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Date Filed: July 15, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended MARCH 31, 1996 or
/ / Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (No fee required)
For the transition period from _________________________
THE TRACKER CORPORATION OF AMERICA
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
180 DUNDAS STREET WEST, SUITE 1502, TORONTO, ONTARIO, CANADA M5G 1Z8
(Address of Principal Executive Offices) (Zip Code)
(416) 595-6222
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 3 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of June 25, 1996, there were issued and outstanding 10,711,885
shares of the Registrant's Common Stock, par value $0.001 per share, and
5,209,762 shares of the Registrant's Class B Voting Common Stock, par value
$0.00000007 per share. Thus, in aggregate, as of June 25, 1996, there were
issued and outstanding 15,921,647 shares of the Registrant's common and Class B
voting shares, of which 11,268,015 shares of the Registrant's voting stock are
held by non-affiliates. The aggregate market value of the common and Class B
voting shares held by non-affiliates at such date was $6,535,448 (calculated on
the basis of $0.58 per share which was the average of the high bid and low asked
quotations for the Registrant's common stock on the OTC Bulletin Board on such
date).
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; (3) any prospectus filed pursuant to rule 424(b) or (c)
under the Securities Act of 1933 ("Securities Act"). The listed documents should
be clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
-- NONE --
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number and Caption Page
----
<S> <C>
PART I
1. Business 4
2. Properties 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 14
6. Selected Consolidated Financial Data 15
7. Management's Discussion and Analysis
of Financial Condition and Results of Operation 16
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III
10. Directors and Executive Officers of Registrant 23
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners
and Management 34
13. Certain Relationships and Related Transactions 37
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 42
15. Signatures 46
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 47
</TABLE>
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PART I
ITEM 1. BUSINESS
CORPORATE HISTORY
Tracker U.S. was originally incorporated in Utah in February 1986 under
the name Equitec Capital Corporation to serve as a vehicle to acquire or merge
with an operating company. It changed its name to E-Tech Capital Corporation in
March 1986 and to E-Tech, Incorporated in February 1987. In July 1992, Tracker
U.S. changed its state of incorporation from Utah to Nevada through a change in
domicile merger and, in connection therewith, changed its name to Ultra Capital
Corp. Prior to the Reorganization discussed in the next paragraph, Tracker U.S.
had been inactive for the preceding several years and had conducted no
significant operations or activities.
In July 1994, Tracker U.S. changed its state of incorporation from
Nevada to Delaware through a change in domicile merger and, in connection
therewith, changed its name to The Tracker Corporation of America and changed
its fiscal year end from December 31 to March 31. Also in July 1994, Tracker
U.S. succeeded to its current line of business through a reorganization (the
"Reorganization") in which it acquired all of the issued and outstanding voting
shares of The Tracker Corporation, an Ontario, Canada corporation ("Tracker
Canada"), in exchange for shares of Tracker U.S.'s capital stock representing,
at the time, approximately 90% of the total voting shares of Tracker U.S. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Reorganization."
Tracker Canada, which originated the Company's present line of
business, was incorporated in May 1993 and is now a wholly-owned subsidiary of
Tracker U.S. Prior to the Reorganization, Tracker Canada engaged in
organizational efforts, including the hiring of technical and management
personnel, focused on the research and development of advanced bar code and
laser scanning technology, entered into agreements or understandings with key
suppliers, prepared the business and marketing plan, programmed the software and
filed for patent and trademark protection in Canada and the United States.
BUSINESS OVERVIEW
The Company is a development stage company that has developed and has
begun to market, sell and operate a personal property identification and
recovery system which uses advanced bar code and laser scanning technology to
aid in the identification and recovery of lost or stolen personal possessions.
The Company launched its service in a limited test market in Toronto,
Canada in October 1994 and is slowly continuing to expand its service throughout
Canada. The Company recently began test marketing in the United States and has
begun to introduce its service to various communities in the United States. The
Company offers its services through diverse marketing channels such as joint
promotional partners, selected retailers, direct response, door-to-door
canvassing, telemarketers, network referral marketers, and direct selling
commercials. To facilitate its identification and recovery service, the Company
is attempting to organize a network of strategic partnerships and scanning
locations in high traffic public areas, including courier companies, law
enforcement agencies, lost and found departments and major tourist attractions.
There can be no assurance, however, that the Company will be able to establish
and maintain such a network or successfully market its service through such
channels. In addition, there can be no assurance that competitors will not enter
the market with similar or superior products and services. See "BUSINESS -
Competition". The continuation of the Canadian and United States roll-outs and
the development of future markets will depend on certain factors, including
demand for the Company's service and adequate financing and capital, over which
the Company may have little or no control.
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The Company's longer-term strategy is to develop an umbrella of
recovery services ranging from the current identification and recovery service
packages to laser etching the Company's symbology at point of manufacture. There
can be no assurance, however, that the Company will be able to implement its
longer-term strategy. See "BUSINESS - The Company's Solution".
In addition to recovery services, the Company has implemented and
offers a card registration service.
NEED FOR THE COMPANY'S PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM
Based upon information received by the Company's field operations team
in discussions with police organizations, transit/airport lost and founds and
entertainment theme parks, and upon information provided to the Company by
independent research companies, the Company believes that only a portion of the
population has taken steps to label or otherwise identify its belongings in the
past because of skepticism concerning the possibility of recovery and the value
of taking measures to increase the likelihood of recovery. In addition, the
Company believes that various existing methods of labeling or otherwise
identifying valuables have not achieved mass market acceptance, create concerns
for security conscious owners, or have been ineffective in returning valuables
to their owners, because: (a) identification is sometimes impossible because the
labels used did not have good adhesive qualities or were not able to endure wear
and tear; and (b) many owners record only the serial numbers of their
possessions, thus making it almost impossible for the police or a "Good
Samaritan" to trace the owners and return the possessions.
THE COMPANY'S SOLUTION
Based upon research conducted by the Company, management believes that
there is a need for a personal property identification and recovery service
that:
* makes it convenient for members to identify their possessions;
* enables members to identify their possessions without placing
personal information on the possessions;
* provides a better method of identification that will remain on
possessions and will remain intact;
* provides a system that will make the identification process
easy;
* makes the return of the possessions simple and cost effective;
* motivates more people who find valuables to be "Good
Samaritans" by returning the valuables to their rightful
owners; and
* thereby improves the chances that members will recover their
lost or stolen possessions.
The Company believes that its personal property identification and recovery
system meets these needs.
The Company plans to expand its recovery service by having
manufacturers of products such as computer chips, bicycles, power tools,
electronic equipment, cameras and auto parts apply the Company's coding, through
laser etching or other methods, directly onto or into products at the source of
manufacture. The Company believes that this expansion of its service will be
attractive to manufacturers because (i) it will add value to their products by
showing that they care about their customers and their customers' ability to
recover lost or stolen items and (ii) the coding will enhance the ability of
manufacturers and distributors to combat retail and warranty fraud. There can be
no assurance, however, that the Company will be able to successfully expand its
service in this fashion.
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THE COMPANY'S PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM
The Company provides a totally integrated personal property
identification and recovery system. The Company's strategy is to provide a
personal property identification and recovery system that does not merely
provide another method of identifying articles, but instead provides a simpler
method of identifying articles as well as a complete identification and recovery
service that will help return the articles back to members when the articles are
located. The Company's system is comprised of four key elements: (1) an
identification device; (2) a scanning network; (3) a computer database; and (4)
a pick up and delivery system.
THE IDENTIFICATION DEVICE. The Company offers its members special
encoded labels that are attached to the members' personal possessions and
contain ownership information in advanced bar code form (PDF 417 symbology). In
addition to the coding, a North American 1-800 number, a toll free worldwide
number, and the "call to action" phrase "IF FOUND CALL" are printed on the
labels. The Company believes that its labels provide a better method of
identification that will remain on possessions and will remain intact because
the labels: (i) use a 1.0 mil strong, permanent acrylic adhesive; (ii) have high
cohesion; (iii) have good resistance to heat, cold and ultraviolet rays; (iv)
have good quick-stick, peral and shear strength; (v) include a hard layer
coating on the exterior of the label for abrasion resistance and resistance to
solvents; and (vi) are read by PDF 417 technology which allows scanning even if
the labels are partially defaced. Eventually, the Company plans to expand its
service by having manufacturers of products such as computer chips, bicycles,
power tools, electronic equipment, cameras and auto parts apply such coding
directly onto or into products at the source of manufacture. There can be no
assurance, however, that the Company will be able to so expand its service.
THE SCANNING NETWORK. The Company has begun to locate the scanning
equipment required to scan the PDF 417 encoded labels at key points of recovery
in major metropolitan areas in North America. Scanning locations are expected to
include police stations, major transportation lost and founds, and certain high
traffic public facilities, such as theme parks and other tourist attraction
venues. In addition, arrangements have been made with a national courier company
in Canada, Purolator Courier Ltd. ("Purolator"), to maintain scanning locations.
As of June 25, 1996, the Company had placed scanners into 40 police stations and
other sites in Canada (16 in Ontario and 24 outside Ontario). Negotiations to
place scanners in the United States have begun. As of June 25, 1996, the Company
had letters of intent from more than 125 police and sheriff locations throughout
the United States to accept the Company's scanners, but had installed only 16
scanners in the United States pursuant to those letters of intent. There can be
no assurance that these letters of intent will result in additional placed
scanners.
THE COMPUTER DATABASE. After a member's lost item has been found and
then scanned, the labels are linked electronically to a central computer
database. Each label is registered to a particular member, and the computer
database contains membership information that permits the Company to identify
the member who owns a retrieved article. The Company's computer database
operates in a fast, multiple-user environment with easy-to-read and
easy-to-fill-in screens that accommodate multiple member service entries and
minimize member waiting times.
To ensure the security and integrity of its membership and recovery
code databases, the Company uses a combination of program design, technology and
Company policies. The integrity of the label/member relational link is critical
to the proper operation of the Company's personal property identification and
recovery system as it provides the facility through which the rightful owner of
a recovered item is identified, thus enabling the Company to return the
recovered property to the member. The Company uses five methods to establish a
secure member/label relation: (i) the Company policy of "zero tolerance" for
matching errors; (ii) the use of two secure servers, an NT member database
server and unix label database server; (iii) the use of FoxPro database software
across all platforms; (iv) the process of
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linking and verifying the member ID number and summary or "master" recovery code
during order assembly and fulfillment on two levels using a bar code scanner to
reduce the risk of human error; and (v) the use of a data entry screen with
mandatory prompts and a verification algorithm by the link established during
direct response activation.
The privacy and protection of the membership and recovery code
databases are secured through: (i) the Company policy not to release membership
information to any third party (other than police agencies); (ii) the use of
four levels of system redundancy -- tape backup, equipment replacement
inventory, off-site redundant system, and hard copy record keeping; and (iii)
the prevention of unauthorized server access through the use of (a) serialized,
password protected copy written proprietary software used by recovery terminals;
(b) a separate communication server for remote access; (c) distinct
communication and network protocols between the remote access server and the
membership database server; and (d) a system audit by an independent third party
which indicated that the membership database could not be accessed remotely and
that system integrity is high.
No security system or procedures are foolproof and many aspects of the
Company's operations involve some degree of security risk. Any material breach
of security could have a material adverse effect on the Company's business,
operating results and financial condition.
THE PICK UP AND DELIVERY SYSTEM. Once the label has been scanned and
the computer database has notified a Company service representative of the
location and owner of an article, a Company service representative then notifies
the member that his or her possession has been found and informs the member of
the item's location. The identified item may then be picked up by the member or,
upon the member's request, delivered to the member safely and promptly by
courier at the member's expense. The Company also has implemented and offers a
supplemental service called the "Tracker Plus" service, which covers the full
cost of returning possessions to members.
THE COMPANY'S CARD REGISTRATION SERVICE
In addition to the Company's personal property identification and
recovery system, the Company has implemented and is currently offering a card
registration service marketed through telemarketers. This service permits a
member, with a single toll free phone call, to: (i) cancel all of the member's
lost or stolen debit and credit cards; (ii) request replacement cards; (iii)
request a wire of emergency funds or replacement airline tickets (charged to the
member's credit card); (iv) request a change of address for all cards; and (v)
be covered on fraudulent charges on cards, after notifying the Company, in an
amount of up to $6,000. There can be no assurance that the Company will be able
to successfully market its card registration service or that the Company will be
able to compete successfully with companies offering similar services. See
"BUSINESS - Competition".
THE IACP ENDORSEMENT
The Company has secured the endorsement of the International
Association of Chiefs of Police (the "IACP"), a nonprofit organization of
approximately 14,000 members from the world's law enforcement community founded
in 1893. The Company's present license agreement with the IACP runs through
February 12, 1999.
Under the license agreement with the IACP, the Company has agreed to
pay the IACP the greater of $100,000 per year or a fee based on the total
number of subscribers of the Company calculated as follows:
Number of
Subscribers Per Capita Amount
----------- -----------------
0 - 1,000,000 $0.20 (20 cents)
1,000,001 - 5,000,000 $0.10 (10 cents)
More than 5,000,000 $0.075 (7.5 cents)
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THE COMPANY'S MARKETING STRATEGY
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company
is attempting to position itself as a credible and worthwhile, but not fail
safe, service that provides peace of mind (like insurance) and has a favorable
price-to-value relationship. The guiding principle behind the Company's
marketing strategy is that the Company is in the business of providing a totally
integrated personal property identification and recovery service, not merely
selling identification labels. The benefit of this service to the Company's
members is an increase in the probability of recovery of the members' lost and
stolen possessions. Thus, one key to the Company's long-term success will be the
effectiveness of the Company's personal property identification and recovery
system in helping to improve the existing low recovery rates. There can be no
assurance, however, that the Company will be able to achieve any particular
increase in these recovery rates for its members or to increase the overall
recovery rate for lost and stolen items in general. As of June 25, 1996, the
Company had received reports of 20 losses and had made 65 successful recoveries
of its members' personal possessions.
Another portion of the Company's marketing strategy is to pursue an
aggressive and preemptive North American roll-out of the Company's service. By
establishing a critical mass of labels in the marketplace, the Company hopes to
establish a de facto "identification" standard. The Company believes that this
can be done if (1) the initial distribution of labels is performed on a large
scale and done quickly and (2) the public is confident that the Company's
personal property identification and recovery system improves recovery rates and
therefore is of value to the consumer. The Company is attempting to establish
credibility and confidence in the marketplace by, among other things, utilizing
fusion marketing through the establishment of affiliations, alliances,
sponsorships, and promotional programs with well recognized, stable and
reputable organizations that have an interest in the protection, security, loss
prevention or insurance industries. There can be no assurance that the Company
will be able to establish a critical mass of labels and a broad network of
compatible scanners early enough to establish a leading and sustainable market
position or that the Company will be able to establish credibility and
confidence in the marketplace. Any inability by the Company to do so could have
a material adverse effect on the Company's business, operating results and
financial condition.
THE CARD REGISTRATION SERVICE. The Company is currently gaining a small
market share in the card registration industry. The Company believes that it not
only offers a competitive product, but also adds the extra feature of its
recovery services to the list of benefits offered to members of the card
registration service. See "BUSINESS - Competition".
THE COMPANY'S PLAN OF DISTRIBUTION
THE PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM. The Company
is approaching the distribution of subscriptions to its personal property
identification and recovery service in several ways.
First, the Company is selling its service at the "grass roots" level
via direct marketing. The Company anticipates that this direct marketing will be
through door-to-door canvassing in major urban high density locales, through
telemarketing, through direct mail solicitations, through multi-level marketing
or through a combination of more than one of these techniques. On April 8, 1996,
the Company entered into a marketing agreement with Tracker Referral Network
International, Inc. ("Tracker Referral"), a direct sales company in the business
of marketing through independent distributors using a proprietary marketing
plan. Under the agreement, Tracker Referral was appointed as the Company's
exclusive multi-level marketing company in the United States and was granted
non-exclusive rights to make direct commercial sales to third party businesses
in the United States, in both cases provided that certain sales quotas are
achieved. The
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agreement is for an initial term of five years and automatically renews for an
additional five years upon Tracker Referral's attainment of the specified sales
quotas. Additionally, the Company is obligated to provide the Company's
products and marketing materials to Tracker Referral at prices specified in the
agreement.
Second, the Company is beginning to establish promotional programs with
retailers of consumer specialty products that have a high potential for loss
such as home electronics, luggage, sporting goods, bicycles, cameras and higher
valued fashion items. For example, the Company has entered into an agreement
with Samsonite Canada, Inc. ("Samsonite") pursuant to which the Company will
supply to Samsonite 70,000 tags that Samsonite will affix to its merchandise to
provide Samsonite customers an explanation of the benefits of the Company's
personal property identification and recovery system and receive a free luggage
tag with a Tracker recovery label. The Company agreed to reimburse Samsonite for
the cost of affixing and shipping the tags and granted exclusivity to Samsonite
in the luggage industry in Canada through March 6, 1997. Upon achievement of
certain sales quotas, Samsonite may continue the promotion and its exclusivity
in Canada for an additional year.
The Company also has entered into an agreement with Sony of Canada Ltd.
("Sony") pursuant to which Sony store representatives will resell to Sony's
retail customers kits purchased from the Company by Sony. For the life of the
program, Sony will include a write up on the program in each of its monthly
newsletters. Sony also will include a feature on the program in a one-quarter
page advertisement within Sony's national brochure. Under the agreement, the
Company is obligated to provide to Sony a yearly commission equal to 20% of the
renewal revenues received by the Company related to kits sold by Sony for two
renewal terms. The agreement also provides the Company with the right, subject
to Sony's ability to cancel such right at any time, to promote the kits using
the name "Sony."
The Company also plans to establish promotional programs with other
selected national retail chains chosen for their potential to lend credibility
to the Company's service and for their reach in selected markets. The Company
believes its service adds value to retailers' products because the service shows
that the retailers care about their customers and their customers' ability to
recover lost or stolen items. To encourage such retailers to promote the
Company's service as a value added to the items purchased from the retailers,
the Company may provide retailers with commissions, limited time exclusivity
within a particular market, cooperative marketing and advertising funding, and
special timed promotions. In addition, the Company has entered into an agreement
with Merchant Partners Limited Partnership ("Merchant Partners") through which
Merchant Partners will actively introduce and promote the Company to, among
others, Montgomery Ward & Co. Incorporated ("Montgomery Ward"), ValueVision
International, Inc., and all subsidiaries of Montgomery Ward (collectively,
"Prospects"). There can be no assurance that the agreement with Merchant
Partners will result in any sales to the Prospects.
Third, although the Company does not anticipate that such programs will
constitute a large percentage of its sales, the Company is developing other
joint promotions (such as the arrangement with Samsonite described above), a
bulk sales program in which the Company would sell its service in bulk to, for
example, product manufacturers, and a fixed asset management program.
THE CARD REGISTRATION SERVICE. The Company is currently marketing
subscriptions in its card registration service through telemarketing. The
Company also plans to attempt to develop contractual relationships with credit
card issuers for sales of subscriptions to the issuers' cardholders. As of the
date of this Report, however, the Company had no contractual relationships with
any credit card issuers and there can be no assurance that it will be able to
develop any such relationships. See "BUSINESS - Competition".
On January 12, 1996, the Company entered into an independent contractor
agreement with Datatrack, Inc. ("Datatrack") pursuant to which Datatrack
conducts telemarketing efforts for the Company in the United States with respect
to the card registration service. Provided certain sales quotas are met, the
agreement runs for consecutive automatically renewing one year terms and
provides Datatrack a right of first refusal to provide services to the Company
if the business is expanded beyond the United States or if the card registration
service is sold by any method other than telemarketing. Under the agreement,
the Company is obligated to pay weekly commissions to Datatrack in an amount
equal to 50% of the net proceeds of final sales made by Datatrack.
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General. Although the Company has been generating cashflows of
approximately $150,000 per month since December 31, 1995, there can be no
assurance that the Company's plan of distribution will be successful. To achieve
significant revenues and profitable operations on a continuing basis, the
Company must successfully market, sell and distribute its personal property
identification and recovery system and its card registration service. There can
be no assurance that the Company will be able to do so. In addition, there can
be no assurance that any sales made by the Company will be at volumes and prices
sufficient for the Company to achieve significant revenues and profitable
operations,
The Company has no material backlog of orders because the Company fills
orders for its personal property identification and recovery system and card
registration service as received out of existing inventory.
The Company has granted, and may grant in the future, commissions and
other payments in connection with the distribution of its services. Although
such arrangements generally call for commissions or other payments only out of
sales actually made, certain arrangements call for certain guaranteed payments.
INTERNATIONAL OPERATIONS
The Company has operations in Canada and recently began test marketing
in the United States. In addition, the Company signed a letter agreement with
Amerasia International Holdings Limited ("Amerasia") pursuant to which Amerasia
will assist the Company in selling licenses for overseas markets. Under the
agreement, the Company is obligated to pay to Amerasia 8% of the exclusivity
fee(s) that the Company may receive in good funds from the licensees and 2% of
the ongoing paid sales generated by the Company from the licensees. There can be
no assurance, however, that this letter agreement will result in any sales of
foreign licenses.
International operations are subject to inherent risks, including
unexpected changes in regulatory requirements, currency exchange rates, tariffs
and other barriers, difficulties in staffing and managing foreign operations,
and potentially adverse tax consequences. There can be no assurance that these
factors will not have a material adverse impact on the Company's ability to
market its system on an international basis.
KEY SUPPLIERS
The Company's ability to market, sell and operate its personal property
identification and recovery system depends in part on its ability to procure the
necessary scanning equipment, labels and courier services. In this regard, the
Company has agreements or preliminary understandings in place with Symbol
Technologies Inc. ("Symbol"), Purolator Courier Inc. ("Purolator"), Mail Boxes
Etc. USA ("Mail Boxes Etc."), and DHL International Express Ltd. ("DHL").
