
descent and distribution, and during the optionee's lifetime
an option may only be exercised by him or her.
6. RESTRICTED STOCK AWARDS
a. Grants. Restricted Stock Awards ("RSAs") under the plan shall be
evidenced by restricted stock agreements in such form and consistent with this
Plan as the Committee shall approve from time to time.
-5-
<PAGE>
b. Restriction Period. RSAs awarded under the Plan shall be subject to
such terms, conditions, and restrictions, including without limitation:
prohibitions against transfer; substantial risks of forfeiture; attainment of
performance objectives; repurchase by the Company or right of first refusal for
such period or periods as shall be determined by the Committee at the time of
grant. The Committee shall have the power to permit, in its discretion, an
acceleration of the expiration of the applicable restriction period with respect
to any part or all of the RSAs awarded to a grantee.
c. Restrictions Upon Transfer. RSAs awarded, and the right to vote
underlying Shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered during
the restriction period applicable to such Shares, except: (i) by will or the
laws of descent and distribution; (ii) by gifting for the benefit of descendants
for estate planning purposes; or (iii) pursuant to a certified domestic
relations order. Subject to the foregoing, and except as otherwise provided in
the Plan, the grantee shall have all the other rights of a stockholder
including, but not limited to, the right to receive dividends and the right to
vote such Shares.
d. Certificates. Each certificate issued in respect of RSAs awarded to a
grantee shall be deposited with the Company, or its designee, and shall bear the
following legend:
"This certificate and the shares represented hereby are subject to the terms and
conditions (including forfeiture and restrictions against transfer)
contained in the sportstrac.com, inc. 1999 Stock Incentive Plan and an
Agreement entered into by the registered owner. Release from such terms
and conditions shall be obtained only in accordance with the provisions of
the Plan and Agreement, a copy of each of which is on file in the office
of the Secretary of said Company."
e. Lapse of Restrictions. The Agreement shall specify the terms and
conditions upon which any restrictions upon Shares awarded under the Plan shall
lapse, as determined by the Committee. Upon the lapse of such restrictions,
Shares, free of the foregoing restrictive legend, shall be issued to the grantee
or his or her legal representative.
f. Termination Prior to Lapse of Restrictions. In the event of a grantee's
termination of employment prior to the lapse of restrictions applicable to any
RSAs awarded to such grantee, all Shares as to which there still remain
restrictions shall be forfeited by such grantee without payment of any
consideration to the grantee, and neither the grantee nor any successors, heirs,
assigns, or personal representatives of such grantee shall thereafter have any
further rights or interest in such Shares or certificates.
7. STOCK APPRECIATION RIGHTS
a. Grants. Stock Appreciation Rights ("SARs") may be granted separately or
in tandem with or by reference to an option granted prior to or simultaneously
with the grant of such rights, to such eligible directors and employees as may
be selected by the Committee.
-6-
<PAGE>
b. Terms of Grant. SARs may be granted in tandem with or with reference to
a related option, in which event the grantee may elect to exercise either the
option or the SAR, but not both, as to the same Share subject to the option and
the SAR, or the SAR may be granted independently of a related option. In either
event, the SAR shall be exercisable not more than ten (10) years after the date
of grant. SARs shall not be transferable, except that SARs may be exercised by
the executor, administrator or personal representative of the deceased grantee
within twelve (12) months of the death of the grantee and SARs may be exercised
during the individual's continued employment with the Company and for a period
not in excess of ninety (90) days following termination of employment due to
Disability, Normal Retirement or Early Retirement, to the extent that the SAR
was or became exercisable at the date of such termination.
c. Payment on Exercise. Upon exercise of a SAR, the grantee shall be paid
the excess of the then fair market value of the number of Shares to which the
SAR relates over the fair market value of such number of Shares at the date of
grant of the SAR or of the related option, as the case may be. Such excess shall
be paid in cash or in Shares having a fair market value equal to such excess or
in such combination thereof as the Committee shall determine.
8. RIGHT OF FIRST REFUSAL
If any Shares issued under the Plan are not readily tradable on an established
market on the date an owner intends to sell such Shares, such owner shall first
offer such Shares to the Company for purchase and the Company shall have thirty
(30) days to exercise its right to purchase such Shares. The owner shall give
written notice to the Company stating that he or she has a bona fide offer for
the purchase of such Shares, stating the number of Shares to be sold, the name
and address of the person(s) offering to purchase the Shares and the purchase
price and terms of payment of such sale. The owner shall be entitled to receive
the same purchase price offered by such person(s) offering to purchase such
Shares. Payment may be in a lump sum or, if the lump sum exceeds $100,000, in
substantially equal annual or more frequent installments over a period not
exceeding five (5) years in the discretion of the Committee. If a method of
deferred payments is selected, the unpaid balance shall earn interest at a rate
that is substantially equal to the rate at which the Company could borrow the
amount due and shall be secured by a pledge of the Shares purchased or such
other adequate security as agreed to by the Company and the owner. For purposes
of this Paragraph, Shares shall be considered not readily tradable on an
established market if such Shares are not publicly tradable or because such
Shares are subject to a trading limitation under any federal or state securities
law or regulation that would make such Shares less freely tradable than stock
not so restricted. For purposes of this Paragraph, an owner shall include any
person who acquires Shares from any other person and for any reason; including,
but not limited to, by gift, death or sale.
9. AMENDMENT OR TERMINATION OF THE PLAN
The Board may amend, suspend or terminate the Plan or any portion thereof at any
time, but (except as provided in Paragraph 13 hereof) no amendment shall be made
without approval of
-7-
<PAGE>
the stockholders of the Company which shall: (i) materially increase the
aggregate number of Shares with respect to which awards may be made under the
Plan; or (ii) change the class of persons eligible to participate in the Plan;
provided, however, that no such amendment, suspension or termination shall
impair the rights of any individual, without his or her consent, in any award
theretofore made pursuant to the Plan.
10. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the Board; provided
that, Incentive Options may be granted only if the Plan is approved by the
shareholders within twelve (12) months before or after the date of adoption.
Unless sooner terminated under the provisions of Paragraph 9, Shares and SARs
shall not be granted under the Plan after the expiration of ten (10) years from
the effective date of the Plan. However, awards may be exercisable after the end
of the term of the Plan.
11. RIGHTS AS SHAREHOLDER
Upon delivery of any Share to a director or employee, such director or employee
shall have all of the rights of a shareholder of the Company with respect to
such Share, including the right to vote such Share and to receive all dividends
or other distributions paid with respect to such Share.
12. MERGER OR CONSOLIDATION
In the event the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, the surviving corporation may
agree to exchange options and SARs issued under this Plan for options and SARs
(with the same aggregate option price) to acquire and participate in that number
of shares in the surviving corporation that have a fair market value equal to
the fair market value (determined on the date of such merger or consolidation)
of Shares that the grantee is entitled to acquire and participate in under this
Plan on the date of such merger or consolidation. In the event of a Change of
Control, options and SARs may become immediately and fully exercisable at the
discretion of the Committee.
13. CHANGES IN CAPITAL AND CORPORATE STRUCTURE
The aggregate number of Shares and interests awarded and which may be awarded
under the Plan shall be adjusted to reflect a change in the outstanding Shares
of the Company by reason of a recapitalization, reclassification,
reorganization, stock split, reverse stock split, combination of shares, stock
dividend or similar transaction. The adjustment shall be made in an equitable
manner which will cause the awards to remain unchanged as a result of the
applicable transaction.
14. SERVICE
An individual shall be considered to be in the service of the Company or a
Related Corporation as long as he or she remains a director, employee,
consultant or advisor of the Company or
-8-
<PAGE>
such Related Corporation. Nothing herein shall confer on any individual the
right to continued service with the Company or a Related Corporation or affect
the right of the Company or such Related Corporation to terminate such service.
15. WITHHOLDING OF TAX
To the extent the award, issuance or exercise of Shares or SARs results in the
receipt of compensation by a director, employee, consultant or advisor of the
Company is authorized to withhold from any other cash compensation then or
thereafter payable to such director, employee, consultant or advisor any tax
required to be withheld by reason of the receipt of the compensation.
Alternatively, the director, employee, consultant or advisor may tender a
personal check in the amount of tax required to be withheld.