Although the Company has preliminary understandings and agreements with
suppliers of such equipment, labels and services, the Company's agreements or
understandings tend to be informal, may be difficult to enforce, and may be
subject to termination. Accordingly, there can be no assurance that such
equipment, labels and services will be available when needed by the Company or
on terms favorable to the Company. Any unavailability of such equipment, labels
or services on terms favorable to the Company could prevent or delay the
development, marketing, sale, operation and effectiveness of the Company's
personal property identification and recovery system and could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company procures scanning equipment from Symbol. Symbol's PDF 417
is an advanced two-dimensional stacked symbology. In 1992, Symbol introduced the
PDF 1000 laser scanner, the first laser scanner to read this two-dimensional bar
code. The PDF 1000 laser scanner scans thirty times faster than current
conventional scanners, decodes in a rastering pattern across and down the PDF
417 symbol, reads
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both PDF 417 (two-dimensional codes) and linear bar codes (one-dimensional
codes), and is able to read poorly printed or damaged codes that have been
defaced up to 60%. The Company has a preliminary understanding with Symbol
whereby, subject to certain minimum annual purchase requirements, the Company
was granted the exclusive right to use, for personal property identification and
recovery purposes, Symbol's PDF 1000 laser scanners in Canada, the United States
and Europe through the end of calendar year 1996. Pursuant to its original
understanding with Symbol, the Company was required to purchase specified
numbers and dollar amounts of laser scanners during each of calendar years 1994,
1995 and 1996 in order to maintain its exclusive right. The Company did not meet
the minimum commitment level for 1994 or 1995. Although it does not have a
formal agreement to do so, the Company has been working in conjunction with
Symbol and has obtained an informal understanding to maintain the Company's
exclusive right provided the Company purchases at least 830 laser scanners
during calendar year 1996. There can be no assurance that the Company will be
able to meet this commitment. Further, the Company's understandings with Symbol
are informal, may be difficult to enforce, may be subject to early termination,
and are set to expire at the end of calendar year 1996 in any event. Thus, there
can be no assurance that the Company has an enforceable exclusive right to use,
for personal property identification and recovery purposes, Symbol's PDF 1000
laser scanners in these geographic areas.
In the United States, the Company has entered into an agreement with
Mail Boxes Etc. pursuant to which Mail Boxes Etc. will accept, pack and ship
items for the Company. For courier services, the Company uses Purolator in
Canada, uses UPS (through Mail Boxes Etc.) in the United States and has engaged
DHL for use in other parts of the world.
COMPETITION
The Company is aware of one company that is planning to introduce a
personal property identification and recovery system similar to the Company's.
The Company believes that this competitor may offer a service that provides
labels for identification purposes and an 800-number through which the finder
and the owner of an item may be put in contact with each other to make their own
arrangements for the return of the item to the owner. The Company believes that
this company will not offer an integrated system, like the Company's, which not
only provides a means of identifying an item, but also provides a complete
pick-up and delivery system.
The successful introduction of such services by this or any other
competitors, or the introduction by competitors of ineffective systems that
damage the credibility of the Company's industry as a whole, may have an adverse
effect on the Company's business, operating results and financial condition.
Moreover, the expansion of services or an increase in the level of competition
by this competitor, or the entry of new competitors, may have an adverse effect
on the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully with
existing or new competitors in the personal property identification and recovery
business.
With respect to the Company's card registration service, the Company's
market share is small and the market is highly competitive. Competitors include
Signature, CUC International, American Express and others. These competitors
have longer operating histories, benefit from substantially greater market
recognition and have substantially greater financial and marketing resources
than the Company. In addition, certain competitors have contractual
relationships with credit card issuers for sales of subscriptions to the
issuers' cardholders. Competition in this third party endorsed segment of the
credit card industry is intense. Factors affecting the outcome of competition
with respect to the third party endorsed segment include the quality and
reliability of the services to be offered, subscriber acquisition strategy and
expertise (which is highly dependent upon creative talents), operational
capability, reputation, financial stability of the company supplying the
services, the confidence of credit card issuers in the company's management, the
11
<PAGE> 12
compensation or fee paid to the credit card issuer and the security maintained
by the company with respect to the credit card and credit data of which it has
custody. As of the date hereof, the Company had no contractual relationships
with any credit card issuers and there can be no assurance that it will be able
to develop any such relationships. This may place the Company at a competitive
disadvantage with respect to its card registration service. In addition, an
increase in the level of competition from existing competitors, or the entry of
new competitors, may have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors in
the card registration business.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
The Company's success will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. The Company will rely on a combination of
trade secret and trademark laws, nondisclosure and other contractual agreements,
and technical measures to protect the confidential information, know-how and
proprietary rights relating to its personal property identification and recovery
system. The Company has filed for trademark and service mark protection in the
United States and Canada over the following: (i) "All is not lost(TM)"; (ii)
"Use it or lose it(TM)"; (iii) "Tracker: The Ultimate Warranty(TM)"; (iv)
"Tracker(TM)"; and (v) the Tracker logo. The application in the United States
for all marks except "Tracker(TM)" and the Tracker logo have been restricted to
services only as opposed to goods. In addition, the Company has filed an
international patent application pursuant to the Patent Cooperation Treaty for
its personal property identification and recovery system. There can be no
assurance, however, that these will mature into an issued patent or issued
trademarks or service marks or that any patent, trademark or service mark
obtained or licensed by the Company will be held valid and enforceable if
asserted by the Company against another party. In addition, the above
protections may not preclude competitors from developing a personal property
identification and recovery system that is competitive with the Company's
system. The Company does not believe that its products and trademarks and other
confidential and proprietary rights infringe upon the proprietary rights of
third parties. There can be no assurance, however, that third parties will not
assert infringement claims against the Company in the future. The successful
assertion of such claims would have a material adverse effect on the Company's
business, operating results and financial condition.
CAPITAL REQUIREMENTS
Although the Company has begun to achieve ongoing significant cashflows
(approximately $150,000 per month since December 31, 1995), the Company will
require additional capital in order to implement its business plan in the manner
contemplated. The acquisition of equipment, establishment of distribution
channels and conduct of a comprehensive marketing campaign are critical to the
Company's success. During the upcoming twelve months, the Company will require
additional debt or equity financing to conduct and complete such activities, as
it is anticipated that cashflows from revenues will not be sufficient to fund
the business plan until at least March 1997. In addition, there can be no
assurance that cashflows from revenues will be sufficient to fund the business
plan in the timeframe anticipated by the Company, if at all. Although no
assurance can be given that the necessary funding will be available to the
Company when needed, in sufficient amounts, on acceptable terms, management
believes it is likely that the Company will be able to obtain sufficient funding
to support its operations. Any failure to receive sufficient funding when
needed, in sufficient amounts, and on acceptable terms may prevent or delay the
marketing, sale and operation of the Company's personal property identification
and recovery system and its card registration service and may have an adverse
effect on the Company's business, operating results and financial condition. For
a complete discussion on capital requirements, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital
Requirements".
12
<PAGE> 13
EMPLOYEES
As of June 25, 1996, the Company employed a total of 34 persons,
including 2 in management, 5 in administration and accounting, 20 in operations
(14 of whom are part-time), 3 in sales and marketing and 4 in information
systems. The Company's future success will depend in large part on its ability
to attract, train and retain highly skilled and qualified personnel. There can
be no assurance that the Company will be successful in attracting, training and
retaining such personnel.
None of the Company's employees is represented by a labor union. The
Company has experienced no work stoppages, and the Company believes that its
relations with its employees are excellent.
GOVERNMENTAL REGULATIONS
Except as described in the next paragraph, the Company is not subject
to any governmental regulations other than those applicable to businesses
generally. Although the Company believes it is in compliance with all currently
applicable regulations, additional regulations could be enacted in the future
that could have an adverse effect on the Company's business, operating results
and financial condition.
The Company is marketing its services through the use of telemarketing
and may be subject to state regulation of telemarketing if it is deemed to be a
telemarketer within the meaning of such regulations. Although such regulations
vary greatly from state to state, they generally require telemarketers (as
defined in the regulations) to (i) apply for and obtain a state registration or
license before conducting telemarketing; (ii) disclose certain information to
consumers (for example, the identify of the telemarketer, information regarding
gifts or premiums that customers may be eligible to receive, and that sales made
as a result of a telephone solicitation are not final unless followed by a
signed contract); and/or (iii) file a surety bond or a certificate of deposit
with the state. Further, state regulations typically confer on consumers certain
rights, such as the right to cancel a sales agreement made with a telemarketer.
A telemarketer's failure to comply with the regulations may result in civil
and/or criminal liability.
In addition, the Company, through Tracker Referral pursuant to a
marketing agreement with Tracker Referral, is marketing its personal property
identification and recovery services through the use of multi-level marketing.
See "BUSINESS - The Company's Plan of Distribution - The Personal Property
Identification and Recovery System." Tracker Referral's multi-level marketing
system is or may be subject to or affected by extensive government regulation,
including but not limited to federal and state regulation (which varies from
state to state) of the offer and sale of business franchises, business
opportunities and securities. Various governmental agencies monitor multi-level
marketing activities. Although such multi-level marketing is performed by
Tracker Referral rather than by the Company, and although the Company believes
that Tracker Referral's multi-level system is in substantial compliance with
all currently applicable regulations, there can be no assurance that Tracker
Referral will be found to be in compliance with existing regulations as a
result of, among other things, misconduct by independent contractors over whom
Tracker Referral has limited control, the ambiguous nature of certain of the
regulations, and the considerable interpretive and enforcement discretion given
to regulators. Any assertion or determination that Tracker Referral or its
independent contractors are not in compliance with existing regulations, or the
enactment of additional regulations in the future, could have a material
adverse effect on the Company's business, operating results and financial
condition. Further, any failure to comply could cause Tracker Referral or the
Company to pay fines as well as to quit doing business in any state where it is
out of compliance.
The Company believes that compliance with federal, state or provincial,
and local provisions which have been enacted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will not have any material effect upon the Company's capital
expenditures, earnings and competitive position. The Company does not believe
that it will incur any material capital expenditures for environmental control
facilities for the remainder of its current fiscal year and the next fiscal
year.
ITEM 2. PROPERTIES
Tracker Canada currently leases office premises in Toronto and has
entered into a lease agreement for these premises. The term of the lease is ten
(10) years, which commenced on January 1, 1994. The lease requires payment of an
annual base rent of $22,000 for the first five years. Thereafter the lease calls
for rent at market value less twenty percent (20%). If the present lease cannot
be renewed or if Tracker Canada elects not to renew the lease, Tracker Canada
does not anticipate any difficulty in securing adequate new space.
The Company believes that suitable additional space will be available
as needed if future expansion is required.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware
of any pending or threatened litigation that would have a material adverse
effect upon the Company's business, operating results or financial condition.
The Company believes that the Securities and Exchange Commission may be
inquiring into trading in the Company's securities. The Company has no reason to
believe that it is the target of any such inquiry, or that any activity of the
Company would result in any liability under the federal securities laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
During the last quarter of the fiscal year ended March 31, 1996, no
matters were submitted to a vote of the security holders of the Company. The
Registrant held its annual general meeting of shareholders' for the year ended
March 31, 1995 on November 1, 1995 to vote on election of directors, a proposal
to approve the Amendment of the Certificate of the Corporation, a proposal to
approve the Amendment of the 1994 Stock Incentive Plan, and to ratify the
appointment of auditors. The matters that were voted upon at the annual general
meeting of shareholders' on November 1, 1995, and the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
as to each such matter, where applicable, are set forth in the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Votes For Votes Against Votes Abstention Broker Non-Votes
Withheld
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Election of Directors:
Wolfgang H. Kyser 8,170,178 - 17,746 - -
Ed J. Korhonen 8,170,178 - 17,746 - -
- -------------------------------------------------------------------------------------------------------------
2. Proposal to approve the
Amendment of the Certificate 8,174,094 13,830 - - -
of the Corporation
- -------------------------------------------------------------------------------------------------------------
3. Proposal to approve the
Amendment of the 1994 Stock 8,169,999 17,925 - - -
Incentive Plan
- -------------------------------------------------------------------------------------------------------------
4. Ratification of the
appointment of Price
Waterhouse as Independent 8,187,324 600 - - -
Auditors.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter
market, is quoted on the OTC Bulletin Board and is quoted in the "pink sheets"
under the symbol "TRKR". Quotations for the Company's common stock were first
listed on the OTC Bulletin Board on May 5, 1993. The market for the Company's
Common Stock must be characterized as extremely limited due to the low trading
volume and the small number of brokerage firms acting as market makers. As a
result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the value of, the Common Stock. No assurance can be given that
the over-the-counter market for the Company's securities will continue, that a
more active market will develop or that the prices in any such market will be
maintained at their current levels or increased.
The following table sets forth, for the periods indicated, the high and
low bid quotations for the Company's Common Stock as reported by the National
Quotation Bureau, Inc. These quotations reflect inter-dealer prices, without
adjustments for retail markups, markdowns or commissions, and do not represent
actual transactions.
14
<PAGE> 15
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1994 $ 8.5000 $ 1.7500
September 30, 1994 $ 9.5000 $ 4.0000
December 31, 1994 $ 6.7500 $ 5.0000
March 31, 1995 $ 5.3750 $ 0.5000
June 30, 1995 $ 3.0625 $ 0.6250
September 30, 1995 $ 2.8750 $ 0.3750
December 31, 1995 $ 2.6250 $ 0.5000
March 31, 1996 * $ 0.8125 $ 0.0625
</TABLE>
- ----------
* Excludes January 8, 1996, for which the National Quotation Bureau, Inc.
was unable to provide information.
On June 25, 1996, the high and low bid quotations for the Company's
Common Stock on the OTC Bulletin Board were $0.50 and $0.125, respectively. As
of June 25, 1996, there were 10,711,885 shares of Common Stock outstanding held
by approximately 320 holders of record, including broker-dealers and clearing
corporations holding common shares on behalf of their customers, and 5,209,762
shares of Class B Voting Common Stock outstanding held by Montreal Trust Company
of Canada, as Trustee, on behalf of approximately 100 holders of record.
The Company has never paid any cash dividends on its Common Stock and
does not intend to pay any cash dividends in the foreseeable future. Future
earnings, if any, will be retained to fund the development and growth of the
Company's business. In addition, Tracker U.S. has agreed not to declare and pay
cash dividends on its Common Stock unless it also causes Tracker Canada to
declare and pay cash dividends on the Tracker Canada Exchangeable Preference
Shares at the same time and in the same manner as the dividends paid on the
Common Stock of Tracker U.S. Tracker U.S. must provide Tracker Canada with
adequate funds, through a contribution to capital surplus, to pay such
dividends. Further, the Company's agreement with Saturn Investments, Inc.
provides that, without first obtaining the written consent of Saturn, certain
controlling stockholders must not vote for, and must exercise their best efforts
as significant shareholders to ensure that the Board of Directors does not
approve, the declaration or payment of any dividends or the making of any
distribution out of the ordinary course of the Company's business to the
shareholders of the Company. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - Investment by Saturn Investments, Inc."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented
below should be read in conjunction with the detailed information and financial
statements appearing elsewhere in this Report. The selected consolidated
financial data at March 31, 1994, 1995 and 1996 and for the years ended March
31, 1995 and 1996 and the period from inception at May 6, 1993 through March 31,
1994 have been derived from the audited consolidated financial statements of the
Company which have been audited by Price Waterhouse LLP, independent
accountants.
For accounting purposes, the Reorganization with Tracker Canada is
being treated as a reverse merger/acquisition with recapitalization of Tracker
Canada as the acquirer because, among other factors, the assets and operations
of Tracker Canada significantly exceeded those of Ultra Capital Corp. (Tracker
U.S.'s predecessor) and the shareholders of Tracker Canada control Tracker U.S.
after the Reorganization. The Reorganization is being treated for accounting and
financial reporting purposes as an issuance of shares by
15
<PAGE> 16
Tracker Canada. Thus, pro forma information is not presented as the
Reorganization is not a business combination. The historical consolidated
financial statements prior to July 12, 1994 are those of Tracker Canada. Tracker
Canada was organized on May 6, 1993. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS Reorganization" and Note 1 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
===========================================================================================================
Inception (May 6, 1993) Fiscal year ended Fiscal year ended
Consolidated Statement of Operations Data to March 31, 1994 March 31, 1995 March 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ -- $ 10,187 $ 106,522
- ---------------------------------------------------------------------------------------------------------
Net income (loss) (2,043,425) (5,068,583) (6,090,730)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) per share of common stock (0.38) (0.71) (0.57)
- ---------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data March 31, 1994 March 31, 1995 March 31, 1996
- ---------------------------------------------------------------------------------------------------------
Total assets $ 2,675,527 $ 1,669,452 $ 1,193,742
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 275,660 1,446,543* 2,393,631*
- ---------------------------------------------------------------------------------------------------------
Long-term debt -- -- --
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit) 2,399,867 222,909 (1,378,772)
- ---------------------------------------------------------------------------------------------------------
Working capital 2,195,349 (445,686) (1,728,529)
=========================================================================================================
</TABLE>
* Included in total current liabilities for March 31, 1996 are $1,460,000 of
convertible subordinated debentures and $115,241 of current deferred revenues
(as compared with $0 of convertible subordinated debentures and $10,998 of
deferred revenues for March 31, 1995).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The information contained in this Report which does not constitute
historical facts constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and is subject to the safe harbors
created thereby. Such forward-looking statements involve important risks and
uncertainties, including but not limited to: the risk that the Company may not
be able to continue as a going concern; the risk that the Company may not be
able to successfully market, sell and operate its personal property
identification and recovery system and its card registration service; the risk
that the Company may be unable to obtain additional financing or raise
additional capital when needed and in amounts and on terms favorable to the
Company; the risk that the Company will not be able to continue to implement
operational, financial and accounting systems, to attract and retain highly
qualified personnel to manage the future growth of the Company, and to expand,
train and manage its employee base; the risk that the Company may not be able to
procure the necessary scanning equipment, labels, courier services and scanning
locations when needed and on terms favorable to the Company; the risk that the
Company's intellectual property protection may not preclude competitors from
developing a personal property identification and recovery system that is
competitive with the Company's system and the risk that third parties may assert
infringement claims against the Company in the future; the risk that the Company
may not be able to compete with existing or new competitors; the risks inherent
in international operations; and other risks detailed in this Report and in the
Company's other filings with the Securities and Exchange Commission.
There can be no assurance that the forward-looking information
contained in this Report will prove to be accurate. The risks and uncertainties
discussed above increase the uncertainty inherent in such forward-looking
information. Accordingly, there may be differences between the actual results or
plans and
16
<PAGE> 17
the predicted results or plans. Actual results or plans may be materially
different than those indicated in the forward-looking information contained in
this Report.
OVERVIEW
Prior to the Reorganization effective July 12, 1994, Tracker U.S. (then
Ultra Capital Corp.) had been inactive for the preceding several years and had
conducted no significant operations or activities. Tracker Canada, which
originated the present line of business, had its inception on May 6, 1993.
During the period from inception to September 30, 1994, the Company was engaged
in organizational efforts, including the hiring of technical and management
personnel. During that time, the Company focused on the research and development
of advanced bar code and laser scanning technology, entered into agreements or
understandings with key suppliers, prepared the business and marketing plan,
programmed the software and filed for patent and trademark protection in Canada
and the United States. The Company has developed and begun to market, sell and
operate a personal property identification and recovery system and a card
registration service. The Company launched its personal property identification
and recovery service in a limited test market in Toronto, Canada in October 1994
and is slowly continuing to expand its service throughout Canada. The Company
recently began test marketing in the United States and has begun to introduce
its service to various communities in the United States. The Company offers its
services through diverse marketing channels such as joint promotional partners
(i.e., Samsonite Canada, Inc.), selected retailers (i.e., Sony of Canada Ltd.),
direct response (i.e., Donnelley Marketing, Inc. distribution of a 4.5 million
piece drop in May 1996), door-to-door canvassing (i.e., the Company's Child ID
representatives), telemarketers (i.e., Datatrack, Inc., Sitel Canada, Inc. and
PR Response Inc. selling the Company's new card registration), network referral
marketers (i.e., Tracker Referral Network International, Inc. selling home-based
business opportunities utilizing the Company's products and services), and
direct selling commercials.
Although the Company has been generating gross cash sales of
approximately $150,000 per month since December 31, 1995 and management believes
there is a substantial market for the Company's service, there can be no
assurance that sales made by the Company will be at volumes and prices
sufficient for the Company to achieve profitable operations. Further, two of the
Company's television test marketing efforts, both of which were through The L.L.
Knickerbocker Company, Inc. ("Knickerbocker"), resulted in substantially less
sales of the Company's personal property identification and recovery service
than the Company had anticipated. First, Knickerbocker in November 1995 launched
an unsuccessful television test marketing campaign that aired via broadcast
television in six markets in the United States and nationally via certain cable
television channels. Second, through Knickerbocker, the Company obtained a
purchase order from The Home Shopping Network ("HSN") for 2,500 personal
property protection ("Tracker Plus") kits. The Company's appearance on HSN
in June 1996 resulted in sales by HSN of only nine of the kits. The Company,
however, continues to offer its services through various marketing channels.
Management continues to believe that there is a substantial market for the
Company's services.
The Company has been unprofitable since inception. During the fiscal
year ended March 31, 1996, the Company incurred a net loss of $6,090,730 and, at
the end of such fiscal year, had an accumulated deficit of $13,202,738. The
Company expects to continue to incur losses through at least March 31, 1997.