16. DELIVERY AND REGISTRATION OF STOCK
The Company's obligation to deliver Shares with respect to an award shall, if
the Committee so requests, be conditioned upon the receipt of a representation
as to the investment intention of the individual to whom such Shares are to be
delivered, in such form as the Committee shall determine to be necessary or
advisable to comply with the provisions of the `33 Act or any other federal,
state or local securities legislation or regulation. It may be provided that any
representation requirement shall become inoperative upon a registration of the
Shares or other action eliminating the necessity of such representation under
securities legislation. The Company shall not be required to deliver any Shares
under the Plan prior to (i) the admission of such Shares to listing on any stock
exchange on which Shares may then be listed, and (ii) the completion of such
registration or other qualification of such Shares under any state or federal
law, rule or regulation, as the Committee shall determine to be necessary or
advisable
-9-
EXHIBIT 10.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made as of the 1st day of
May, 1999 by and between Joshua S. Kanter (the "Consultant"), and
sportstrac.com, inc. (the "Company").
WITNESSETH:
WHEREAS, the Company desires to obtain the benefit of the services
of the Consultant, and the Consultant desires to render such services on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Term: Subject to the provisions hereinafter set forth, the Company hereby
retains the Consultant and the Consultant hereby accepts its retention for
a term commencing as of the date hereof and terminating one (1) year from
the date hereof (the "Term").
2. Scope: During the Term, the Consultant shall consult with and render
advice to the Company concerning the business operations, organization,
management, strategic planning, marketing, products and services,
acquisitions, mergers and related financial requirements as the Company
may, from time to time, desire during the Term of this Agreement. All
final decisions with respect to areas as to which the Consultant has
rendered advice to the Company are decisions of the Company and the
Consultant shall have no liability or responsibility therefor. The
Consultant shall render such services to the best of its ability and shall
use its best efforts to promote the interests of the Company.
3. Compensation: As compensation for the services to be rendered by the
Consultant during the Term, the Company will pay, or cause to be paid, to
the Consultant, and the Consultant will accept, a fee of $4,000.00 per
month (the "Monthly Fee"). One-half (1/2) of the Monthly Fee shall be paid
to Consultant, in arrears, prior to the fifth (5th) day of each month
during the Term. The remaining one-half (1/2) of the Monthly Fee shall be
accrued by the Company and shall be payable only upon the mutual agreement
of the Company and Consultant. In addition to the Monthly Fee, the Company
shall cause to be issued to the Consultant a ten year option to purchase
up to 30,000 shares of the Company's common stock at an initial exercise
price of $1.00 per share which option shall be fully vested upon grant. It
is expressly understood that Consultant's fees earned hereunder are
separate and distinct from any fees paid to Consultant in his capacity as
a member of the board of directors of the Company. Inasmuch as the
Consultant is independent and not an employee of the Company, the
Consultant agrees to be responsible for all federal, state and local taxes
with respect to its consulting fees.
4. Expenses: The Consultant shall be entitled to reimbursement by the Company
for reasonable expenses actually incurred by it on its behalf in the
course of its retention by the Company,
<PAGE>
upon the presentation by the Consultant, from time to time, of an itemized
account of such expenditures, together with such vouchers and other
receipts as the Company may request.
5. Absence of Restrictions: The parties represent and warrant each to the
other that it is not a party to any agreement or contract to which there
is any restriction or limitation upon it entering into this Agreement or
performing the services called for by this Agreement.
6. Entire Agreement: This instrument contains the entire agreement of the
parties as to the subject matter hereof. It may not be changed orally, but
only by an Agreement in writing signed by the party against whom
enforcement of any waiver, change, modifications, extension or discharge
is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
/s/ Joshua S. Kanter sportstrac.com, inc.
- ---------------------------------
Joshua S. Kanter
By: /s/ Marc Silverman
--------------------------------
Marc Silverman, President
Page 2
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into as of the 1st day of May, 1999 by sportstrac.com, inc., a Delaware
corporation ("sportstrac.com") for the benefit of the Holders (as hereinafter
defined).
RECITALS
A. sportstrac.com has previously offered and sold shares of its common stock
pursuant to a certain Confidential Private Placement Memorandum dated
December 1, 1998 (as supplemented, amended and modified from time to time,
the "Memorandum").
B. Fairchild Financial Group, Inc. ("Fairchild") acted as the placement agent
under and pursuant to the Memorandum.
C. sportstrac.com has previously agreed with Fairchild to grant to the
Holders certain so-called piggyback registration rights as more
specifically set forth herein.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions.
a) "Holder" shall mean any person or entity who or which (i) acquired
shares of sportstrac.com common stock directly from sportstrac.com
pursuant to the Memorandum, and (ii) continues to own Registrable
Securities.
b) "Registrable Securities" shall mean all shares of sportstrac.com
common stock sold pursuant to the Memorandum, provided that, such
securities will cease to be Registrable Securities when they have
(a) been effectively registered under the Securities Act and
disposed of in accordance with a registration statement covering
them, (b) been sold to the public in accordance with Rule 144 (or
any similar provision then in force) under the Securities Act, or
(c) been otherwise transferred and new certificates for them not
bearing a Securities Act restrictive legend have been delivered by
sportstrac.com. Whenever any particular securities cease to be
Registrable Securities, the Holders thereof will be entitled to
receive from sportstrac.com, without expense, new securities of like
tenor not bearing a restrictive legend.
c) "Securities Act" shall mean the Securities Act of 1933, as amended.
2. Right to Piggyback. Except in the case of sportstrac.com's initial public
offering, whenever sportstrac.com proposes to register any of its
securities under the Securities Act and the registration form to be used
may be used for the registration of any Registrable Securities,
sportstrac.com will (i) give prompt written notice to the Holders of its
intention
<PAGE>
to effect such a registration (a "Piggyback Registration"), and (ii)
include in such Piggyback Registration all Registrable Securities in
accordance with the priorities set forth in paragraphs 3 and 4 below with
respect to which sportstrac.com has received written requests for
inclusion therein within fifteen (15) days after the receipt of
sportstrac.com's notice.
3. Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of sportstrac.com and the
managing underwriters advise sportstrac.com in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering,
sportstrac.com will include in such registration (i) first, the securities
that sportstrac.com proposes to sell, and (ii) second, the Registrable
Securities and all other securities requested to be included in such
Piggyback Registration pro rata among the Holders and the holders of such
other securities requested to be included in such Piggyback Registration
(as used in this paragraph 3, the "Other Holders") on the basis of the
number of shares which the Holders and the Other Holders propose to
register.
4. Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of
sportstrac.com's securities and the managing underwriters advise
sportstrac.com in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can
be sold in such offering, sportstrac.com will include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration, and (ii) second, the Registrable Securities
and other securities requested to be included in such registration pro
rata among the Holders and the holders of such other securities requested
to be included in such Piggyback Registration (as used in this paragraph
4, the "Other Holders") on the basis of the number of shares which the
Holders and the Other Holders propose to register.
5. Holders Obligations. Prior to being included in any underwritten Piggyback
Registration a Holder must:
a) Agree not to effect any public sale or distribution of equity
securities of sportstrac.com, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven
(7) days prior to and the ninety (90)-day period beginning on the
effective date of any such underwritten Piggyback Registration in
which Registrable Securities are included on behalf of the Holder,
unless the underwriters managing the registered public offering
otherwise agree and such sale or distribution otherwise complies
with Regulation ss.240.10b-6 of the Securities Exchange Act of 1934,
as amended.
b) Execute, for the benefit of sportstrac.com and the underwriter of
said Piggyback Registration, any such so-called "lock-up" agreement
as sportstrac.com or said underwriter may require. Any such lock-up
agreement shall provide, among other things, that the Holder will
not, without the underwriter's and sportstrac.com's prior written
consent (which consent may be withheld or denied in said
underwriter's and sportstrac.com's sole and absolute discretion),
offer for sale, sell, sell short, "short against the box", grant any
option, right or warrant with respect to, or otherwise
Page 2
<PAGE>
dispose of (or announce any intention to undertake any of the
foregoing) all or any of the Registrable Securities for the time
period set forth in said lock-up agreement.
c) Furnish to sportstrac.com in writing, within fifteen (15) days after
request therefor, such information and affidavits as sportstrac.com
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law,
indemnify sportstrac.com, its directors and officers, each person or
entity who controls sportstrac.com (within the meaning of the
Securities Act), against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement
of material fact contained or required to be contained in the
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or omission is contained or
required to be contained in any information or affidavit so
furnished or required to be so furnished in writing by such Holder.