From the date of inception (May 6, 1993) through March 31, 1996, the Company had
recognized revenues of only $116,709. Although the Company has begun to achieve
ongoing significant cash flows (approximately $150,000 per month since December
31, 1995), the Company will require additional capital in order to implement its
business plan in the manner contemplated. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to the
Company. While management believes there's a substantial market for the
Company's services, no assurance can be given that the Company will achieve any
significant take up rate and revenues therefrom.
17
<PAGE> 18
Historical financial information prior to the Reorganization effective
July 12, 1994 is that of Tracker Canada. Revenue for Company services is
recognized on a straight-line basis over the term of service offered. Amounts
received for which service has not yet been provided are recorded as deferred
revenue (presently 12 to 60 months). See Note 3 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH
31, 1995. During the fiscal year ended March 31, 1996, the Company had net
revenues of $106,522 as compared to $10,187 net revenues for the fiscal year
ended March 31, 1995. Cost of goods sold for the fiscal year ended March 31,
1996 was $40,230 as compared to $4,029 cost for the fiscal year ended March 31,
1995. This resulted in a gross profit of $66,292 for the fiscal year ended March
31, 1996 as compared to $6,158 gross profit for the fiscal year ended March 31,
1995.
During the fiscal year ended March 31, 1996, the Company incurred a net
loss of $6,090,730 as compared to a net loss of $5,068,583 for the fiscal year
ended March 31, 1995. These losses included expenses in the amount of $6,157,022
for the fiscal year ended March 31, 1996 as compared to $5,074,741 for the
fiscal year ended March 31, 1995. These expenses consisted of operational costs
of $592,880 for the fiscal year ended March 31, 1996 as compared to $687,681 for
the fiscal year ended March 31, 1995, information systems costs of $262,942 for
the fiscal year ended March 31, 1996 as compared to $465,827 for the fiscal year
ended March 31, 1995, sales and marketing costs of $1,031,041 for the fiscal
year ended March 31, 1996 as compared to $1,737,438 for the fiscal year ended
March 31, 1995, and general and administrative costs of $4,270,159 for the
fiscal year ended March 31, 1996 as compared to $2,183,795 for the fiscal year
ended March 31, 1995.
Included in the deficit for the fiscal year ended March 31, 1996 are
non-operating expenditures in the amount of (1) $1,059,447 for investor, media
and public relations services; (2) $138,000 for legal, audit and tax
professional costs associated with the Company entering the process of filing a
required registration statement with the Securities and Exchange Commission; (3)
$181,311 in interest expense incurred as a result of raising capital through
convertible debentures; (4) $1,078,785 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $912,273 associated with the development of the
Company's direct selling commercial through its contract with The L.L.
Knickerbocker Company and the costs associated with fees to cover its celebrity
spokesperson, Angie Dickinson, (b) $118,360 relating to the amortization of
rent, and (c) $48,152 associated with the administration services provided under
the Centry contract; (5) $85,646 relating to the amortization of deferred
charges on the commission incurred from the securing of investors for the
Company's Convertible Debentures; (6) $826,875 associated with the non-cash
outlay relating to the issuance of 630,000 shares of Common Stock, restricted as
to transferability, to certain officers of the Company; and (7) $429,061
associated with the non-cash outlay relating to the issuance of 770,000 shares
of Common Stock to six key employees and one director as payment in lieu of
prior accrued salaries and fees and as an advance of their salaries and fees
through September 30, 1996 (at March 31, 1996 the unamortized portion was
$340,939). All other major expense groups for the fiscal year ended March 31,
1996 have been reduced in comparison to the fiscal year ended March 31, 1995 and
the Company is continuing in its efforts to minimize its operating cash "burn"
rate.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH
31, 1994. During the fiscal year ended March 31, 1995, the Company had net
revenues of $10,187 as compared to no net revenues for the fiscal year ended
March 31, 1994. Cost of goods sold for the year ended March 31, 1995 was $4,029
as compared to no cost for the fiscal year ended March 31, 1994. This resulted
in a gross profit
18
<PAGE> 19
of $6,158 for the fiscal year ended March 31, 1995 as compared to no gross
profit for the fiscal year ended March 31, 1994.
During the fiscal year ended March 31, 1995, the Company incurred a net
loss of $5,068,583 as compared to a net loss of $2,043,425 for the fiscal year
ended March 31, 1994. These losses included developmental costs in the amount of
$5,074,741 for the fiscal year ended March 31, 1995 as compared to $2,043,425
for the fiscal year ended March 31, 1994. These developmental costs consisted of
operational costs of $687,681 for the fiscal year ended March 31, 1995 as
compared to $149,260 for the fiscal year ended March 31, 1994, information
systems costs of $465,827 for the fiscal year ended March 31, 1995 as compared
to $157,277 for the fiscal year ended March 31, 1994, sales and marketing costs
of $1,737,438 for the fiscal year ended March 31, 1995 as compared to $606,271
for the fiscal year ended March 31, 1994, and general and administrative costs
of $2,183,795 for the fiscal year ended March 31, 1995 as compared to $1,130,617
for the fiscal year ended March 31, 1994.
The results of operations stated above for the fiscal year ended March
31, 1994 are not for a full year, but instead are for the period from May 6,
1993 (the date of inception of Tracker Canada) through March 31, 1994.
Accordingly, results for the fiscal years ended March 31, 1995 and March 31,
1994 are not necessarily comparable.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through March 31, 1996, the Company has
received approximately $9,652,065 in net cash from financing activities, some of
which activities are noted below.
During the year ended March 31, 1996, the Company's net cash used in
operations was $3,501,557 as compared to $3,394,591 for the fiscal year ended
March 31, 1995. The cash used in operations was devoted primarily to funding the
development of identification and recovery systems and software, labels,
packaging, marketing and advertising materials and plans, the development of a
scanning network, and initial sales and promotional commitments leading and
subsequent to the Canadian market launch in October 1994 and the buildup for the
test launch into the United States.
As of March 31, 1996, the Company had total current assets of $665,102
as compared to $1,000,857 at March 31, 1995. Current assets consisted of cash in
the amount of $78,844 as of March 31, 1996 as compared to $107,091 at March 31,
1995, short-term investments in the amount of $221,190 as of March 31, 1996 as
compared to $0 at March 31, 1995, accounts receivable in the amount of $7,361 as
of March 31, 1996 as compared to $4,981 at March 31, 1995, prepaid expenses and
deposits in the amount of $168,345 as of March 31, 1996 as compared to $544,432
at March 31, 1995, inventories in the amount of $115,612 as of March 31, 1996 as
compared to $166,003 at March 31, 1995, a note receivable in the amount of $0 as
of March 31, 1996 as compared to $178,350 at March 31, 1995, and current
deferred charges in the amount of $73,750 as of March 31, 1996 as compared to $0
at March 31, 1995. As of March 31, 1996, the Company had amount due from
stockholders in the amount of $58,226 as of March 31, 1996 as compared to
$191,926 at March 31, 1995, long-term deferred charges totaling $66,234 as
compared to $0 at March 31, 1995, net fixed assets totaling $353,729 as compared
to $437,147 at March 31, 1995, and long-term investments in the amount of
$50,451 as compared to $39,522 at March 31, 1995. As of March 31, 1996, the
Company had liabilities of $2,393,631 as compared to $1,446,543 at March 31,
1995. Such liabilities consisted of accounts payable in the amount of $551,553
as of March 31, 1996 as compared to $1,101,424 at March 31, 1995, accrued
liabilities in the amount of $266,837 as of March 31, 1996 as compared to
$334,121 at March 31, 1995, current deferred revenues in the amount of $115,241
as of March 31, 1996 as compared to $10,998 at March 31, 1995, and convertible
subordinated debentures in the amount of
19
<PAGE> 20
$1,460,000 as of March 31, 1996 as compared to $0 at March 31, 1995. The Company
had long-term deferred revenues in the amount of $178,883 as of March 31, 1996
as compared to $0 at March 31, 1995.
As of March 31, 1996 and March 31, 1995, respectively, the Company had
accumulated deficits of $13,202,738 and $7,112,008. To date, the Company has
financed its research and development activities and operations primarily
through the private placement by Tracker U.S. of First Series Convertible
Debentures aggregating $1,000,000 from July to October, 1995, the private
placement by Tracker U.S. of Second Series Convertible Debentures aggregating
$1,189,529 through March, 1996, the sale by Tracker U.S. of a total of 1,810,000
shares of Common Stock in private placements, and the sale by Tracker U.S.
pursuant to Regulation S under the Securities Act of 850 shares of Preferred
Stock for $850,000 during April and May 1996.
The sales of the 1,810,000 shares of Common Stock are described in the
remainder of this paragraph. On September 16, 1994, Tracker U.S. issued,
pursuant to Regulation S under the Securities Act, 785,000 shares of Common
Stock (200,000 shares of which were returned to the Company) for total gross
proceeds to Tracker U.S. of $2,351,700, $955,000 of which was received by
Tracker U.S. in the form of cash and the remainder of which was in the form of
payments by the buyer of the shares of Common Stock to third parties in
cancellation of indebtedness owed by the Company to such third parties. On
February 9, 1995, Tracker U.S. issued to two separate overseas buyers, pursuant
to Regulation S, 275,000 shares of Common Stock for total proceeds to the
Company of $550,000. On March 15, 1995, Tracker U.S. issued 500,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase Common
Stock, for total gross proceeds to the Company of $350,000. On May 1, 1995,
Tracker U.S. issued 250,000 units, each unit consisting of one share of Common
Stock and one warrant to purchase Common Stock, for total gross proceeds to the
Company of $250,000. Tracker U.S. also issued 200,000 shares of Common Stock to
a buyer for $200,000, of which only $83,000 has been paid to Tracker U.S. by the
buyer. The Company has filed suit against the investor to attempt to collect the
remaining $117,000. There can be no assurance, however, that the Company will be
successful in the lawsuit or will be able to collect such amount.
In addition to the above described private placements, the Company
raised $619,166 during the year ended March 31, 1996 through the issuance of
849,803 of Tracker Canada's Exchangeable Preference Shares pursuant to
outstanding warrants to purchase such Exchangeable Preference Shares. Further,
the Company has issued shares to employees and third parties in lieu of
compensation to such employees or payments to such third parties for products or
services provided to the Company.
Tracker U.S., the parent corporation, is dependent upon the liquidity
of its subsidiary, Tracker Canada. The terms of the Exchangeable Preference
Shares restrict, under certain limited circumstances, Tracker Canada's ability
to fund the liquidity requirements of Tracker U.S. by paying dividends or making
other distributions to Tracker U.S. The Company believes that such terms have no
material impact on Tracker Canada's ability to fund the liquidity requirements
of Tracker U.S., however, because such terms prohibit Tracker Canada from making
a distribution to Tracker U.S. without the consent of the holders of the
Exchangeable Preference Shares only if all dividends accrued on the Exchangeable
Preference Shares have not been declared and paid in full or an amount set aside
for such payment. Because dividends on the Exchangeable Preference Shares do not
accrue unless and until a dividend is declared on the Tracker U.S. Common Stock,
and because Tracker U.S. has never paid any cash dividends on its Common Stock
and does not intend to pay any cash dividends in the foreseeable future (see
"MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS"), the
Company believes it is extremely unlikely that there will ever be any
prohibition on distributions by Tracker Canada to Tracker U.S.
20
<PAGE> 21
The Company has a short-term investment, recorded at the Company's
original cost of $221,190 (CDN $1.04 per share), in 288,462 shares of Stratcomm
Media Ltd. ("Stratcomm"). The Company was contractually prohibited from selling
such shares until May 30, 1996, and, therefore, could not recover its investment
in such shares until that date. Absent any unforeseen circumstance such as a
significant decline in the price of the Stratcomm stock, the Company intends to
sell the Stratcomm shares as soon as possible in order to improve its liquidity.
In July 1994 and January 1995, the Company entered into two separate
agreements to acquire interests in other companies, Page-Direct Ltd.
("Page-Direct") and C.E.M. Centry Electronic Monitoring Corporation ("Centry"),
which management believed at that time could enhance the Company's
infrastructure and marketing capabilities. As further described in "Aborted
Acquisitions; Acquisition Policy", these investments were subsequently aborted
without burdening the Company cashflows too significantly. Management is
focusing its attention on its core businesses as more fully described in the
section entitled "BUSINESS". Long-term and short-term cash needs of the Company
are more fully described in "Capital Requirements" below.
CAPITAL REQUIREMENTS
Although the Company has been generating gross cashflows of
approximately $150,000 per month since December 31, 1995, the Company will
require additional capital in order to continue the Canadian and United States
roll-outs and otherwise implement its business plan in the manner contemplated.
The acquisition of equipment, establishment of distribution channels and conduct
of a comprehensive marketing and advertising campaign are crucial to the
Company's success. The Company will require additional debt or equity funding to
conduct and complete such activities. No assurance can be given that the
necessary funding will be available to the Company when needed, in sufficient
amounts, on acceptable terms, or at all. If the Company does not receive
sufficient funding on acceptable terms, this could prevent or delay the
marketing, sale and operation of the Company's services and may have a material
adverse effect on the Company's business, operating results and financial
condition.
Management is attempting to obtain additional debt or equity funding
and trying to mitigate the need for such additional funding. One critical
element in management's plan to overcome the Company's present financial
condition is to raise additional debt or equity funding as needed through
private placements or other exempt offerings. For example, the Company raised
$2,189,529 in the second half of calendar 1995 and early calendar 1996 through
the sale of Convertible Debentures and raised $850,000 in April and May 1996
through the sale of Preferred Stock. Although no assurance can be given that the
necessary funding will be available to the Company when needed, in sufficient
amounts, on acceptable terms, or at all, management believes it is likely that
the Company will be able to obtain sufficient funding to support its operations
and its planned marketing and advertising campaign during the twelve months
following March 31, 1996.
A second critical element in management's plan to overcome the
Company's present financial condition is to mitigate the need for additional
outside funding. Management plans to do this in two ways. First, to minimize the
Company's cash requirements, the Company (i) has reduced staff to minimal safe
operating levels, (ii) has compensated certain members of senior management in
stock rather than cash, and (iii) has sought to control expenses. Second, and
particularly critical to the long-term viability of the Company, the Company
must decrease the need for additional outside funding by generating cash
internally, i.e., through sales. For a discussion of the Company's plans with
respect to increasing its sales, see "BUSINESS - The Company's Marketing
Strategy" and "BUSINESS - The Company's Plan of Distribution." Although no
assurance can be given that any sales made by the Company will be at volumes and
prices sufficient for the Company to achieve significant revenues, eliminate or
decrease the need for
21
<PAGE> 22
additional outside financing, and achieve profitable operations, management
believes it is likely that its marketing and sales efforts will, in the
long-term, result in sufficient sales to decrease the need for additional
outside financing and achieve profitable operations.
ABORTED ACQUISITIONS; ACQUISITION POLICY
On July 22, 1994, the Company entered into an agreement to acquire
Page-Direct, a wireless communications company. Prior to cancellation of the
agreement, the Company had issued 271,052 Tracker Canada Exchangeable Preference
Shares to the owner of Page-Direct for 46.2% of the outstanding shares of
Page-Direct and had advanced $178,350 to Page-Direct at an interest rate equal
to the Royal Bank of Canada prime rate plus 2%. In June 1995, the owner of
Page-Direct exercised his option under the agreement to re-acquire his interest
in Page-Direct, he returned the Exchangeable Preference Shares to the Company,
Page-Direct repaid the loan, and the agreement was canceled. The Company
recorded the exercise of the reversionary option by the owner of Page-Direct as
if it had occurred as of March 31, 1995.
By agreement dated January 31, 1995, the Company, through Tracker
Canada, committed to purchase up to 35.9% of the voting common shares of Centry
through a private placement of an 8% convertible debenture in the principal
amount of $405,260 (CDN $575,000). Tracker Canada advanced certain funds to
Centry under the debenture and agreed to provide, over nine months,
administrative services in the amount of $50,746 (CDN $72,000). In consideration
therefor, Tracker Canada received 510,275 common shares of Centry, which
represented approximately 9.87% of Centry's common shares then issued. Tracker
Canada also secured a voting trust and option agreement over 1,248,087 common
shares (approximately 17.2%) of Centry from the founders of Centry and prepaid
consulting services agreements in exchange for 78,005 Exchangeable Preference
Shares. The agreement contemplated that as payments were made under the
debenture, Tracker Canada would receive additional shares in Centry such that
upon payment of the entire convertible debenture, Tracker Canada would have
voting control of 53.1% of Centry.
Tracker Canada advanced $50,451 under the debenture to Centry and
received a further 122,727 common shares for a total of 633,002 common shares
representing approximately 11.96% of Centry's common shares issued.
Subsequently, the Company entered into agreements with Centry which released the
Company from its obligation to fund the balance under the debenture and which
provided that the Company would receive a 3% commission of total gross revenues
on any deal entered into by Centry with certain companies, while Tracker gave up
the voting trust and option agreement. The Company has satisfied all of its
administrative services obligations to Centry.
The above-described acquisitions were completely independent. To the
Company's knowledge, no common ownership or management exists between Centry and
Page-Direct and their principals or promoters. The Company's original purpose in
entering into the acquisitions was to acquire companies which the Company at the
time believed would assist it in advancing its longer-term strategy of locating
lost or stolen possessions through real-time asset tracking technologies. The
acquisitions were aborted because the Company was unable to generate sufficient
capital to support both its own marketing launch and the capital requirements of
the acquisitions. Since making these acquisitions, management has determined
that it is in the best interests of the Company to concentrate on the
development of its core business (i.e., its personal property identification and
recovery system and its card registration service) and to use its capital and
other resources to support the development of that business. Accordingly, the
Company has no present plans to make other acquisitions in the future.
22
<PAGE> 23
INFLATION; SEASONALITY
While inflation has not had a material impact on operating results and
management does not expect inflation to have a material impact on operating
results, there can be no assurance that the business of the Company, on a
consolidated basis, will not be affected by inflation in the future. While the
Company's business to date has not been seasonal and management does not expect
that its business will be seasonal in the future, there can be no assurance that
the business of the Company, on a consolidated basis, will not be seasonal in
the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements for the year ended
March 31, 1996 are included beginning at page 47.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-- None --
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers and directors as of June 25, 1996:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ ------- -----------------------------------------------------------------------
<S> <C> <C>
I. Bruce Lewis 55 Tracker U.S.: Chief Executive Officer, President and Chairman of the
Board of Directors; Tracker Canada: President, Chief Operating
Officer, Chief Executive Officer and Chairman of the Board of Directors
Mark J. Gertzbein 41 Tracker U.S.: Executive Vice President, Chief Financial Officer,
Secretary, Treasurer and Deputy Chairman of the Board of Directors;
Tracker Canada: Senior Vice President of Finance, Chief Financial
Officer, Secretary and Director
Ed J. Korhonen 60 Tracker U.S.: Director
Quincy A.S. McKean III 40 Tracker U.S.: Director
Charles J. Coronella 63 Tracker U.S.: Director
Wolfgang Kyser 49 Tracker U.S.: Director
Leonard Yakobovits 37 Tracker U.S.: Director
</TABLE>
I. BRUCE LEWIS has been the Chairman of the Board of Directors and
Chief Executive Officer of Tracker U.S. since June 30, 1994. Mr. Lewis has also
served Tracker U.S. as President since August 12, 1995. Mr. Lewis also serves
Tracker Canada as its Chief Executive Officer and Chairman of the Board of
Directors and has so served since May 1993. For the period from 1980 through May
1990, Mr. Lewis was President and a Director of Albert Berg Limited and its
subsidiaries. Albert Berg was petitioned into
23
<PAGE> 24
bankruptcy by its creditors in May 1990. From June 1988 to August 1990, he
served as the President of Cape Breton Chemical Corporation, a start-up PVC
flexible stretch wrap manufacturer. From May 1990 through May 1993, Mr. Lewis
was also a consultant to various companies in the areas of management and
acquisition financing.
MARK J. GERTZBEIN has been the Deputy Chairman of the Board of
Directors, the Executive Vice President and the Chief Financial Officer,
Secretary and Treasurer of Tracker U.S. since June 30, 1994. In addition, Mr.
Gertzbein has served as the Senior Vice President of Finance, the Chief
Financial Officer and Secretary of Tracker Canada since his appointment in July
1993 and as a Director of Tracker Canada since May 1993. From August 1984 to
June 1988, he served Albert Berg Limited as Vice President, Finance and
Administration. Albert Berg was petitioned into bankruptcy by its creditors in
May 1990. From June 1988 to August 1990, he served as the Chief Financial
Officer of Cape Breton Chemical Corporation, a start-up PVC flexible stretch
wrap manufacturer. From August 1990 to June 1991, Mr. Gertzbein consulted
various companies on administrative, accounting and tax related issues. From
June 1991 to July 1993, he served as the Corporate Controller for Summit
Cosmetics, Inc., an exclusive warehouse and distributor in the cosmetics and
fragrance industry.
ED J. KORHONEN has been a Director of Tracker U.S. since November 1,
1995. He was the President, Chief Operating Officer and a Director of Tracker
Canada from May 1993 through May 1996. Since resigning from his positions with
Tracker Canada in May 1996, Mr. Korhonen has been the Executive Vice President
of Eco Logic International Inc. Mr. Korhonen served Nabisco Brands Limited as
President of Confectionery, Industrial Products and Grocery Divisions from 1977
to 1988 and was President of Maple Leaf Flour Products from 1989 to 1991. He has
subsequently engaged in business consulting with a company, Ed Korhonen
Management, he founded in 1991 and was a partner in the management consulting
firm of Sniderman & Wood from January 1992 through May 1993. Mr. Korhonen also
consults with Tracker Canada.
QUINCY A.S. MCKEAN III has been a Director of Tracker U.S. since June
30, 1994. Mr. McKean was a director of Ultra Capital Corp., the predecessor
entity of the Company, from February 1992 to June 1994. From January 1987
through March 1990, Mr. McKean was employed by First Fidelity Bank, N.A./First
Fidelity Brokers of Newark, New Jersey, where he managed retail and
institutional accounts. From March 1990 through July 1994, he was a registered
representative with Kidder Peabody & Co. in New York City. Since July 1994, Mr.
McKean has been associated, as a registered representative, with the New York
securities firm of Mercer, Bokert, Buckman and Reid, Inc.
CHARLES J. CORONELLA has been a Director of Tracker U.S. since June 30,
1994. Since 1995, Mr. Coronella has been the Chairman and Chief Executive
Officer of Executive Service Corp. of Arizona. He has been a Director of Acordia
of Arizona since 1993 and has been its Chairman of the Board since 1996. Acordia
of Arizona is a wholly-owned subsidiary of Acordia, Inc., a New York Stock
Exchange listed company. Mr. Coronella served as President and Chief Executive
Officer of Chase Bank of Arizona from 1991 to 1994. Prior to that, Mr. Coronella
served as a consultant to The Chase Manhattan Corporation from 1990 to 1991.
From 1989 to 1990, Mr. Coronella was responsible for the management of Chase
Manhattan Bank's United States banking subsidiaries.
WOLFGANG H. KYSER has been a Director of Tracker U.S. since June 30,
1994. Since 1986 Mr. Kyser has been a principal and the Chief Executive Officer
of KHB Investments Corporation, which deals with foreign investments in Canada
and the United States. Since 1995, Mr. Kyser has been a principal and the
President of Kyser Pacific Group, which invests in and develops real estate.
From December 1987 through September 1992, he was the sole director of "687292",
an Ontario company which held real estate. In November 1992, "687292" was
petitioned into bankruptcy by its creditors. Mr. Kyser also is a Director of AEG
Sorting Systems, Inc. and Olympia Business Machines Ltd.
24
<PAGE> 25
LEONARD YAKOBOVITS has been a Director of Tracker U.S. since September
8, 1995. Since 1985 Mr. Yakobovits has been the President of Dezco Holding &
Trading, a North American clear-out specialist and distributor for branded
consumer products. Mr. Yakobovits also consults with Tracker Canada.
CLASSIFICATION OF BOARD OF DIRECTORS OF TRACKER U.S.
Tracker U.S.'s Certificate of Incorporation and Bylaws provide that the
Board of Directors is divided into three classes of directors, with the classes
to be as nearly equal in number as possible. The Certificate of Incorporation
and Bylaws provide that approximately one-third of the directors of Tracker U.S.
will continue to serve until the 1996 annual meeting of stockholders,
approximately one-third will continue to serve until the 1997 annual meeting of
stockholders, and approximately one-third will continue to serve until the 1998
annual meeting of stockholders. Messrs. McKean and Coronella have been elected
to serve until the 1996 Annual Meeting of Stockholders. Messrs. Lewis, Gertzbein
and Yakobovits have been elected or appointed to serve until the 1997 Annual
Meeting of Stockholders. Messrs. Kyser and Korhonen have been elected to serve
until the 1998 Annual Meeting of Stockholders.
The classification of the Board of Directors would make it more
difficult for stockholders to change the composition of the Board of Directors
and could discourage a third party from attempting to obtain control of Tracker
U.S..
COMMITTEES OF THE BOARD OF DIRECTORS OF TRACKER U.S.
The Executive Committee is comprised of I. Bruce Lewis and Mark J.
Gertzbein. The Audit Committee, which is comprised of Messrs. Coronella, McKean
and Gertzbein, is responsible for: (i) reviewing and recommending the engagement
each year of the Company's independent auditors; (ii) consulting with the
independent auditors on the adequacy of the Company's internal controls; (iii)
reviewing, with the independent auditors, the auditors' reports on the Company's
financial statements; and (iv) taking such other steps as the Audit Committee
deems necessary to carry out the normal functions of an audit committee. The
Ethics Committee is comprised of Wolfgang H. Kyser and Charles J. Coronella. The
Compensation Committee, which is comprised of Messrs. Coronella (Chairman) and
McKean, is responsible for: (i) determining the compensation of the Company's
senior officers; (ii) reviewing recommendations by management as to the
compensation of other officers and key personnel; and (iii) reviewing
management's succession program. Further, the Compensation Committee administers
the Company's 1994 Stock Incentive Plan (the "1994 Plan").
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of
the Board of Directors or a committee meeting and an annual retainer of $10,000.
On August 16, 1995, the Company issued 41,143 shares of Common Stock to Mr.
Coronella in lieu of $36,000 compensation owed to him for his service as a
director and 31,429 shares of Common Stock to Mr. McKean in lieu of $27,500
compensation owed to him for his service as a director. On September 28, 1995,
the Company issued 26,286 shares of Common Stock to Mr. Kyser in lieu of $23,000
compensation owed to him by the Company for his service as a director. On May 3,
1996, the Company issued 10,000 shares of Common Stock to each of Messrs.
Coronella and McKean in lieu of $4,500 compensation owed to him for his service
as a director, issued 5,556 shares of Common Stock to Mr. Kyser in lieu of
$2,500 compensation for his service as a director, and issued 8,889 shares of
Common Stock to Mr. Yakobovits in lieu of $4,000 for his service as a director.
In addition, non-
25
<PAGE> 26
employee directors are eligible to receive options to purchase shares of the
Company's Common Stock. See "EXECUTIVE COMPENSATION - 1994 Stock Incentive Plan
- - Stock Options for Non-employee Directors."
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth the compensation paid in cash or shares
or accrued by the Company to the Chief Executive Officer and to the three other
executive officers (the "Named Executive Officers") for services rendered in all
capacities to the Company during the fiscal year ended March 31, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Long-term
Annual Compensation
Fiscal Compensation Restricted
Name and Principal Position Year ------------ Stock
Ended Salary Award(s)
($) ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I. Bruce Lewis, Chief Executive Officer(1) 1996 175,000 --
- ------------------------------------------------------------------------------------------
I. Bruce Lewis, Chief Executive Officer(1) 1995 178,350 --
- ------------------------------------------------------------------------------------------
Mark J. Gertzbein, Chief Financial Officer 1996 175,000 413,437
& Executive Vice President(2)
- ------------------------------------------------------------------------------------------
Mark J. Gertzbein, Chief Financial Officer 1995 178,350 --
& Executive Vice President(2)
- ------------------------------------------------------------------------------------------
Gregg C. Johnson, President, Registrant(3) 1996 194,000 413,437
- ------------------------------------------------------------------------------------------
Gregg C. Johnson, President, Registrant(3) 1995 178,350 --
- ------------------------------------------------------------------------------------------
Edwin J. Korhonen, President,Tracker Canada(4) 1996 139,000 --
- ------------------------------------------------------------------------------------------
Edwin J. Korhonen, President,Tracker Canada 1995 142,680 --
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Through BL Consulting Services, Mr. Lewis contracted with Tracker
Canada for annual compensation in the amount of $178,350. In connection
with the Reorganization, the Company and Mr. Lewis entered into a
stockholder-approved employment agreement which originally provided for
base annual salary in the amount of $440,000. The Company had amended
the employment agreement with Mr. Lewis, and coordinated the consulting
agreement between Tracker Canada and BL Consulting Services, to
terminate the consulting agreement between Tracker Canada and BL
Consulting Services as of the effective date of the employment
agreement between the Company and Mr. Lewis, to provide for a total
compensation for the year ended March 31, 1995 in the amount of
$178,350 and to reduce the annual base salary under the employment
agreement between the Company and Mr. Lewis to $175,000 effective April
1, 1995. Mr. Lewis assumed the position of President of the Company
following Mr. Johnson's resignation.
(2) Through MJG Management Accounting Services Ltd., Mr. Gertzbein
contracted with Tracker Canada for annual compensation in the amount of
$178,350. In connection with the Reorganization, the Company and Mr.
Gertzbein entered into a stockholder-approved employment agreement
which originally provided for base annual salary in the amount of
$350,000. The Company had amended the employment agreement with Mr.
Gertzbein, and coordinated the consulting agreement between Tracker
Canada and MJG Management Accounting Services Ltd., to terminate the
consulting agreement between Tracker Canada and MJG Management
Accounting Services Ltd. as of the effective date of the employment
agreement between the Company and Mr. Gertzbein, to provide for a total
compensation for the year ended March 31, 1995 in the amount of
$178,350 and to reduce the annual base salary under the employment
agreement between the Company and Mr. Gertzbein to $175,000 effective
April 1, 1995. On April 11, 1995, the Compensation Committee granted
Mr. Gertzbein 315,000 shares of restricted stock under the 1994 Plan.
(3) Through Spire Consulting Group, Inc., Mr. Johnson contracted with
Tracker Canada for annual compensation in the amount of $178,350. In
connection with the Reorganization, the Company and Mr. Johnson entered
into a stockholder-approved employment agreement which originally
provided for base annual salary in the amount of $350,000. The Company
had amended the employment agreement with Mr. Johnson, and coordinated
the consulting agreement between Tracker Canada and Spire Consulting
Group, Inc., to terminate the consulting agreement between Tracker
Canada and Spire Consulting Group, Inc. as of the effective date of the
employment agreement between the Company and Mr. Johnson, to provide
for a total compensation for the year ended March 31, 1995 in the
amount of $178,350 and to reduce the annual base salary under the
employment agreement between the Company and Mr. Johnson to $175,000
effective April 1, 1995.
26
<PAGE> 27
On April 11, 1995, the Compensation Committee granted Mr. Johnson
315,000 shares of restricted stock under the Plan. Mr. Johnson resigned
from all positions with the Company effective August 12, 1995 but
continued to act as a consultant up to March 31, 1996. To date, the
Company has not paid any compensation to Mr. Johnson under the
Consulting Agreement.
(4) Mr. Korhonen resigned from all positions with Tracker Canada effective
as of May 17, 1996. However, he remains as a non-employee director with
Tracker U.S. and a consultant to Tracker Canada.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
On June 30, 1994, the Company, in connection with the Reorganization,
entered into stockholder approved employment agreements with Messrs. Lewis,
Gertzbein and Johnson. The agreements originally provided for base salaries at
annual rates equal to $440,000, $350,000 and $350,000, respectively. Effective
July 12, 1995, upon recommendation of the Compensation Committee of the Board of
Directors and with the agreement of each of Messrs. Lewis, Gertzbein and
Johnson, each of these employment agreements was amended to reduce annual base
salaries to $175,000, with a maximum relocation allowance of $25,000 and a
maximum car allowance of $10,000. In addition, each such person is eligible for
discretionary bonuses. Mr. Johnson has subsequently resigned from all positions
with the Company but continues to act as a consultant on the terms described
below up to March 31, 1996.
Pursuant to his employment agreement, Mr. Gertzbein is entitled to an
annual profit sharing bonus of 1.75% of the Company's consolidated pre-tax
profits in excess of $2,000,000; provided, however, that such bonus shall not
exceed $1,000,000 in any year. The agreement also provides for a one-time cash
bonus equal to one year's base salary upon the successful completion of certain
financing arrangements being pursued by the Company. The agreements for Messrs.
Lewis and Gertzbein have an initial term of three years with one year renewal
terms thereafter, and provide for the payment of a relocation allowance equal to
25% of each such executive's base salary and a car allowance of not more than
7.5% of each such executive's base salary, subject to the caps described above.
Each agreement provides that the executive is entitled to participate in any
stock option, stock purchase, annual bonus, pension, profit sharing, life
insurance and medical benefit plans and such other fringe benefits that may be
applicable to the Company's senior executive employees.
If either Mr. Lewis' or Mr. Gertzbein's employment is terminated by the
Company for cause (as defined in the executive's employment agreement) or during
the probationary period or by the executive for any reason (other than for good
reason (also as defined)), the executive will be entitled to his compensation
through the date of termination. If, prior to a Change of Control of the
Company, employment is terminated due to the executive's death or disability by
the Company other than for cause or by the executive for good reason, the
executive would be entitled to receive all compensation through the date of
termination, plus the continuation of base salary for the greater of one year or
the remainder of the term of the agreement. In addition, the Company will
maintain for Messrs. Lewis and Gertzbein for 12 months, or, if earlier, through
the date the executive obtains alternative employment, such executive's
participation in the employee benefit plans of the Company in which the
executive was eligible to participate immediately before termination, to the
extent permissible under such plans. The executive (or his legal representative)
also will have the right to exercise all vested stock options outstanding at the
termination date in accordance with the plans governing those options. The
Company will use its best efforts to remove the restrictions from any restricted
stock held by the executive at termination. If the executive's employment is
terminated after a Change of Control, either for good reason or without cause,
the executive will receive all the benefits he would have received for such a
termination prior to a Change of Control, and all unvested stock options held by
the executive shall become immediately fully vested. Payments made in
conjunction with a Change of Control are limited to an amount that will not
result in either a loss of the income tax deduction of the Company under
Internal Revenue Code Section 280G or an excise tax under Code Section 4999.
27
<PAGE> 28
The Company entered into a Consulting Agreement with Gregg C. Johnson,
which took effect upon his resignation as President of the Company on August 12,
1995. The Consulting Agreement provides for (a) a monthly fee of $10,000 until
March 31, 1996, (b) a commission of 10% on funds raised for the Company, (c) a
commission of 5% of net sales, if any, generated by the Company from certain
marketing arrangements up to July 12, 1997, to a maximum of $500,000, (d) a
commission of up to 8% of net sales generated from any other sales arrangement
introduced and negotiated (subject to Company prior approval) by Mr. Johnson, up
to July 12, 1998, (e) release by the Company from his $56,786 (as of August 31,
1995) indebtedness to the Company upon his returning to the Company 2,986 shares
of the Company's Common Stock, and (f) reimbursement of preapproved business
related expenses. To date, the Company has not paid any compensation to Mr.
Johnson under the Consulting Agreement and Mr. Johnson has not returned the
2,986 shares to the Company.
1994 STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the stockholders approved the 1994 Stock
Incentive Plan and on November 1, 1995 the stockholders approved certain
amendments to the 1994 Stock Incentive Plan (collectively, the "1994 Plan"). The
1994 Plan is intended to enable Tracker U.S. to attract, retain and motivate
officers, other key employees and non-employee directors of and consultants to
Tracker U.S. and to provide such persons with incentives and rewards for
superior performance more directly linked to profitability of the Company's
business and increases in shareholder value. Individuals are selected for
participation in the 1994 Plan by a Compensation Committee of the Board of
Directors (the "Committee"). An aggregate of 1,250,000 shares of Common Stock
have been reserved for issuance under the 1994 Plan, subject to adjustment in
the event of a stock split, stock dividend or other change in the Common Stock
or the capital structure of Tracker U.S. The total number of persons who may
receive grants under the 1994 Plan is estimated by Tracker U.S. to be
approximately twenty-one (21). The total number of non-employee directors who
may receive grants under the 1994 Plan is estimated to be approximately five
(5). In no event shall the aggregate number of shares covered by grants and
awards to any one individual participating in the 1994 Plan exceed 315,000
shares per year or 315,000 shares over the term of the 1994 Plan. Options that
expire unexercised may again be issued under the 1994 Plan subject to the
foregoing limitations. The 1994 Plan is administered by the Committee, which has
the exclusive power to determine whether to grant, and the terms and conditions
of any grant of, stock options, stock appreciation rights, performance shares,
performance units, restricted shares or deferred shares to participants and to
resolve all questions relating to the administration of the 1994 Plan. Members
of the Committee are not eligible to receive grants or awards under the 1994
Plan other than the automatic grants to non-employee directors. See "EXECUTIVE
COMPENSATION - 1994 Stock Incentive Plan - Stock Options for Non-Employee
Directors."
STOCK OPTIONS. Under the 1994 Plan, the Committee may grant options to
purchase shares of Common Stock, including options qualifying as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to employees as additional compensation for their services
to Tracker U.S. Options may be granted prior to termination of the 1994 Plan,
which will occur on the earlier of June 29, 2004 or the date on which all awards
available for issuance in the last year of the 1994 Plan will have been issued
or canceled. Options granted are subject to adjustment in the event of a stock
split, stock dividend or other change in the Common Stock or the capital
structure of Tracker U.S.
Options are exercisable over such period as determined by the
Committee, but no incentive stock option may be exercised after ten years from
the date of grant. However, the option term of incentive stock options which are
granted to holders of ten percent or more of Tracker U.S.'s combined voting
power shall not exceed five years from the date of grant. Options may be
exercisable in installments as determined by the Committee and are evidenced by
option agreements. No option may be transferred other than by will or by the
laws of descent and distribution. Options generally cannot be exercised after
the termination of
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<PAGE> 29
service, except under certain circumstances where such termination of service is
with the consent of the Committee or due to retirement, disability or death, in
which event the Committee (subject in any case to the foregoing limitation on
the maximum term of incentive stock options) may take any action it deems
equitable or in the best interests of Tracker U.S. The purchase price of Common
Stock subject to an incentive stock option cannot be less than 100% of the fair
market value of such Common Stock on the date of grant. The purchase price of
Common Stock subject to a nonqualified option may be less than, equal to or
greater than the fair market value of such Common Stock on the date of grant.
However, if any individual to whom an incentive stock option is granted is the
owner of stock (as determined under Section 424(d) of the Code) possessing 10%
or more of the total combined voting power of all classes of Stock of Tracker
U.S. or any subsidiary of Tracker U.S., then the purchase price per share shall
not be less than 110% of the fair market value of such Common Stock on the date
of grant. The option price may be due upon exercise of the option and may be
paid in cash, check, shares of Common Stock or other consideration acceptable to
the Committee (including restricted stock), or may be deferred through a sale
and remittance procedure with a Company-designated brokerage firm. Grants may
also provide for reload option rights upon the exercise of options, provided
that the term of any such reload option will not extend beyond the term of the
option originally exercised.
APPRECIATION RIGHTS. The Committee may also grant appreciation rights
in tandem with an option or freestanding and unrelated to an option. An
appreciation right entitles the participant to receive from Tracker U.S. an
amount payable in cash, shares of Common Stock or a combination of cash and
Common Stock equal to the positive difference between the fair market value of a
share of Common Stock on the date of exercise and the appreciation right grant
price, subject to any ceiling that may be imposed by the Committee. The
Committee may specify that a grant of an appreciation right: (i) is subject to a
waiting period before becoming exercisable; (ii) may be exercised within
specified periods of time; or (iii) may be exercised only upon the occurrence of
certain events, including a Change of Control (as defined below) or a Corporate
Transaction (as defined below). Additionally, with respect to a tandem
appreciation right, the Committee may provide that such right may be exercised
only when the related option, or similar right, is exercisable and the per share
market value of Tracker U.S.'s Common Stock on the date of exercise of the
appreciation right exceeds the exercise price of the related option. In no event
shall the aggregate appreciation rights granted to any one individual
participating in the 1994 Plan exceed 315,000 per year or 315,000 over the term
of the 1994 Plan.
PERFORMANCE SHARES AND PERFORMANCE UNITS. Performance shares and
performance units entitle the participant to receive cash or shares of Common
Stock, or a combination thereof, based upon the degree of achievement of
pre-established management objectives over a pre-established performance period
determined by the Committee in its discretion. The Committee may adjust the
management objectives, and the related minimum acceptable level of achievement,
after the date of grant to avoid distortion that would otherwise result from
events not related to the performance of the participants occurring after the
date of grant. Management objectives are fixed by the Committee in its
discretion on the basis of such criteria and to accomplish such objectives as
the Committee may select. The Committee has sole discretion to determine the
participants eligible for performance shares or performance units, the duration
of each performance period, the value of each performance unit and the number of
shares or units earned on the basis of Tracker U.S.'s performance relative to
the established objectives. At the end of the performance period, the Committee
will determine the number of performance shares and the number of performance
units which have been earned on the basis of Tracker U.S.'s performance in
relation to the performance objectives. Generally, a participant must be an
employee at the end of the performance period to receive the performance shares
or units; provided, however, that if the participant dies, retires, becomes
disabled or ceases to be an employee prior to the end of the period with the
Committee's consent, and in certain other circumstances, the Committee may take
any action it deems equitable or in the best interests of Tracker U.S.
29
<PAGE> 30
The number of performance units that are granted under the 1994 Plan shall not
exceed 750,000 in the aggregate over the term of the 1994 Plan.
RESTRICTED STOCK. A grant of restricted stock consists of a specified
number of shares of Common Stock that is contingently awarded in amounts
determined by the Committee and is subject to forfeiture to Tracker U.S. under
such conditions and at such times as the Committee may determine. An employee
who has been awarded restricted shares may vote and receive dividends, if any,
on restricted shares, but may not sell, assign, transfer, pledge or otherwise
encumber restricted shares during the restricted period. If a participant's
employment ceases prior to the end of the restricted period either with the
consent of Tracker U.S. or upon the occurrence of his death, disability or
retirement, the restrictions may lapse with respect to some portion or all of
the restricted stock as determined by the Committee. If a participant's
employment terminates prior to the end of the restricted period for any other
reason, all of the participant's restricted shares and restricted units are
forfeited. Grants may be without additional consideration or in consideration of
a payment by the participant that is less than the fair market value of the
restricted stock on the grant date. On April 11, 1995, Tracker U.S. granted
315,000 shares of restricted Common Stock to each of Gregg C. Johnson and Mark
J. Gertzbein pursuant to the 1994 Plan.
DEFERRED SHARES. The Committee may grant deferred shares to
participants under the 1994 Plan. Each grant or sale of deferred shares will be
subject to the fulfillment of conditions and a deferral period specified by the
Committee. During the deferral period, the participant will have no right to
transfer the award, no right of ownership in the deferred shares, and no right
to vote the deferred shares. The Committee, however, may authorize payment of
dividend equivalents on the deferred shares in cash or shares of Common Stock of
Tracker U.S. on a current, deferred or contingent basis. Grants may be made
without additional consideration or in consideration of a payment by the
participant that is less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the 1994 Plan as
originally adopted, each non-employee director elected or appointed on or after
the effective date of the 1994 Plan was, upon election, automatically granted an
option to purchase 10,000 shares of Common Stock. The price per share to be paid
at the time such option is exercised by a non-employee director equals 100% of
the fair market value of the Common Stock on the date of the grant of the
option. The 1994 Plan provides that options granted to non-employee directors
have a maximum term of ten years and are exercisable ratably in annual
installments over three years. The option price is due upon exercise of the
option and may be paid in cash, check, shares of Common Stock or other
consideration acceptable to the Committee or may be deferred through a sale and
remittance procedure with a Company-designated brokerage firm. All options
granted to a non-employee director who dies or becomes disabled while serving as
a director will become immediately and fully exercisable at the time of such
termination of service as a director, and all of his options may be exercised
within twelve months after such cessation of service. If a former non-employee
director should die within six months after cessation of Board service, the
personal representative of such former director's estate may exercise those
options in which the former director was vested at the time of death for a
twelve month period following the death of the former director. If a
non-employee director's service terminates for any reason other than those
stated above, options which are not then exercisable will be canceled and
options which are then exercisable may be exercised at any time within six
months after the date of such termination (but not later than the expiration
date of the respective options). All options granted to non-employee directors
vest immediately upon a "Change of Control" of Tracker U.S. (as defined below).