6. MISCELLANEOUS.
a) NO INCONSISTENT AGREEMENTS. sportstrac.com will not hereafter enter
into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement.
b) HEADINGS. The headings of various paragraphs of this Agreement have
been inserted for reference only and shall not be a part of this
Agreement.
c) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid
under applicable law. If, however, any provision of this Agreement
shall be determined by a court of competent jurisdiction to be
invalid or unenforceable, such provisions shall be ineffective to
the extent of such invalidity or unenforceability, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
d) GOVERNING LAW. This Agreement has been negotiated and delivered at
Denver, Colorado, and shall be governed by and construed in
accordance with the internal laws of the State of Colorado without
reference to (i) its judicially or statutorily pronounced rules
regarding conflict of laws or choice of law; (ii) where any
instrument is executed or delivered; (iii) where any payment or
other performance required by any such instrument is made or
required to be made; (iv) where any breach of any provision of any
such instrument occurs, or any cause of action otherwise accrues;
(v) where any action or other proceeding is instituted or pending;
(vi) the nationality, citizenship, domicile, principal place of
business, or jurisdiction or organization or domestication of any
party; (vii) whether the laws of the form jurisdiction otherwise
would apply the laws of a jurisdiction other than the State of
Colorado; or (viii) any combination of the foregoing.
Page 3
<PAGE>
e) NOTICES. Any notice required or permitted to be given hereunder
shall be in writing, and shall be either (i) personally delivered,
(ii) sent by U.S. certified or registered mail, return receipt
requested, postage prepaid, or (iii) sent by Federal Express or
other reputable common carrier guaranteeing next business day
delivery, to the respective addresses of the parties set forth
below, or to such other place as any party hereto may by notice
given as provided herein designate for receipt of notices hereunder.
Any such notice shall be deemed given and effective upon receipt or
refusal of receipt thereof by the primary party to whom it is to be
sent.
If to sportstrac.com: sportstrac.com, inc.
Gunpark Drive
Suite 100
Boulder, Colorado 80301
with a required copy to: Barack Ferrazzano et al
West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Attention: Mr. Joshua S. Kanter
If to a Holder: To the last address shown on
sportstrac.com's stockholder records
f) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding among the parties with regard to the subject
matter hereof, and there are no other prior or contemporaneous
written or oral agreements, undertakings, promises, warranties, or
covenants respecting such subject matter not expressly set forth
herein.
g) COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any of which may contain the signatures of
less than all parties, and all of which together shall constitute a
single agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
sportstrac.com, inc., a Delaware corporation
By: /s/ Marc Silverman
--------------------------------------
Its: President
--------------------------------------
Page 4
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of SportsTrac Systems, Inc.
on Form SB-2 of our reports dated May 14, 1999, appearing in the Prospectus,
which is part of this Registration Statement, insofar as such report relates to
the financial statements and pro-forma financial statements of SportsTrac
Systems, Inc. We also consent to the reference to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
MORRISON, BROWN, ARGIZ & COMPANY
Miami, Florida
July 15, 1999
EXHIBIT 23.3
CONSENT OF APPRAISER
We consent to the reference to our appraisal and to the reference to our firm in
the Registration Statement on Form SB-2 under the Securities and Exchange Act of
1934 of SportsTrac Systems, Inc.
The Mentor Group
By: /s/ Franz Fleischly
-------------------------------------
Title: Managing Director
Geneva, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF SPORTSTRAC SYSTEMS, INC. AS OF APRIL 30, 1999 AND THE RELATED
STATEMENT OF OPERATIONS FOR THE PERIOD FROM MARCH 2, 1999 THROUGH APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-02-1999
<PERIOD-END> APR-30-1999
<CASH> 811
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 919
<PP&E> 70
<DEPRECIATION> 4
<TOTAL-ASSETS> 2,952
<CURRENT-LIABILITIES> 155
<BONDS> 819
0
0
<COMMON> 76
<OTHER-SE> 1,902
<TOTAL-LIABILITY-AND-EQUITY> 2,952
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> (221)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