The portion of the 1994 Plan applicable to non-employee directors is designed to
be self-executing. Effective July 12, 1994, four such grants with an exercise
price of $7.95 per share were made to the four initial non-employee directors.
As a result of Mr. O'Malley's resignation after serving one year on the Board of
Directors, he holds vested options to purchase 3,333 shares; the balance of the
options were canceled. Effective
30
<PAGE> 31
September 8, 1995 a grant of options to purchase 10,000 shares at an exercise
price of $1.81 per share was made to a newly appointed director.
The amendments to the 1994 Plan approved by the stockholders on
November 1, 1995 provide for automatic stock option grants for 10,000 shares
each year to Eligible Directors (defined below). This Automatic Option Grant
Program would be limited to those persons who serve as non-employee members of
the Board and who do not beneficially own, directly or indirectly, or represent
any stockholder that beneficially owns, directly or indirectly, more than 5% of
the Company's Common Stock outstanding from time to time ("Eligible Directors").
Each individual who first becomes an Eligible Director after the date of
approval of the amendment to the 1994 Plan by the stockholders would
automatically be granted a nonqualified option to purchase 10,000 shares of
Common Stock. On every anniversary (after December 31, 1995) of his initial
election or appointment, each person who is at that time serving as an Eligible
Director would automatically be granted a nonqualified option to purchase 10,000
shares of Common Stock. There would be no limit on the number of automatic
option grants that any one Eligible Director may receive. In addition to the
amendment to the automatic grant provisions, the amendments to the 1994 Plan
provide that the exercise price of options granted pursuant to such automatic
grants would be reduced to a price 25% below the average trading price of the
Company's Common Stock for the 30 days immediately prior to the grant date.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The Committee has the
discretion to accelerate benefits under the 1994 Plan in the event of a Change
of Control or a Corporate Transaction.
Under the 1994 Plan, "Change of Control" is a change in ownership or
control of Tracker U.S. effected through either of the following transactions:
a. the direct or indirect acquisition by any person or related
group of persons (other than Tracker U.S. or a person that
directly or indirectly controls, is controlled by, or is under
common control with, Tracker U.S.) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than 50% of the total combined
voting power of the outstanding securities of Tracker U.S.
pursuant to a tender or exchange offer made directly to
Tracker U.S.'s stockholders or other transaction, in each case
which the Board does not recommend that Tracker U.S.'s
stockholders accept; or
b. a change in the composition of the Board over a period of 36
consecutive months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by
reason of one or more contested elections for Board
membership, to be comprised of individuals who either (i) have
been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as
Board members during such period by at least a majority of the
Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the
Board.
Under the 1994 Plan, "Corporate Transaction" means any of the following
stockholder-approved transactions to which Tracker U.S. is a party:
a. a merger or consolidation in which Tracker U.S. is not the
surviving entity, except for a transaction the principal
purpose of which is to change the state in which Tracker U.S.
is incorporated;
b. the sale, transfer or other disposition of all or
substantially all of the assets of Tracker U.S. in complete
liquidation or dissolution of Tracker U.S.; or
31
<PAGE> 32
c. any reverse merger in which Tracker U.S. is the surviving
entity but in which securities possessing more than 50% of the
total combined voting power of the outstanding securities of
Tracker U.S. are transferred to a person or persons different
from the persons holding those securities immediately prior to
such merger.
TERMINATION, AMENDMENT AND ACCELERATION. The Board of Directors of
Tracker U.S. may amend, suspend or terminate the 1994 Plan at any time, but no
such action may in any way impair the rights of recipients under any options or
shares of restricted stock previously granted or any agreement executed under
the 1994 Plan. Further, no amendment may increase the total number of shares,
appreciation rights or performance units (or shares) which may be issued under
the 1994 Plan, reduce the minimum purchase price for shares subject to options,
extend the maximum period during which options may be exercised or change the
employees eligible to participate in the plan without the approval of the
holders of a majority of the shares of Tracker U.S. Common Stock present or
represented at a meeting duly called and held for such purpose; provided,
however, that such shareholder approval is required only to the extent that Rule
16b-3, as promulgated by the Securities and Exchange Commission under the
Exchange Act, requires the approval of the stockholders of a company of any
material amendment to any employee benefit plan of such company.
LOAN PROGRAM. The Committee may, in its discretion, permit Tracker U.S.
to finance the exercise of Company options and the payment of related taxes by
means of loans to the participants. The Committee may also allow participants to
pay the exercise price or purchase price in installments or may authorize the
payment of a cash bonus to allow participants to exercise options and rights
under the 1994 Plan. Each loan will be evidenced by a promissory note to be
entered into by the participant in favor of Tracker U.S. Each loan, including
extensions, will be on such terms as the Committee determines. Loans or
installment payments may be authorized with or without security or collateral.
The maximum credit available will be the exercise or purchase price of the
acquired shares (less the par value of the shares) plus any related federal,
state and local income and employment tax liability, subject to any applicable
margin borrowing limitation. The Committee also has the authority to forgive all
or a portion of the borrower's indebtedness in circumstances it deems
appropriate; provided, however, that the Committee may not forgive that portion
of a loan owed to cover par value.
REGISTRATION. Tracker U.S. plans to file a registration statement to
register the shares of Common Stock reserved for issuance under the 1994 Plan.
Shares issued upon exercise of outstanding stock options and sold after the
effective date of any such registration statement generally will be available
for resale in the public market.
As of June 25, 1996, no grants had been made under the 1994 Plan, other
than the automatic option grants to the non-employee directors and the grants of
315,000 shares of restricted stock to each of Messrs. Johnson and Gertzbein
discussed above.
CASH BONUS ARRANGEMENT
Tracker U.S.'s Discretionary Cash Bonus Arrangement (the "Cash Bonus
Arrangement") is designed to provide a mechanism to allow specified employees to
share in the profits of Tracker U.S. Employees of Tracker U.S. who customarily
work at least 35 hours per week and have been employed for at least 12
consecutive months, and have been designated for participation by the
Compensation Committee are eligible to receive cash bonuses under the Cash Bonus
Arrangement. Tracker U.S. estimates that approximately twenty-one (21) employees
are eligible to participate in the Cash Bonus Arrangement. Bonuses may be based
on merit, production or other individualized criteria, or may be paid based on
each Eligible Employee's (as defined in the 1994 Plan) assigned portion of a
bonus pool established in the
32
<PAGE> 33
discretion of the Compensation Committee. If bonuses are to be paid based on a
bonus pool, the Compensation Committee will determine the criteria upon which
the amount of each year's bonus pool will be based prior to the beginning of any
such year. The Committee may also divide Eligible Employees into classes and may
designate the portion of any bonus pool to be assigned to each such class. Any
bonuses will be paid not later than 45 days after the end of the fiscal year for
which the bonus is awarded. No bonuses have been paid yet under the Cash Bonus
Arrangement.
1995 STOCK WAGE AND FEE PAYMENT PLAN
The Company's Board of Directors adopted a 1995 Stock Wage and Fee
Payment Agreement (the "Wage Plan") on September 28, 1995. The purpose of the
Wage Plan is to retain and motivate participants in the Wage Plan and to provide
them with incentives and rewards more directly linked to the profitability of
the Company's business and increases in stockholder value.
Six employees and one director of the Company were eligible to, and
elected to, participate in the Plan. Under the Plan, the participants agreed to
receive an aggregate of 770,000 shares of the Company's Common Stock in lieu of
certain wage payments or fees that the participants had earned before October 1,
1995 but had not yet been paid and in lieu of all of their respective wage
payments or fees for the period from October 1, 1995 through September 30, 1996.
The number of shares granted to the participants was based upon a price per
share of Common Stock of $1.00. The participants elected to receive the
following numbers of shares:
<TABLE>
<CAPTION>
Name of Participant Number of Shares Dollar Value
- ------------------- ---------------- ------------
<S> <C> <C>
I. Bruce Lewis 192,400 $192,400
Mark J. Gertzbein 215,100 215,100
Ed J. Korhonen 152,000 152,000
Christopher H. Creed 100,500 100,500
Jonathan B. Lewis 40,000 40,000
Gigi M. Lipton 60,000 60,000
Leonard Yakobovits 10,000 10,000
------- --------
Total 770,000 $770,000
======= ========
</TABLE>
No fees, commissions or other charges will be paid by the participants
in connection with the grants of shares to such persons under the Wage Plan. The
Wage Plan may not be altered, amended or modified except by written agreement
signed by the participants, Tracker U.S. and Tracker Canada. As the Wage Plan is
a contract among the participants, Tracker U.S. and Tracker Canada relating to a
designated issuance of shares in lieu of wages or fees and is not an ongoing
employee benefits program pursuant to which grants or awards can be made on an
ongoing basis or pursuant to which plan funds are invested for the benefit of
participants, there is no separate administration of the Wage Plan. The Company
has registered the shares issued under the Wage Plan under the Securities Act of
1933, as amended.
PROPOSED 1996 STOCK WAGE PLAN
The Company is considering adopting a Stock Wage Payment Agreement for
the period October 1, 1996 - September 30, 1997 (the "1996 Wage Plan") under
which stock would be granted to certain employees, including employees who are
Affiliates, in lieu of all or part of their cash compensation. The terms are
still being developed. An important objective is the retention of employees. In
addition, as an incentive for employees to accept stock as wages instead of
cash, the number of shares granted to some participants in lieu of cash may be
based on a price per share of less than fair market value. For others, the
number of shares granted may be based on the fair market value of the stock and,
for those who held all such shares for a set period, the Company would guaranty
that the future value of the stock would be at a premium of the fair market
value at the time of grant (i.e., that the value of the stock would then be
greater than the cash wages that were forgone).
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<PAGE> 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of June 25, 1996 by (i) each person
known to the Company to own beneficially more than 5% of the total voting stock
of the Company (i.e., Common Stock and Class B Voting Common Stock), (ii) the
Chief Executive Officer and the other executive officers of the Company named in
the Summary Compensation Table, (iii) each of the Company's directors, and (iv)
all directors and officers of the Company as a group. Except as otherwise
indicated below, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their shares of Common Stock,
except to the extent that authority is shared by spouses under applicable law.
The Common Stock and the Class B Voting Common Stock, from which the holders of
Exchangeable Preference Shares acquire their voting rights, are the only
outstanding classes of equity securities of Tracker U.S. As of June 25, 1996,
there were 320 record holders of Common Stock and 100 record holders of Class B
Voting Common Stock.
<TABLE>
<CAPTION>
Number of Number of Shares
Beneficial Owner Shares of of Class B Voting Total Percentage of
Common Stock Common Stock Number of Total Number
Shares of Shares(1)
- -------------------------------- ------------ ----------------- --------- -------------
<S> <C> <C> <C> <C>
I. Bruce Lewis(2)(3) ........... 177,500 3,408,532 3,586,032 14.8%
180 Dundas Street West,
Suite 1502, Toronto, Ontario,
Canada M5G 1Z8
Mark J. Gertzbein(2) ........... 786,278 0 786,278 3.2%
180 Dundas Street West,
Suite 1502, Toronto, Ontario,
Canada M5G 1Z8
Ed J. Korhonen(2) .............. 101,750 142,864 244,614 1.0%
2206 Pineneedle Row
Mississauga, Ontario,
Canada L5C-1V3
Quincy A.S. McKean III (9) ..... 46,082 0 46,082 *
75 West Front Street
Red Bank, New Jersey 07701
Charles J. Coronella (9) ....... 54,476 0 54,476 *
4521 East Via Los Caballos
Phoenix, Arizona 85028
Leonard Yakobovits(2) .......... 8,889 100 8,989 *
P. O. Box 243
Concord, Ontario, Canada
L4K 1B4
Wolfgang H. Kyser(4) (9) ....... 35,175 2,858 38,033 *
121 Richmond Street West,
#1000
Toronto, Ontario, Canada
M5H 2K1
Gregg C. Johnson(2)(5) ......... 585,844 28,572 614,416 2.5%
13470 North 85th Place
Scottsdale, Arizona 85260
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Number of Number of Shares
Beneficial Owner Shares of of Class B Voting Total Percentage of
Common Stock Common Stock Number of Total Number
Shares of Shares(1)
- -------------------------------- ------------ ----------------- --------- -------------
<S> <C> <C> <C> <C>
Saturn Investments, Inc.(2)(6) . 3,903,797 1,052,564 4,956,361 20.4%
c/o Anthony Bonanno, Esq
Gibson, Dunn & Crutcher
1050 Connecticut Ave. N.W
Washington, D.C. 20036-5306
Ismail A. Abudawood(2)(7)(10) .. 4,132,369 1,052,564 5,184,933 21.4%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Ayman I. Abudawood(2)(7) ....... 3,903,797 1,073,264 4,977,061 20.5%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Osama I. Abudawood(2)(7) ....... 3,903,797 1,125,564 5,029,361 20.7%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Anas I. Abudawood(2)(7) ........ 3,903,797 1,067,264 4,971,061 20.5%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Executive officers and ......... 1,210,150 3,003,781 4,213,931 17.4%
directors
as a group including those
named
above (seven persons)(2)(8)
</TABLE>
- ----------------------
* Less than 1% of the outstanding Common Stock.
(1) Percentage of ownership is based upon 24,257,855 shares of Common Stock
beneficially owned on June 25, 1996, including 10,711,885 shares of
Common Stock, 5,209,762 shares of Class B Voting Common Stock ("Voting
Stock"), currently exercisable warrants for 15,577 Exchangeable
Preference Shares, currently exercisable warrants to purchase 750,000
shares of Common Stock, currently exercisable options to purchase 9,999
shares of Common Stock, 1,688,959 shares reserved for issuance under
the Company's currently convertible Convertible Debentures (based on
the placement of such debentures through June 25, 1996), which may be
converted commencing October 1, 1995, 3,903,797 shares issuable to
Saturn Investments, Inc. ("Saturn") under a currently exercisable
option to acquire 25%, post-exercise issuance, of the outstanding
voting equity of the Company, 867,876 shares reserved for issuance to
holders of the Company's presently convertible Convertible Preferred
Stock (based on the conversion price in effect on June 25, 1996),
200,000 shares reserved for issuance under the Toda Option and 900,000
shares reserved for issuance under the Merchant Partners Option. The
Company believes that the option to purchase the 3,903,797 shares
terminates as of the date the registration statement, filed November
22, 1995, as amended, is declared effective. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Investment by Saturn Investments, Inc."
35
<PAGE> 36
(2) Pursuant to that certain Exchange Agency and Trust Agreement dated July
12, 1994 among the Company, Tracker Canada and Montreal Trust Company
("Trustee"), the Trustee holds, for the benefit of the holders of
Exchangeable Preference Shares, that number of shares of Voting Stock
as are held by the owners of Exchangeable Preference Shares. By
contractual agreement, prior to the exchange of the Exchangeable
Preference Shares, holders of Exchangeable Preference Shares receive
their voting rights from the Voting Stock held by the Trustee.
(3) Includes 1,236,436 Exchangeable Preference Shares over which Mr. Lewis
has voting power pursuant to agreements with Mr. Gertzbein, Mr. Johnson
and Mr. Jonathan Lewis, Mr. Lewis' son.
(4) Includes 2,858 shares of Class B Voting Common Stock held by Kyser
Investment Corporation, a company of which Mr. Kyser is the sole
stockholder.
(5) Includes 28,572 Exchangeable Preference Shares held by the Trustee for
the benefit of Spire Consulting Group, Inc.
(6) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn.
Pursuant to an option agreement dated March 14, 1994, Saturn has the
right to acquire that number of shares of the Company's Common Stock
which would provide Saturn (when combined with shares held by Saturn at
the time of exercise) with 25%, post-exercise issuance, of the
outstanding voting equity of the Company. The purchase price of such
shares is their fair market value. Based on the number of share of the
Company's Common Stock issued and outstanding as of June 25, 1996,
Saturn may exercise the option for 3,903,797 shares of the Company's
Common Stock. In addition, Saturn has a contractual right, which to
date it has not exercised, to have one representative on the Company's
Board of Directors, which representative may be removed only with the
written consent of Saturn. Saturn also has the right to attend Board
meetings and to receive certain information regarding the Company. The
Company believes that the option to purchase the 3,903,797 shares
terminates as of the date the registration statement, filed November
22, 1995, as amended, is declared effective. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Investment by Saturn Investments, Inc."
(7) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn and
3,903,797 shares underlying Saturn's option. Ismail A. Abudawood is the
sole stockholder, and Ayman I. Abudawood, Osama I. Abudawood, and Anas
I. Abudawood are directors of Saturn. Accordingly, they may be deemed
to be beneficial owners of such shares. The Company believes that the
option to purchase the 3,903,797 shares terminates as of the date the
registration statement, filed November 22, 1995, as amended, is
declared effective. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- Investment by Saturn Investments, Inc."
(8) Includes currently exercisable options to acquire 9,999 shares of
Company Common, 607,858 shares held by individuals who are not
executive officers, directors or nominees over which Mr. Lewis has
voting power, and 78,005 shares held by individuals who are not
executive officers, directors or nominees over which Mr. Korhonen, or
failing him, Mr. Gertzbein, has voting power.
(9) Includes currently exercisable options to acquire 3,333 shares of
Company Common.
(10) Includes Convertible Debentures which are currently convertible into
228,572 shares of Tracker Common and which are held by Wafr Holdings
N.V. ("Wafr"). Ismail A. Abudawood beneficially owns Wafr. Accordingly,
he may be deemed to be a beneficial owner of the shares issuable
pursuant to the Convertible Debentures.
36
<PAGE> 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
The Company has entered into employment agreements containing severance
arrangements with certain of its executive officers, which provide for payment
under certain circumstances to each officer of compensation through the
remainder of the terms of the agreements. See "EXECUTIVE COMPENSATION -
Employment Contracts, Termination of Employment and Change of Control." The
Company's Certificate of Incorporation and By-laws provide for indemnification
of all Directors and officers. In addition, each Director of the Company has
entered into a separate indemnification agreement with the Company.
Upon the inception of Tracker Canada in May 1993, Tracker Canada issued
to certain members of management, in aggregate, 5,089,286 common shares,
including 2,857,143 shares to Mr. Lewis, 628,578 shares to Mr. Gertzbein and
642,858 shares to Mr. Johnson, in consideration for the assignment of rights
with respect to certain inventions and a patent application and as inducements
for such persons to join Tracker Canada. Mr. Lewis and Mr. Johnson have
subsequently disposed of a limited number of such shares. As part of the
Reorganization, the Tracker Canada common shares were reclassified into
Exchangeable Preference Shares.
CERTAIN RELATIONSHIPS
Tracker Canada contracted with Messrs. Lewis, Gertzbein and Johnson
through BL Consulting Services, MJG Management Accounting Services Ltd. and
Spire Consulting Group, Inc., respectively. Under these management and
consulting contracts, Tracker Canada agreed to pay each of the foregoing
entities annual compensation of $178,350. The agreements expired as of the
effective date of the employment agreements between the Company and each of
Messrs. Lewis, Gertzbein and Johnson. See "EXECUTIVE COMPENSATION - Employment
Contracts, Termination of Employment and Change of Control."
INDEBTEDNESS OF MANAGEMENT
As of March 31, 1996, Mr. Johnson was indebted to the Company by way of
a loan in the amount of $58,226. The loan is evidenced by a promissory note
bearing interest at an annual rate of 5% and is payable upon demand. See
"EXECUTIVE COMPENSATION - Employment Contracts, Termination of Employment and
Change of Control." As of March 31, 1995 Mr. Lewis was indebted to the Company
by way of a loan in the amount of $138,275. Mr. Lewis repaid the loan in full
prior to the end of the quarter ended June 30, 1995. The Company does not
anticipate making any future loans to related parties.
TRANSACTIONS WITH PROMOTERS
In connection with the Company's private equity placements, placement
commissions amounting to $0 for the year ended March 31, 1996 and $115,282 for
the year ended March 31, 1995 were paid to the beneficial owners of Stalia
Holdings B.V., an affiliate of Saturn, Mr. Avron Shore, Mr. Jack Stritcharuk and
Mr. Steve Heard, all of whom are or were stockholders, and $371,846 for the
period from inception (May 6, 1993) to March 31, 1994 were paid to Mr. Majid
Al-Refai. Commissions amounting to $85,646 for the year ended March 31, 1996 and
$0 for the year ended March 31, 1995 were paid to Wheel of Fortune Corp. S.A., a
stockholder, in connection with the Company's securing holders of the
Convertible Debentures.
FUTURE TRANSACTIONS WITH AFFILIATES
The Company's management believes that the terms of the transactions
described above are no less favorable to the Company than those that could have
been obtained from unaffiliated third parties. Further, all future transactions
between the Company and its executive officers, Directors, employees, 5%
stockholders and affiliates (including for example future loans and any
forgiveness of loans, none of which is contemplated) will be subject to the
approval of a majority of the independent, disinterested members of the Board of
Directors. In addition, such future transactions will be for bona fide business
purposes and will be on terms that are no less favorable to the Company than
those that could be negotiated with unaffiliated parties.
37
<PAGE> 38
REORGANIZATION
On July 12, 1994, Tracker U.S. (then Ultra Capital Corp., a Nevada
corporation) and Tracker Canada completed the Reorganization contemplated by the
Reorganization Agreement, dated as of May 26, 1994, by and among Tracker U.S.,
Jeff W. Holmes, R. Kirk Blosch and Tracker Canada, as amended (the
"Reorganization Agreement"). The Reorganization resulted in a change in control
of Tracker U.S. Pursuant to the Reorganization Agreement, Tracker U.S. acquired
all the issued and outstanding voting shares of Tracker Canada in exchange for
shares of Tracker U.S.'s capital stock representing, at the time, approximately
90% of the total voting shares of Tracker U.S. As part of the Reorganization,
Tracker U.S. (then Ultra Capital Corp.) changed its domicile from Nevada to
Delaware and changed its corporate name to "The Tracker Corporation of America."
Pursuant to the Reorganization Agreement, Tracker U.S. authorized a new
series of Class B Voting Common Stock ("Voting Stock") having full voting
rights, which were conferred upon the Tracker Canada shareholders as part of the
Reorganization in each case equal to the number of Exchangeable Preference
Shares held by the Tracker Canada shareholder. See "DESCRIPTION OF SECURITIES -
Class B Voting Common Stock." Tracker U.S. delivered 6,235,225 shares of its
newly authorized Voting Stock to Montreal Trust Company of Canada ("Montreal
Trust") to be held pursuant to the terms of an Exchange Agency and Voting Trust
Agreement (the "Exchange Agreement"). The Exchange Agreement permits the Tracker
Canada shareholders to direct the voting of the Voting Stock.
The common shares of Tracker Canada, other than the Class A common
shares issued to Tracker U.S., were reclassified into Exchangeable Preference
Shares, a new class of Tracker Canada stock. The Exchangeable Preference Shares
are exchangeable for Reserved Common Shares (as defined below) of Tracker U.S.
on a one-to-one basis commencing July 12, 1995. On July 12, 2002, all of the
Exchangeable Preference Shares then outstanding shall be automatically exchanged
for shares of Tracker U.S. Common Stock. Upon any exchange of Exchangeable
Preference Shares for Common Stock, whether voluntary or automatic, the
Exchangeable Preference Shares will be canceled and a corresponding number of
shares of the Voting Stock will be returned to Tracker U.S.
The holders of the Exchangeable Preference Shares have voting, dividend
and liquidation rights that are in parity with those of the shares of the
Tracker U.S. Common Stock. These parallel rights were created in the following
manner:
a. Tracker U.S. placed 6,235,225 shares of the Voting Stock with
Montreal Trust for the benefit of the holders of the
Exchangeable Preference Shares. The beneficial owners of the
Voting Stock (i.e., the holders of the Exchangeable Preference
Shares) have the right to vote the Voting Stock under
procedures set forth in the Exchange Agreement and
collectively controlled approximately 90% of the voting power
of Tracker U.S. at the time of the closing of the
Reorganization Agreement. Although the Voting Stock is
redeemable by Tracker U.S., Tracker U.S. has agreed not to
redeem the Voting Stock until such time as the Exchangeable
Preference Shares are exchanged into Reserved Common Shares
(as defined below).
b. Tracker U.S. irrevocably reserved 6,235,225 shares of its
authorized, unissued Common Stock for issuance to holders of
Exchangeable Preference Shares. Under the terms of the
Reorganization Agreement, these shares will be used for the
exchange of the Exchangeable Preference Shares into shares of
the Tracker U.S. Common Stock on a one-to-one basis. These
reserved and unissued shares are referred to herein as the
"Reserved Common Shares."
38
<PAGE> 39
c. The exchange of the Exchangeable Preference Shares for the
Reserved Common Shares will be accomplished through an
exchange trust created under the Exchange Agreement. Under the
Exchange Agreement, Montreal Trust, as Trustee, has agreed, at
any time on or after July 12, 1995, to (i) exchange with any
holder of the Exchangeable Preference Shares any or all of the
Exchangeable Preference Shares held by such holder for
Reserved Common Shares on a one-to-one basis, and (ii) return
to Tracker U.S. a certificate representing the corresponding
number of shares of Voting Stock.
d. Under the Exchange Agreement, Tracker U.S. has agreed not to
declare and pay any cash dividends on its Common Stock unless
it also causes Tracker Canada to declare and pay cash
dividends on the Exchangeable Preference Shares at the same
time and in the same manner as the dividends paid on the
Tracker U.S. Common Stock. Additionally, under a Guarantee
Agreement with Tracker Canada, Tracker U.S. must provide
Tracker Canada with adequate funds, through a contribution to
capital surplus, to pay such dividends to the holders of the
Exchangeable Preference Shares. The Guarantee Agreement also
obligates Tracker U.S. to satisfy the liquidation value of the
Exchangeable Preference Shares in the event of the liquidation
of Tracker Canada. Under the Guarantee Agreement, the
liquidation value per share is calculated as if Tracker U.S.
were liquidated on the same date and each issued and
outstanding Exchangeable Preference Share were an issued and
outstanding share of Tracker U.S. Common Stock. Tracker U.S.
has the option to pay the liquidation value of the
Exchangeable Preference Shares in cash or in Reserved Common
Shares.
In the Reorganization Agreement, Tracker U.S. agreed to file a
registration statement relating to the Reserved Common Shares.
At a special meeting of stockholders held June 30, 1994, the
stockholders of Tracker U.S. (then Ultra Capital Corp.) approved the
Reorganization and several corporate proposals, including the change in domicile
from Nevada to Delaware, the change in corporate name, the adoption of the
Delaware certificate of incorporation and bylaws, employment agreements with
senior management and the 1994 Plan.
INVESTMENT BY SATURN INVESTMENTS, INC.
In March 1994, prior to the Reorganization, Tracker Canada received an
investment of CDN $3,350,000 from Stalia Holdings B.V. ("Stalia") for units
consisting of common shares of Tracker Canada and warrants to purchase common
shares of Tracker Canada. In connection with that investment by Stalia, Tracker
Canada on March 14, 1994 entered into a Stock Option Agreement with Stalia (the
"Stalia Option Agreement") and Tracker Canada and certain of its stockholders
entered into a Right of First Refusal, Co-Sale and Voting Agreement with Stalia
(the "Stalia Agreement"). As described below, Stalia has transferred its shares
and its rights under the Stalia Option Agreement and the Stalia Agreement to
Saturn Investments, Inc. ("Saturn").
In the Stalia Option Agreement, Tracker Canada granted to Stalia the
right to purchase an additional amount of common shares that would provide
Stalia (when combined with common shares held by Stalia at the time of exercise)
with ownership of 25% of Tracker Canada's issued and outstanding voting equity.
The purchase price of such shares is their Fair Market Value. The Option
Agreement defines "Fair Market Value" as the price at which such shares could
reasonably be expected to be sold in an arms-length transaction, occurring on
the date on which Stalia proposes to purchase such shares, for cash to a person
not employed by, controlled by, in control of or under common control with
Tracker Canada. Absent evidence
39
<PAGE> 40
of fraud, the determination of the Board of Directors of Tracker Canada of the
Fair Market Value is final and conclusive. Stalia may exercise the option with
respect to all (but not less than all) of such shares by giving Tracker Canada
written notice of the date on which it intends to so exercise the option, which
date shall be not less than 60 nor more than 120 days following the date of the
written notice. Stalia's option terminates, among other things, upon the earlier
of (a) the closing date of Tracker Canada's first public offering of its equity
securities pursuant to a registration statement filed with the Securities and
Exchange Commission (the "Commission") or (b) March 14, 1999. The Company
believes that the Stalia Option Agreement terminates as of the date the
registration statement, filed November 22, 1995, as amended, is declared
effective by the Commission as the registration statement relates to a public
offering of the Company's equity securities.
In the Stalia Agreement, Tracker Canada granted to Stalia a right of
first refusal to purchase its pro rata share of all New Securities which Tracker
Canada may from time to time propose to issue and sell. The Stalia Agreement
defines "New Securities" to mean any capital stock, rights to purchase capital
stock, and securities of any type convertible into capital stock; provided,
however, that "New Securities" does not include: (i) securities issued pursuant
to a stock dividend, stock split, combination or other reclassification, (ii)
securities covered by a registration statement declared effective by the
Commission or a final prospectus for which a receipt has been issued by the
relevant securities regulatory authority in each of the Provinces of Canada
where the securities are issued and sold, (iii) certain shares issued pursuant
to the exercise of warrants, and (iv) certain shares issued for a specified
price pursuant to a private placement underwritten by an investment banker. This
right of first refusal could make it more difficult for the Company to raise
additional equity financing under terms satisfactory to the Company.
The Stalia Agreement also provides Stalia with the right (which to date
has not been exercised) to have one representative on Tracker Canada's Board of
Directors, which representative may be removed only with the written consent of
Stalia. Certain controlling shareholders agreed to vote their shares in favor of
the election of Stalia's representative to the Board of Directors. Stalia's
representative may be removed from the Board of Directors only with the written
consent of Stalia. Upon any resignation or removal of Stalia's representative,
certain controlling stockholders of the Company must exercise their best efforts
to replace such director as soon as possible with another nominee of Stalia. In
addition, by separate letter agreement, the Company confirmed that Tracker
Canada agrees to: (a) allow Stalia or a nominee to attend Board meetings; (b)
provide Stalia with copies of all communications regularly made to directors;
(c) use best efforts to elect a nominee of Stalia to the Tracker Canada Board;
(d) provide monthly updates on Tracker Canada's business and affairs; and (e)
provide Stalia's counsel with all documentation relating to issues which may
affect Stalia.
The Stalia Agreement further provides, as a protective provision in
favor of Stalia, that, without first obtaining the written consent of Stalia,
certain controlling stockholders must not vote for, and must exercise their best
efforts as significant shareholders to ensure that the Board of Directors does
not approve: (a) the liquidation or dissolution of the Company; (b) the
declaration or payment of any dividends or the making of any distribution out of
the ordinary course of the Company's business to the shareholders of the
Company; (c) the repurchase by the Company of any of its capital stock; or (d)
any material alteration in the rights, preferences, privileges and restrictions
of the common stock or warrants held by Stalia. In addition, certain controlling
shareholders must exercise their best efforts to ensure that such controlling
stockholders and Stalia together at all times control the majority of the voting
rights of the Company to ensure that the voting rights and protective provisions
are complied with.
The Stalia Agreement terminates upon the earlier of (a) the closing
date of the Company's first public offering of its equity securities pursuant to
a registration statement filed with the Commission or pursuant to a final
prospectus for which a receipt has been issued by the relevant securities
regulatory
40
<PAGE> 41
authority in each of the Provinces of Canada where the shares are offered or
sold or (b) March 14, 1999. The Company believes that the Stalia Agreement
terminates as of the date the registration statement, filed November 22, 1995,
as amended, is declared effective by the Commission as the registration
statement relates to a public offering of the Company's equity securities.
Although the Stalia Option Agreement and the Stalia Agreement
originally were between Tracker Canada and Stalia, Stalia's consent to the
Reorganization was necessary pursuant to the terms of the Stalia Agreement.
Thus, at or about the time of the Reorganization, in connection with obtaining
Stalia's consent to the Reorganization, Tracker U.S., Tracker Canada and certain
controlling shareholders agreed that all obligations under the Stalia Agreement
applicable to Tracker Canada also apply to Tracker U.S., that references to
Tracker Canada in the Stalia Agreement shall be deemed to be references to
Tracker U.S. as well, and that references in the Stalia Agreement to common
shares of Tracker Canada shall be deemed to be references to the common stock of
Tracker Canada as well as the Common Stock of Tracker U.S. In addition, Tracker
Canada confirmed to Stalia that none of Stalia's rights under the Stalia Option
Agreement or the Stalia Agreement would be adversely affected by the
Reorganization. Accordingly, all the provisions discussed above apply to Tracker
U.S. as well as Tracker Canada notwithstanding that the original Stalia Option
Agreement and Stalia Agreement were between Stalia and Tracker Canada.
As of January 31, 1996, Stalia transferred its Tracker Canada
Exchangeable Preference Shares to Saturn, an affiliate of Stalia. Stalia also
transferred to Saturn all of Stalia's rights under the Stalia Option Agreement
and the Stalia Agreement.
INVESTOR RELATION SERVICES - CORPORATE RELATIONS GROUP
The Company obtains investor relations services from the Corporate
Relations Group ("CRG"), a stockholder of the Company. Pursuant to its
arrangements with CRG, the Company has paid, or caused to be paid, to CRG
$1,316,780 in cash and stock for investor relations services through June 19,
1996. On November 20, 1995, the Company entered into an agreement pursuant to
which CRG agreed to provide services to the Company for a period of one year and
the Company agreed to pay to CRG $570,000 or 326,000 freely tradeable shares of
Common Stock upon execution of the agreement and to issue options to CRG to
purchase shares of Common Stock as follows: 100,000 shares at $2.00 per share
one year from the date of the agreement, 100,000 shares at $2.40 per share two
years from the date of the agreement, 100,000 shares at $2.60 per share three
years from the date of the agreement, 100,000 shares at $2.80 per share five
years from the date of the agreement, and 100,000 shares at $3.00 per share five
years from the date of the agreement. As of the date of this Report, CRG had not
provided any services under the agreement and the Company had not made any
payment to CRG.
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
a. The following financial statements are included immediately following
this report:
1. Financial Statements
Page No.
--------
Report of Independent Accountants 49
Consolidated Balance Sheet 50
Consolidated Statement of Operations 51
Consolidated Statement of Cash Flows 52
Consolidated Statement of Shareholders' Equity (Deficit) 53
Notes to Financial Statements 55
2. Financial Statement Schedules
-none-
3. See (c) for exhibits filed as part of this report
b. Reports on Form 8-K
During the three months ended March 31, 1996, the Company filed no
reports on Form 8-K.
c. Exhibits
Number Description
------ -----------
2.1++++ Reorganization Agreement Among Ultra Capital Corp. (the
predecessor of the Registrant), Jeff W. Holmes, R. Kirk
Blosch and the Tracker Corporation dated May 26, 1994, as
amended by Amendment Number One dated June 16, 1994,
Amendment Number Two dated June 24, 1994, and Amendment
Number Three dated June 30, 1994, Extension of Closing dated
June 23, 1994, and July 11, 1994 letter agreement.
2.2++++ Agreement and Plan of Merger dated July 1, 1994 between Ultra
Capital Corp. (the predecessor of the Registrant) and the
Registrant
3.1++++ Certificate of Incorporation, as corrected by Certificate of
Correction of Certificate of Incorporation dated March 27,
1995, and as amended by Certificate of Amendment to the
Certificate of Incorporation dated November 1, 1995, and
Certificate of Designation of Rights, Preferences and
Privileges of $1,000.00 6% Cumulative Convertible Preferred
Stock of the Registrant dated April 19, 1996
3.2++++ Bylaws
4.1++++ Specimen Common Stock Certificate
42
<PAGE> 43
9.1++++ Agreement dated December 21, 1993 among 1046523 Ontario
Limited, Gregg C. Johnson and Bruce Lewis
9.2++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by
Amendment No. 1 to the 1994 Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
10.3++++ Form of Indemnification Agreement entered into between the
Registrant and each of its Directors
10.4++++ Employment Agreement dated June 30, 1994 between the
Registrant and I. Bruce Lewis, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.5++++ Employment Agreement dated June 30, 1994 between the
Registrant and Mark J. Gertzbein, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.6++ Marketing Agreement between the Registrant and The L.L.
Knickerbocker Company, Inc. dated March 15, 1995
10.7++++ Lease dated October 18, 1993 between The Dundas/Edward Centre
Inc. and The Tracker Corporation
10.8++++ Corporate Relations Agreement dated February 24, 1994 between
Corporate Relations Group, Inc. and The Tracker Corporation,
as amended by letter agreement dated January 16, 1995 and by
Amendment to Corporate Relations and Marketing Agreement
dated June 22, 1995
10.9++++ Consulting arrangement with Gregg C. Johnson effective August
12, 1995
10.10++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994 (contained in Exhibit 9.2)
10.11++++ Stock Option Agreement dated March 14, 1994 between The
Tracker Corporation and Stalia Holdings B.V., as confirmed by
letter dated June 22, 1994
10.12++++ Letter from DHL International Express Ltd to The Tracker
Corporation dated March 8, 1994
10.13++++ Agreement dated September 1994 between The Tracker
Corporation and Purolator Courier Ltd.
43
<PAGE> 44
10.14++++ National Account Agreement dated September 15, 1994 between
Mail Boxes Etc. USA, Inc. and the Registrant, as amended by
Amendment to National Account Agreement dated September 14,
1994
10.15++++ Letter agreement dated March 15, 1995 between The Tracker
Corporation and Black Photo Corporation, as amended by
facsimile amendment dated March 4, 1995
10.16++++ Letter agreement dated September 14, 1995 between The Tracker
Corporation and Amerasia International Holdings Limited
10.17++++ Letter Agreement dated August 31, 1995 between The Tracker
Corporation and Tokai Boeki Co. Ltd.
10.18++++ Letter agreement dated October 5, 1993 between The Tracker
Corporation and Symbol Technologies, Inc., as amended by
letter from The Tracker Corporation to Symbol Technologies
Canada, Inc. dated November 23, 1995, and letter from Symbol
Technologies Canada, Inc. to The Tracker Corporation dated
November 27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis
to the Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among
Ultra Capital Corp. (the predecessor of the Registrant), The
Tracker Corporation and Montreal Trust Company of Canada
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and The Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L.
Knickerbocker Company, Inc. and the Registrant
10.24+++ Share Purchase Agreement dated July 29, 1994 among The
Tracker Corporation, Page-Direct Ltd., Marc Bombenon, Marc
Bombenon Enterprises Ltd. and 614593 Alberta Ltd.
10.25++++ General Release dated June 15, 1995 among The Tracker
Corporation, 614593 Alberta Ltd., 1069232 Ontario Inc.,
Gowling, Strathy & Henderson, Page-Direct Ltd., Marc Bombenon
Enterprises Ltd. and Mark Bombenon.
10.26 Agreement Between The International Association of Chiefs of
Police and The Tracker Corporation dated February 13, 1996
10.27 Letter agreement dated January 26, 1996 between The Tracker
Corporation and Consumers Distributing Inc.
10.28 The Tracker Corp./Tracker Referral Network, Int'l Marketing
Agreement dated April 8, 1996 between The Tracker Corporation
and Tracker Referral Network, Int'l
44
<PAGE> 45
10.29 Letter agreement dated March 7, 1996 between The Tracker
Corporation and Samsonite Canada Inc.
10.30 Letter agreement dated March 22, 1996 between The Tracker
Corporation and Sony of Canada Ltd.
10.31 Lead Generation/Corporate Relations Agreement dated November
20, 1995 between The Tracker Corporation and Corporate
Relations Group, Inc., as amended by Amendment to the
Marketing Agreement between the Registrant and Corporate
Relations Group, Inc. dated December 5, 1995
10.32 Independent Contractor Agreement between The Tracker
Corporation and Datatrack Inc. dated January 12, 1996
10.33 Services Agreement and Registration Rights Agreement and
Options Agreement dated July 10, 1996 between Merchant
Partner, L.P. and the Registrant
21.1++++ List of subsidiaries of the Registrant
27 Financial Data Schedule
- -------------------
+ Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 12, 1994.
++ Incorporated by reference from the Registrant's Current Report on Form
8-KA dated February 28, 1995 (filed March 15, 1995).
+++ Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 29, 1994 (filed August 12, 1994).
++++ Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (No. 33-99686).
45
<PAGE> 46
ITEM 15. SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Dated: July 15, 1996
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ I. Bruce Lewis
---------------------------------------------------------------------
I. Bruce Lewis, Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: July 15, 1996 By: /s/ I. Bruce Lewis
---------------------------------------------------
I. Bruce Lewis
Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)
Dated: July 15, 1996 By: /s/ Mark J. Gertzbein
---------------------------------------------------
Mark J. Gertzbein
Executive Vice President, Secretary,
Treasurer, Chief Financial Officer and
Director (Principal Financial Officer and
Principal Accounting Officer)
Dated: July 15, 1996 By: /s/ Leonard Yakobovits
---------------------------------------------------
Leonard Yakobovits
Director
Dated: July 15, 1996 By: /s/ Quincy A.S. McKean, III
---------------------------------------------------
Quincy A.S. McKean, III
Director
Dated: July 15, 1996 By: /s/ Charles J. Coronella
---------------------------------------------------
Charles J. Coronella
Director
Dated: July 15, 1996 By: /s/ Wolfgang H. Kyser
---------------------------------------------------
Wolfgang H. Kyser
Director
Dated: July 15, 1996 By: /s/ Ed J. Korhonen
---------------------------------------------------
Ed J. Korhonen
Director
</TABLE>
46
<PAGE> 47
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrant has not sent out proxy materials to security-holders for
the fiscal year ended March 31, 1996. A copy of this Report and proxy materials
will be sent out subsequent to the filing of this Report and the Registrant will
furnish such materials to the Commission when they are sent out to the
security-holders.
47
<PAGE> 48
THE TRACKER
CORPORATION
OF AMERICA
(A Development Stage Company)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1996 and 1995
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Tracker Corporation of America
In our opinion, the consolidated financial statements listed in the index
appearing at item 14(a)(1) present fairly, in all material respects, the
financial position of The Tracker Corporation of America (the "Company")
and its subsidiary at March 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended March 31, 1996 and 1995, and
the periods from inception at May 6, 1993 through March 31, 1996, 1995 and 1994
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
audit. We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company is a development stage
company and has not yet been able to obtain significant outside financing. As a
result, there is substantial doubt about its ability to continue as a going
concern. Management plans in regard to matters are also described in Note 2.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Phoenix, Arizona
May 28, 1996
<PAGE> 50
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
------------ -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 78,844 $ 107,091
Short-term investment 221,190 0
Accounts receivable 7,361 4,981
Prepaid expenses and deposits 168,345 544,432
Inventory 115,612 166,003
Note receivable 0 178,350
Deferred charges 73,750 0
------------ -----------
Total current assets 665,102 1,000,857
Due from shareholders 58,226 191,926
Deferred charges 66,234 0
Fixed assets (net) 353,729 437,147
Long-term investment 50,451 39,522
------------ -----------
Total assets $ 1,193,742 $ 1,669,452
============ ===========
Liabilities & Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $ 551,553 $ 1,101,424
Accrued liabilities 266,837 334,121
Deferred revenue 115,241 10,998
Convertible subordinated debentures 1,460,000 0
------------ -----------
Total current liabilities 2,393,631 1,446,543
Deferred revenue 178,883 0
Commitments (Note 13)
Shareholders' equity (deficit)
Preferred stock, $.001 par value, 500,000 shares 0 0
authorized, no shares issued and outstanding
Common stock, $.001 par value, 30,000,000 shares
authorized, 6,130,929 (2,924,219 - 1995) shares
issued and outstanding 6,131 2,109
Class B voting common stock, $0.00000007 par value,
20,000,000 shares authorized, 6,126,362
(6,378,248 - 1995) issued and outstanding 0 0
Paid-in capital 14,013,062 9,707,617
Other capital (1,954,327) (2,086,685)
Accumulated deficit (13,202,738) (7,112,008)
Cumulative translation adjustment (240,900) (288,124)
------------ -----------
Total shareholders' equity (deficit) (1,378,772) 222,909
------------ -----------
Total liabilities and shareholders'
equity (deficit) $ 1,193,742 $ 1,669,452
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 51
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended For the Period from Inception (May 6, 1993)
March 31, through March 31,
---------------------------------------------------------------------
1996 1995 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $106,522 $10,187 $116,709 $10,187 $0
Cost of Goods Sold 40,230 4,029 44,259 4,029 0
---------------------------------------------------------------------
Gross Profit 66,292 6,158 72,450 6,158 0
---------------------------------------------------------------------
Expenses
Operational 592,880 687,681 1,429,821 836,941 149,260
Information systems 262,942 465,827 886,046 623,104 157,277
Sales and marketing 1,031,041 1,737,438 3,374,750 2,343,709 606,271
General and administrative 4,270,159 2,183,795 7,584,571 3,314,412 1,130,617
---------------------------------------------------------------------
Total expenses 6,157,022 5,074,741 13,275,188 7,118,166 2,043,425
---------------------------------------------------------------------
Net loss applicable to common stock ($6,090,730) ($5,068,583) ($13,202,738) ($7,112,008) ($2,043,425)
=====================================================================
Loss per share of common stock ($0.57) ($0.71) ($1.70) ($1.14) ($0.38)
=====================================================================
Weighted average number of shares outstanding 10,637,237 7,100,488 7,755,584 6,255,379 5,333,441
=====================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 52
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended For the Period from Inception (May 6, 1993)
March 31, through March 31,
---------------------------- ---------------------------------------------
1996 1995 1996 1995 1994
-------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss ($6,090,730) ($5,068,583) ($13,202,738) ($7,112,008) ($2,043,425)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 111,070 94,161 235,346 124,276 30,115
Rent, consulting and marketing services,
employee compensation settled via the
issuance of company shares 2,749,208 799,249 3,872,801 1,123,593 324,344
Changes in assets and liabilities:
Prepaid expenses and deposits 376,087 (219,317) (185,618) (561,705) (342,388)
Accounts receivable (2,380) (4,981) (7,361) (4,981) 0
Short term investment (221,190) 0 (221,190) 0 0
Inventory 50,391 (166,003) (115,612) (166,003) 0
Deferred charges (139,984) 0 (139,984) 0 0
Deferred revenue 283,126 10,998 294,124 10,998 0
Accounts payable and accrued liabilities (617,155) 1,159,885 833,035 1,450,190 290,305
--------------------------------------------------------------------------
Net cash used in operating activities (3,501,557) (3,394,591) (8,637,197) (5,135,640) (1,741,049)
--------------------------------------------------------------------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets (13,006) (329,840) (589,945) (576,939) (247,099)
Loan to shareholders (8,911) (211,022) (414,638) (405,727) (142,634)
Repayment of loans to shareholders 142,611 152,006 356,412 213,801 2,663
Note receivable 0 (200,317) (200,317) (200,317) 0
Repayment of note receivable 178,350 21,967 200,317 21,967 0
Long term investment (10,929) (2,290,443) (2,301,372) (2,290,443) 0
Unwind of long term investment 0 2,250,921 2,250,921 2,250,921 0
--------------------------------------------------------------------------
Net cash from (used in) investing activities 288,115 (606,728) (698,622) (986,737) (387,070)
--------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Issuance of common shares 1,177,445 3,030,897 8,922,530 7,745,085 4,714,188
Issuance of convertible subordinated debentures 2,189,529 0 2,189,529 0 0
Due to shareholder 0 108,390 108,390 108,390 0
Repayment to shareholder 0 (108,390) (108,390) (108,390) 0
Share issue costs (214,357) (779,495) (1,459,994) (1,245,637) (466,142)
--------------------------------------------------------------------------
Net cash from financing activities 3,152,617 2,251,402 9,652,065 6,499,448 4,248,046
--------------------------------------------------------------------------
Effect of exchange rate changes 32,578 (155,976) (237,402) (269,980) (106,943)
--------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents
during the period (28,247) (1,905,893) 78,844 107,091 2,012,984
Cash and cash equivalents, beginning of period 107,091 2,012,984 0 0 0
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 78,844 $ 107,091 $ 78,844 $ 107,091 $ 2,012,984
==========================================================================
Supplemental schedule of noncash financing activities
The Company issued certain shares of its Class B voting common stock for service and for nominal values.
See Consolidated Statement of Shareholders' Equity (Deficit).
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 53
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------- ------------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
------------------------- ------------------------
<S> <C> <C> <C> <C>
Shares issued to officers at inception (Cash - $Nil) 5,089,286
Shares issued for cash (Cash - $4,714,188) 884,729 $4,714,188
Shares issued in lieu of rent (note 12-xi) (Cash - $Nil) 60,871 324,344
Share issue costs (466,142)
Translation adjustment
Net loss
------------------------- ------------------------
Balance at March 31, 1994 6,034,886 $4,572,390
------------------------- ------------------------
Shares issued for cash (Cash - $1,175,797) 234,517 1,175,797
Shares issued in lieu of rent (note 12-xi) (Cash - $Nil) 5,777 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219 739 (639)
Shares issued from Regulation S offering (including 79,658 shares
at $7 per share for consulting services and 3,571 shares at $5.50
per share for the purchase of fixed assets) (Cash -$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 13) (Cash-$Nil) 825,000 78,005 825 2,204,153
less: consulting and marketing services not yet received (814,583)* (815)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500,000 500 349,500
Shares issued to employees for employment services (note 12-xi) (Cash-$Nil) 25,063 74,409
Share issue costs (779,495)
Translation adjustment
Net loss
------------------------- ------------------------
Balance at March 31, 1995 2,109,636 6,378,248 $2,109 $9,707,617
------------------------- ------------------------
AMOUNTS
----------------------------------------------------------
Deficit Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
----------------------------------------------------------
Shares issued to officers at inception (Cash - $Nil)
Shares issued for cash (Cash - $4,714,188) $4,714,188
Shares issued in lieu of rent (note 12-xi) (Cash - $Nil) 324,344
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
----------------------------------------------------------
Balance at March 31, 1994 $0 ($129,098) ($2,043,425) $2,399,867
----------------------------------------------------------
Shares issued for cash (Cash - $1,175,797) 1,175,797
Shares issued in lieu of rent (note 12-xi) (Cash - $Nil) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 100
Shares issued from Regulation s offering (including 79,658 shares
at $7 per share for consulting services and 3,571 shares at $5.50
per share for the purchase of fixed assets) (Cash -$1,505,000) 2,901,700
Share proceeds to be received subsequent to March 31, 1995 (819,459)
Shares issued for consulting and marketing services (note 13) (cash-$Nil) 2,204,978
Less: consulting and marketing services not yet received (2,086,685) (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 350,000
Shares issued to employees for employment services (note 12-xi) (Cash-$Nil) 74,409
Share issue costs (779,495)
Translation adjustment (159,026) (159,026)
Net loss (5,068,583) (5,068,583)
----------------------------------------------------------
Balance at March 31, 1995 ($2,086,685) ($288,124) ($7,112,008) $222,909
----------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 54
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------- ------------------------
Paid in
Class B Capital in
Common Common Common Excess
Stock Stock Stock of Par
------------------------- ------------------------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering 819,459
made before March 31, 1995 (cash - $225,280)
Consulting services received re shares issued 14,582 * 14
before March 31, 1995 (note 12-xi) (Cash - $Nil)
Marketing services received re shares issued 266,664 * 265
to LL Knickerbocker Co. (note 13) (Cash - $Nil)
Shares issued to directors as compensation (note 12-xi) (Cash - $Nil) 98,858 99 86,402
Shares issued to Amerasia for marketing services (note 12-xi) (Cash - $Nil) 30,000 44,496
less: services not yet received (12,500)*
Shares cancelled (Cash - $Nil) (171) 1 (1)
Shares issued pursuant to S-8 for employees, consultants and 770,000 770 769,230
a director (note 12-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (340,939)* (341)
Shares issued to R. Zuk (Cash - $83,000) 200,000 200 199,800
Less: share proceeds to be received (117,000)
Share proceeds received from private placement (Cash - $250,000) 250,000 250 249,750
Shares issued upon exercise of warrants at Canadian $1 per share 849,803 619,166
(Cash - $619,166)
Shares issued to officers (note 12-iv) (Cash - $Nil) 630,000 630 826,245
Shares issued to a consultant (note 12-xi) (Cash - $Nil) 7,500 8 9,836
Shares issued for investor relation services (note 12-vi) (Cash - $Nil) 200,000 200 262,300
Less: services not yet received (200,000)* (200)
Shares issued to employees for employment services (note 12-xi) 14,176 22,716
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 1,133,365 (1,133,365) 1,134 (1,134)
Shares issued for conversion from debenture holders (Cash -$729,529) 991,434 992 728,537
Share issue cost from April 1, 1995 to March 31, 1996 (214,357)
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
------------------------- ------------------------
Balance as at March 31, 1996 6,130,929 6,126,362 $6,131 $14,013,062
========================= ========================
AMOUNTS
-----------------------------------------------------
Deficit Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
-----------------------------------------------------
Share proceeds received re Regulation S offering 819,459
made before March 31, 1995 (Cash - $225,280)
Consulting services received re shares issued 87,486 87,500
before March 31, 1995 (note 12-xi) (Cash - $Nil)
Marketing services received re shares issued 666,400 666,665
to LL Knickerbocker Co. (note 13) (Cash - $Nil)
Shares issued to directors as compensation (note 12-xi) (Cash - $Nil) 86,501
Shares issued to Amerasia for marketing services (note 12-xi) (Cash - $Nil) 44,496
Less: services not yet received (18,630) (18,630)
Shares cancelled (Cash - $Nil) 0
Shares issued pursuant to S-8 for employees, consultants and 770,000
a director (note 12-vii) (Cash - $Nil)
Less: employment and consulting services not yet received (340,598) (340,939)
Shares issued to R. Zuk for cash (Cash - $83,000) 200,000
Less: share proceeds to be received (117,000)
Share proceeds received from private placement (Cash - $250,000) 250,000
Shares issued upon exercise of warrants at Canadian $1 per share 619,166
(Cash - $619,166)
Shares issued to officers (note 12-iv) (Cash - $Nil) 826,875
Shares issued to a consultant (note 12-xi) (Cash - $Nil) 9,844
Shares issued for investor relation services (note 12-vi) (Cash - $Nil) 262,500
Less: services not yet received (262,300) (262,500)
Shares issued to employees for employment services (note 12-xi) 22,716
(Cash - $Nil)
Shares exchanged as per exchange agreement (Cash - $Nil) 0
Shares issued for conversion from debenture holders (Cash -$729,529) 729,529
Share issue cost from April 1, 1995 to March 31, 1996 (214,357)
Translation adjustment 47,224 47,224
Net loss from April 1, 1995 to March 31, 1996 (6,090,730) (6,090,730)
------------------------------------------------------
Balance as at March 31, 1996 ($1,954,327) ($240,900) ($13,202,738) ($1,378,772)
======================================================
(*) 1,074,276 common shares and 12,500 Class B voting common shares have been
subscribed for but remain unissued as at March 31, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE> 55
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS/CORPORATE HISTORY:
The Tracker Corporation of America (the "Company"), through a wholly-owned
subsidiary, The Tracker Corporation ("Tracker Canada"), is engaged in the
development, marketing and operation of a unique system to aid in the recovery
of lost or stolen items using advanced bar code and laser scanning technologies.
The Company was formed under the name Ultra Capital Corp. ("Ultra") in February
1986 under the laws of the State of Nevada to serve as a vehicle to acquire or
merge with an operating company. The Company changed its name from Ultra on July
1, 1994 when, as more fully discussed below, Ultra merged with Tracker Canada.
The Company was reincorporated in Delaware on July 1, 1994. Effective
July 12, 1994, the Company merged with Tracker Canada. Concurrent with the
merger effective date, Ultra changed its name to The Tracker Corporation
of America and changed its year-end from December 31 to March 31. In
conjunction with the merger, the common stock of Tracker Canada was
reclassified as exchangeable preference stock which is exchangeable on a
one-for-one basis for shares of the common stock of the Company beginning July
12, 1995 through July 12, 2002. An equal number of Class B voting common stock
("Class B shares") is held in trust for exchangeable preference shareholders
who can direct the voting of the Class B shares. The Class B shares will be
cancelled upon the exchange of the exchangeable preference shares for the
Company's common stock.
For accounting purposes, the merger was treated as a reverse
merger/acquisition with recapitalization of Tracker Canada as the acquirer
because, among other factors, the assets and operations of Tracker Canada
significantly exceed those of Ultra and the shareholders of Tracker Canada
control the Company after the merger. The merger was treated for accounting
and financial reporting purposes as an issuance of shares by Tracker Canada and,
accordingly, pro forma information is not presented as the merger is not a
business combination. The historical consolidated financial statements prior to
July 12, 1994 are those of Tracker Canada. The merger has been recorded at the
value of Ultra's net tangible assets as of the effective date. The accumulated
deficit of Tracker Canada is carried forward and the common stock and paid-in
capital of Tracker Canada prior to the merger have been retroactively restated
for the equivalent number of shares received in the merger and carried forward.
The Company utilizes state-of-the-art proprietary technology providing a service
to aid in the recovery of lost or stolen possessions. The Company's members
receive a series of individualized, digitally-encoded labels that can be
applied to personal belongings. In the event a labelled item is recovered, the
Company's technology allows for the identification of the item's owner. After
identification, the Company's 24-hour service network coordinates the return of
the item to its owner via an international courier network. The Company's
Worldwide Identification & Recovery Service is endorsed by the International
Association of Chiefs of Police.
<PAGE> 56
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN:
The Company has been in a development stage since May 6, 1993, its inception.
The Company's successful launch to the marketplace, and ultimately to the
attainment of profitable operations, is dependent on its ability to obtain
adequate sources of financing and revenue generation. Management is currently
working to secure adequate sources of capital through private placements of
securities. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of The Tracker
Corporation of America and its wholly owned subsidiary, The Tracker Corporation.
All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers liquid investments with an original maturity of three
months or less to be cash equivalents.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
INVENTORY
The inventory is stated at the lower of cost or market value with cost being
determined by the average cost method. Inventory predominantly consists of raw
materials as the Company fulfills its sales orders on a just in time basis, when
received. No significant work-in-progress or finished goods were held by the
Company at year end.
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions and are amortized
on a straight line basis over the term of the related agreement.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue for Company services is recognized on a straight-line basis over the
term of the services offered and is shown net of sales discounts and allowances.
Amounts received for which service has not yet been provided are recorded as
deferred revenue. The average length of the membership agreement varies from
monthly to a five-year period.
<PAGE> 57
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
determined using the straight line method over the estimated useful lives of
the related assets as follows:
Scanning equipment and computer hardware 5 years
Computer software 1 year
Office furniture and equipment 5 years
Leasehold improvements term of the lease
Kiosk equipment 5 years
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the fiscal year end exchange rate while revenues, expenses and
cash flows are translated at average rates in effect for the period
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried in the accompanying consolidated financial
statements at amounts that approximate fair value unless separately disclosed.
EARNINGS PER SHARE
Primary earnings per share are calculated based on net profit (loss) divided by
the weighted average number of shares of common stock and Class B voting common
stock outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for inventory
obsolescence, depreciation and amortization, taxes, and contingencies.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.
<PAGE> 58
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", establishes financial and reporting standards for stock-based
employee compensation plans. This statement defines fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. The accounting requirements are effective for transactions
entered into in fiscal years beginning after December 15, 1995. The disclosure
requirements are effective for fiscal years beginning after December 31, 1995.
Pro forma disclosures required for entities that elect to continue to measure
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. The Company
has not completed an evaluation of the effect of this Statement.
NOTE 4 - SHORT TERM INVESTMENT:
The amount of $221,190 represents a short-term investment in 288,462 shares of
Stratcomm Media Ltd., which is a publicly traded company on the Vancouver Stock
Exchange, and represents less than a 4% interest in the company. The common
shares owned by the Company were restricted from trading for a period of 12
months starting May 30, 1995. The investment, which is carried as available for
sale, is carried at cost which approximates fair value.
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Investor relations $ 0 $325,267
Marketing & celebrity 120,992 0
Rent 450 115,147
Other 46,903 104,018
-------- --------
$168,345 $544,432
======== ========
</TABLE>
<PAGE> 59
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTE RECEIVABLE:
At March 31, 1995, the Company had advanced $178,350 to Page-Direct Ltd. (a
wireless communications company for which the Company had entered into an
agreement to purchase). The related note receivable bore interest at the Royal
Bank of Canada prime rate plus 2% and was payable on demand. The note was repaid
in June 1995 in conjunction with the cancellation of the subject agreement.
Subsequent to March 31, 1995, the owner of Page-Direct Ltd exercised its option
under the agreement to reacquire its interest in Page-Direct. Prior to the
exercise of this option, the Company had issued 271,052 exchangeable preference
shares in its Canadian subsidiary to the owner of Page-Direct Ltd. for 46.2% of
the outstanding shares of Page-Direct Ltd. Such exchangeable preference shares
were returned to the Company in June 1995. The Company has recorded the exercise
of the reversionary option by the owner of Page-Direct Ltd. as if it had
occurred as of March 31, 1995.
NOTE 7 - DUE FROM SHAREHOLDERS
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 8 - DEFERRED CHARGES
Deferred charges consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
------- -------
<S> <C> <C>
Current:
Deferred sales commission 47,222 0
Other 26,528 0
------- -------
$73,750 $ 0
======= =======
Long term:
Deferred sales commission 61,680 0
Other 4,554 0
------- -------
$66,234 $ 0
======= =======
</TABLE>
NOTE 9 - FIXED ASSETS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Scanning equipment $106,471 $ 99,364
Computer equipment 257,189 250,152
Computer software 31,988 30,845
Office furniture and equipment 67,254 54,950
Leasehold improvements 66,840 64,674
Kiosk equipment 63,496 61,438
-------- --------
Total original cost 593,238 561,423
Less: Accumulated depreciation 239,509 124,276
-------- --------
$353,729 $437,147
======== ========
</TABLE>
Depreciation expense for the year ended March 31, 1996 was $111,070 and was
$94,161 for the year ended March 31, 1995.
<PAGE> 60
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG TERM INVESTMENT:
The amount of $50,451 represents the original cost to acquire 633,002 common
shares of C.E.M. Centry Electronic Monitoring Corporation ("Centry"), a publicly
listed Canadian company trading on the Vancouver Stock Exchange, which
approximates fair value. This investment, which is carried as available for
sale, represents approximately 11.96% of Centry's total common shares issued.
NOTE 11 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
-------- --------
<S> <C> <C>
Payroll and employee benefits $ 0 $178,980
Director fees 11,000 44,500
Finder fees for convertible debentures 52,906 0
Others 202,931 110,641
-------- --------
$266,837 $334,121
======== ========
</TABLE>
NOTE 12 - CAPITAL STOCK:
(i) The Common Stock and Class B voting Common Stock share ratably as to
dividends. The Class B voting Common Stock is held in trust pursuant to the
terms of an exchange agency and voting trust agreement with holders of
exchangeable preference shares in the Canadian subsidiary. The agreement permits
the persons holding the exchangeable shares to direct the voting of the Class B
common shares and provides a mechanism for the exchange of exchangeable shares
for a like number of common shares.
(ii) At March 31, 1996, outstanding warrants had been issued and were
outstanding to acquire 17,348 exchangeable preference shares (1,185,880 at March
31, 1995) of the Canadian subsidiary at Canadian $14 per share. These warrants
expire two years after the date of issuance. For further discussion on
outstanding warrants refer to Note 17.
(iii) On March 15, 1995, the Company entered into an agreement and sold, for net
proceeds of $350,000, 500,000 units comprised of 500,000 restricted common
shares and 500,000 warrants to purchase 500,000 restricted common shares to
Kuplen Group Investment ("KGI"). The warrants are exercisable during the one
year period commencing July 12, 1995 to July 12, 1996 at a price of $5.00 per
share. In the event that the common stock underlying the warrants cannot be
purchased legally on margin at a marginable price, then the exercise period will
be extended until the first day that the common stock becomes marginable. In
order to secure registration rights of the restricted shares, KGI must exercise
the warrants on a 1:1 basis with the common shares.
(iv) (a) During the year ended March 31, 1995, the Company adopted a plan that
allows for the granting of options, appreciation rights, restricted stock and
certain other stock-based performance incentives to certain officers as
determined at the discretion of the compensation committee of the board of
directors. On April 11, 1995, the Company issued stock, pursuant to stock
grants, of 630,000 shares of common stock, restricted as to transferability, to
certain officers of the Company.
<PAGE> 61
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CAPITAL STOCK (CONT'D):
(iv) (b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
March 31, Exercise March 31, Exercise
1996 Price 1995 Price
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options:
Opening 40,000 $ 7.95 0 n/a
Granted during the year (*) 10,000 $ 1.81 40,000 $ 7.95
Exercised during the year 0 n/a 0 n/a
Expired/cancelled during year (10,000) $ 7.95 0 n/a
-------- ----------
Closing 40,000 40,000
======== ==========
</TABLE>
(*) : 40,000 options were issued in July 1994 and 10,000 options were issued in
September 1995 to non-employee directors and vest proportionately over a period
of three years.
<TABLE>
<CAPTION>
March 31, Exercise March 31, Exercise
1996 Price 1995 Price
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Warrants (Common Stock & Class B):
Opening 1,685,880 n/a 0 n/a
Issued during the year 250,000 $5.00 500,000 $5.00
Issued during the year 0 n/a 1,185,880 Cdn$14.00
Exercised during the year (849,803) Cdn$1.00 0 n/a
Expired during the year (318,729) Cdn$14.00 0 n/a
------------ ------------
Closing 767,348 1,685,880
============ ============
</TABLE>
(v) On May 1, 1995, the Company entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted common
shares and 250,000 warrants to purchase 250,000 restricted common shares to
Reynold Kern ("RK"). The warrants are exercisable during the one year period
commencing July 12, 1995 to July 12, 1996 at a price of $5.00 per share. In the
event that the common stock underlying the warrants cannot be purchased legally
on margin at a marginable price, then the exercise period will be extended until
the first day that the common stock becomes marginable.
(vi) In June 1995, the Company issued 200,000 shares of common stock, restricted
as to transferability for a period of two years from date of issuance, to Robert
Zuk for certain investor relations services for the Company.
(vii) In October 1995, the Company issued 770,000 shares of common stock
pursuant to the registration statement on S-8 to six key employees and one
director as payment in lieu of prior accrued salaries and fees and as an advance
of their salaries and fees up to September 30, 1996. The shares issued were all
valued at $1.00 per share.
<PAGE> 62
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CAPITAL STOCK (CONT'D):
(viii) On November 1, 1995, at its annual general meeting the shareholders
approved the increase of the authorized number of common shares from 20,000,000
to 30,000,000 shares.
(ix) Other Capital
As at March 31, 1996, 1,074,276 common shares and 12,500 Class B shares have
been subscribed for but remain unissued as the service for which these shares
were subscribed for have yet to be received.
<TABLE>
<CAPTION>
From Inception
(May 6 1993)
Year ended March 31, through
1996 1995 March 31, 1996
----------------------------------------------
<S> <C> <C> <C>
Opening:
Marketing services not yet received $1,999,200 $ 0 $ 0
Deferred compensation costs 0 0 0
Deferred consulting costs 87,485 0 0
Rent 0 0 0
----------------------------------------------
2,086,685 0 0
----------------------------------------------
Shares subscribed but not issued (future services):
Marketing services not yet received 0 1,999,200 1,999,200
Deferred compensation costs 1,706,031 74,409 1,780,440
Deferred consulting costs 910,819 782,204 1,693,023
Rent 0 30,121 354,465
----------------------------------------------
2,616,850 2,885,934 5,827,128
----------------------------------------------
Charged to expense as services received:
Marketing services not yet received 666,400 0 666,400
Deferred compensation costs 1,365,432 74,409 1,439,841
Deferred consulting costs 717,376 694,719 1,412,095
Rent 0 30,121 354,465
----------------------------------------------
2,749,208 799,249 3,872,801
----------------------------------------------
Closing:
Marketing services not yet received 1,332,800 1,999,200 1,332,800
Deferred compensation costs 340,599 0 340,599
Deferred consulting costs 280,928 87,485 280,928
Rent 0 0 0
----------------------------------------------
$1,954,327 $2,086,685 $1,954,327
==============================================
</TABLE>
(x) 991,434 shares were issued due to the conversion of subordinated debentures
totalling $729,529; $1,460,000 in subordinated debentures remain outstanding
as at March 31, 1996.
(xi) The Company has, from inception to present, issued shares in exchange for
(a) employment services, (b) consulting and marketing services, and (c)
consideration in lieu of rental payments.
<PAGE> 63
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS:
LEASES
The Company has a lease agreement for its current office premises. The term of
the lease is 10 years which commenced January 1, 1994 and requires payment of an
annual base rent of $22,000 for the first five years and thereafter market value
less 20%. In addition, the Company is required to pay its share of property
taxes and all operating costs.
Rental expense for the year ended March 31, 1996 amounted to $233,705 and
$219,183 for the year ended March 31, 1995.
EXCLUSIVE DISTRIBUTION RIGHTS
The Company amended its arrangement with Symbol Technologies Inc. for the
exclusive right to use its PDF bar code scanning technology in Canada, the
United States and Europe. The commitment under this arrangement is as follows:
<TABLE>
<CAPTION>
Units Amount
----------------------- ------------------------
<S> <C> <C>
1996 830 $554,000
</TABLE>
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker") which provides for
a television and radio marketing campaign to be initially launched in the
California marketplace. As part of the compensation for services to be performed
by Knickerbocker, the Company has paid Knickerbocker a fee of $212,975 and
issued 800,000 restricted common shares, valued at $2.50 per share based on the
trading price of the Company's shares on the date of the agreement. These
common shares bear a legend restricting Knickerbocker from selling them for two
years from March 15, 1995, without the prior written consent of the Company.
THE IACP ENDORSEMENT:
The Company has secured the endorsement of the International Association of
Chiefs of Police ("IACP"), a nonprofit organization of approximately 14,000
members from the world's law enforcement community founded in 1893. The
Company's present license agreement with the IACP began in February 1996 and
runs through February 1999. Under the agreement, the Company has agreed to pay
IACP, on a quarterly basis in arrears, the greater of $100,000 per year or a
fee based on the total number of subscribers of the Company calculated as
follows:
<TABLE>
<CAPTION>
Number of Subscribers Per Capita Amount
--------------------- -----------------
<S> <C>
0-1,000,000 $0.20
1,000,001 - 5,000,000 $0.10
More than 5,000,000 $0.075
</TABLE>
<PAGE> 64
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS (CONT'D):
INVESTOR MEDIA & PUBLIC RELATIONS
The Company entered into an agreement dated November 20, 1995 with Corporate
Relations Group, Inc., of Winter Park, Florida ("CRG") to provide advertising,
printing and investor relations for investor media and public relations support
to the Company with services to commence in mid 1996. The agreement covers a
twelve-month period and may be cancelled without penalty at the Company's
option. As consideration for the services to be provided by CRG, the Company
will pay to CRG, at the Company's option, either $570,000 in cash or the
equivalent number of common shares assigned a value of $1.75 on the agreement
date. The Company has also agreed to issue options to purchase a total of
500,000 common shares noted as follows:
100,000 common shares at $2.00 1 year from the date of the agreement
100,000 common shares at $2.40 2 years from the date of the agreement
100,000 common shares at $2.60 3 years from the date of the agreement
100,000 common shares at $2.80 4 years from the date of the agreement
100,000 common shares at $3.00 5 years from the date of the agreement
NOTE 14 - RELATED PARTY TRANSACTIONS:
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management agreed to receive 5,089,286 exchangeable preference shares
in consideration for the assignment of international patents covering the
Tracker Canada system and as inducements to join the Company, respectively. No
value has been assigned to these shares.
The Company currently retains certain key management personnel under contract.
Included in expenses are consulting and management fees paid under the
aforementioned contracts totaling, in the aggregate, $589,390 for the year ended
March 31, 1996 and $737,462 for the year ended March 31, 1995.
Placement commissions amounting to $Nil for the year ended March 31, 1996 and
$115,282 for the year ended March 31, 1995 paid to related parties in connection
with the Company's private equity placement are included as a reduction in paid
in capital.
Commissions amounting to $85,646 for the year ended March 31, 1996 and $Nil for
the year ended March 31, 1995 were paid to related parties in connection with
the issuance of convertible subordinated debentures.
See also Note 12 (iv) and (vii).
<PAGE> 65
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES:
The estimated deferred tax asset of $3,696,000 and $2,290,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1996 and March 31, 1995, respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $10,561,000 expire starting
in 2001; the benefit of these losses have not been reflected in these financial
statements.
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,696,000 2,290,000
----------- -----------
3,696,000 2,290,000
Valuation allowance (3,696,000) (2,290,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance increased by $1,406,000 during the year.
NOTE 16 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at March 31, 1996 convertible subordinated
debentures in the amount of $1,460,000 bearing interest at 15% annually, which
are repayable within one year. The interest payments are payable monthly in
advance. The principal amount may be converted, at the holder's option, into
shares of the Company's common stock, in whole or in part, beginning on October
1, 1995 at a conversion price as shown below. The debentures are subordinated to
all other indebtedness incurred by the Company. The Company paid $32,740 in cash
and accrued 52,906 restricted common shares (valued at $52,906) in placement
commissions to finders of arm's length third party private investors. The
following lists the conversion rates:
<TABLE>
<CAPTION>
No. of shares
Principal Conversion rate on conversion
--------- ----------------- -------------
<S> <C> <C>
$ 730,000 $0.4375 per share of common stock 1,668,575
375,000 $0.9375 per share of common stock 400,000
125,000 $1.00 per share of common stock 125,000
30,000 $1.06 per share of common stock 28,302
70,000 $1.0625 per share of common stock 65,883
30,000 $1.10 per share of common stock 27,273
75,000 $1.20 per share of common stock 62,499
25,000 $1.25 per share of common stock 20,000
----------- ----------
$ 1,460,000 2,397,532
=========== ==========
</TABLE>
Total interest paid and included in general and administrative expenses is
$181,311 and $Nil for year ended March 31, 1996 and 1995, respectively.
<PAGE> 66
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS:
On May 3, 1996, Tracker U.S. issued 52,906 restricted shares of Common Stock to
Wheel of Fortune as settlement of finder's fees in the amount of $52,906 in
connection with the sale of the Second Series Convertible Debentures.
Of the warrants issued since inception to acquire exchangeable preference shares
of the Canadian subsidiary at Canadian $14 per share, there remain only 15,577
outstanding as 1,771 warrants have expired since March 31, 1996. As described in
Note 12 (ii), these warrants expire two years after the date of issuance.
During April and May 1996, the Company issued 600 shares of $1,000 6%
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock"). The
Convertible Preferred Stock is not redeemable and, except as otherwise provided
by law, is non-voting. Subject to the prior right of the holders of any shares
of any series of Preferred Stock ranking prior to the shares of Convertible
Preferred Stock with respect to dividends, the holders of the Convertible
Preferred Stock are entitled to receive when, as and if declared by the Board of
Directors: (i) quarterly dividends payable in cash out of funds legally
available for such purpose on the last day of July 1996 and October 1996 (each
such date being referred to herein as a "Quarterly Dividend Payment Date") at an
annual rate of $60 per share; or, (ii) at the sole option of the Company,
quarterly dividends payable on each Quarterly Dividend Payment Date in
additional shares of Convertible Preferred Stock at an annual rate of 0.06
additional shares per share of Convertible Preferred Stock then outstanding.
In the event of any liquidation, dissolution or winding up of the Company, the
holders of the Convertible Preferred Stock are entitled to receive, prior to any
distribution of any of the assets or funds of the Company to the holders of the
Common Stock or any other shares of stock of the Company ranking as to such a
distribution junior to the Convertible Preferred Stock, an amount equal to
$1,000 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) plus an amount equal to any accrued but unpaid
dividends thereon to the date fixed for payment of such distribution. Upon
payment of the full preferential amount, the holders of the Convertible
Preferred Stock are not entitled to any further participation in any
distribution of assets by the Company.
Each share of Convertible Preferred Stock is convertible, at the option of the
holder, without the payment of any additional consideration, and at any time,
into such number of shares of Common Stock as is determined by dividing
$1,000 plus the amount of any accrued but unpaid dividends through the date
such holder's conversion notice is received by the Company by the Conversion
Price (as hereafter defined). The "Conversion Price" shall be equal to that
amount which is 33% less than the average of the published OTC Bulletin Board
closing bid prices for the Company's Common Stock for the five (5) trading days
preceding, at the election of the holder, the date such holder's subscription to
purchase the Convertible Preferred Stock was accepted by the Company or the date
such holder's conversion notice is received by the Company; provided, however,
that the Conversion Price shall in no event be less than $0.15. If the number of
shares of Common Stock outstanding at any time after the date of issuance of the
Convertible Preferred Stock is increased or decreased by a stock dividend, stock
split, or combination or reclassification of the outstanding shares of Common
Stock, the Conversion Price shall be appropriately decreased or increased so
that the number of shares of Common Stock issuable on conversion shall be
increased or decreased in proportion to such increase or decrease in the
outstanding shares of Common Stock.
<PAGE> 67
THE TRACKER CORPORATION OF AMERICA
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS (CONT'D):
During May 1996, the Company issued 250 shares of Series B $1,000 6%
Cumulative Convertible Preferred Stock (the "Series B Convertible Preferred
Stock"). The Series B Convertible Preferred Stock is identical in all material
respects to the Convertible Preferred Stock except that the Quarterly Dividend
Payment Dates are August 1996 and November 1996 rather than July 1996 and
October 1996.
Subsequent to March 31, 1996, the Company issued 2,319,729 shares of Common
Stock of which 708,573 shares were issued upon conversion of $310,000 of
Convertible Subordinated Debentures and 1,611,156 shares issued upon conversion
of $500,000 Convertible Preferred Stock noted above.
<PAGE> 1
EXHIBIT 10.26
LICENSE AGREEMENT
THIS AGREEMENT is made this 13th day of February, 1996, between the
International Association of Chiefs of Police, a nonprofit corporation whose
principal office is at 515 North Washington Street, Alexandria, Virginia 22314
(hereinafter referred to as "IACP"), and THE TRACKER CORPORATION, whose
principal office is at 180 Dundas Street West, 15th Floor, Toronto, Ontario M5G
1Z8 (hereinafter referred to as "TRACKER"). WHEREAS, TRACKER desires to use
IACP's name, trademarks, and certain other property in connection with the sale
and marketing of property identification products and services; and
WHEREAS, IACP is willing to permit such use in order to reduce crime
and promote the public welfare:
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by IACP and TRACKER,
IT IS AGREED:
1. License. IACP licenses TRACKER to use its name, any and all
trademarks or service marks IACP now or hereafter owns during the term of this
Agreement, in connection with LICENSEE's sale and marketing of property
identification products or services. In order to protect the goodwill of IACP,
IACP retains the right to review and approve all uses of said name and marks,
but will not unreasonably withhold its approval.
2. Acknowledgment. TRACKER acknowledges that IACP is the lawful
owner of the name and marks referred to in Section 1, and agrees to take no
action inconsistent with IACP's ownership, or that would subject IACP to claims
by third parties or potential loss of its ownership.
3. Royalties. (a) Cash Royalty. (1) In general. In consideration
of the license granted in Section 1, and as a condition of the license, TRACKER
agrees to pay IACP a cash royalty equal to the greater of:
(A) One Hundred Thousand Dollars ($100,000.00); or
(B) A graduated per capita amount with respect to each
Member, calculated as set forth below:
<TABLE>
<CAPTION>
Number of
Members Per Capita Amount
------- -----------------
<S> <C>
0 - 1,000,000 $0.20 (20 cents)
1,000,001 - 5,000,000 $0.10 (10 cents)
More than 5,000,000 $0.075 (7.5 cents)
</TABLE>
<PAGE> 2
(2) Calculation Date. The royalty due under subsection
(a)(1)(B) shall be calculated with respect to the number of Members on each
anniversary of the Agreement.
(3) Payment. Each contract year, TRACKER shall pay IACP
$25,000 on the 15th day of May, August, November and February. The balance (if
any) due under subsection (a)(1)(B) for the contract year shall be paid to IACP
not later than the following March 31.
(4) Member. For purposes of this Agreement, a Member of
TRACKER's program is a subscriber who has ordered at least 8 labels.
(5) U.S. Dollars. All payments due under this Agreement
by TRACKER to IACP are stated in, and shall be paid in, U.S. dollars.
(b) OP/ID Program. As an additional royalty in
consideration for the license granted in Section 1, TRACKER agrees to assume all
operational and financial responsibility for the OP/ID program previously
conducted by IACP, including, but not limited to:
(1) Continued operation of the OP/ID "800"
telephone lines;
(2) Fulfillment of OP/ID items as required by
lifetime members; and
(3) Contracting or, attempting to contact, all
lifetime members to update names, addresses,
and other information.
4. Conditions. As a condition of the license granted in Section 1
of this Agreement, TRACKER agrees:
(a) Lifetime membership. Not to offer lifetime memberships in the
TRACKER program, nor to sell any new memberships in the OP/ID Program. TRACKER
may terminate lifetime memberships in OP/ID, only with the consent of the OP/ID
members, whether or not in connection with the sale of the TRACKER program to
OP/ID members.
(b) Membership list. To provide IACP with complete lists of all
TRACKER and OP/ID Members, updated with corrections, not less frequently than
quarterly; and
(c) Compliance with applicable law. That it shall conduct all
sales activity in accordance with all applicable national, state, provincial, or
local statutes, ordinances, regulations and rules, including (but not limited
to), rules promulgated by the U.S. Federal Trade Commission.
(d) Prohibition on sales by law enforcement personnel. That it
will not employ individual active duty law enforcement personnel to sell
memberships in TRACKER.
2
<PAGE> 3
(e) Trademark use approval. To send to IACP, for review and
approval, copies of all materials to be used in promoting the TRACKER Program
and using IACP's name or trademark(s), not later than 10 days before their
release. If IACP does not disapprove the use of such materials within 7 days of
receipt, it shall be deemed to have approved their use. However, as between IACP
and TRACKER, TRACKER shall be responsible for the accuracy of all information
used in promoting the program unless it demonstrates that IACP knew or should
have known, at the time it reviewed the information, that the information was
not true.
5. Best efforts. IACP and TRACKER agree to use their best efforts
and cooperate in the performance of this Agreement, and in particular with
respect to IACP's approval of promotional material using IACP's name or
trademarks.
6. Agency. IACP and TRACKER agree that this Agreement is not
intended to create an agency relationship of any kind; and both agree not to
contract any obligations in the name of the other, to use each other's credit in
conducting any activities under this Agreement, or to represent that IACP is in
the business of providing the products and/or services provided by TRACKER.
7. Indemnification. TRACKER agrees to indemnify and hold IACP and
its directors, officers, employees, agents, and members harmless with respect to
any and all claims, losses, damages, liabilities, judgments, or settlements,
including reasonable attorney's fees, costs, and other expenses incurred by IACP
on account of any activities conducted by TRACKER pursuant to this Agreement,
including any failure by TRACKER to provide services under contracts with its
subscribers or as required for OP/ID members. IACP and TRACKER will promptly
notify each other upon receipt of any claim or legal action arising out of
activities conducted pursuant to this Agreement. The rights and responsibilities
established in this paragraph shall survive indefinitely the termination of this
Agreement.
8. Inspection. Upon reasonable notice and during regular business
hours, IACP shall have the right to inspect all books and records of TRACKER
relating to the amounts payable to IACP under the Agreement. IACP shall have the
right to have its representative audit such books and records to determine the
accuracy of TRACKER's payments to IACP. Any overpayment by TRACKER to IACP shall
be credited against future payments to IACP, and any underpayments shall be
immediately due and payable by TRACKER to IACP. These rights shall extend
eighteen (18) months past the date this Agreement is terminated.
9. Noncompetition. TRACKER agrees, during the term of this
Agreement, and for one year thereafter, not to market or sell the same or
similar products or services under an agreement with any other international,
national, provincial, state or other association whose membership is composed
primarily of law enforcement officers or executives, except as expressly
approved by IACP.
10. Confidentiality. IACP and TRACKER recognize that during the
term of this Agreement, each may possess certain confidential information about
the business of the other, including, but not limited to, membership lists and
other documents, data, records, and other information. Therefore, the parties
agree that all such information shall be held in
3
<PAGE> 4
confidence and each will not divulge such information to any persons (other than
for use under this Agreement) without the express written consent of the other.
Each party also agrees that it will adopt reasonable precautions to guard
against unauthorized release of such information, and that it will not use such
information in any manner that will unfairly benefit itself or damage the other
party. Each party agrees to return to the other all confidential business
information pertaining to the other upon termination of this License Agreement.
TRACKER specifically agrees to return to IACP all copies of any membership
listing or directory of IACP's members, regardless of the form in which it
appears or is stored.
11. Term. This Agreement shall be effective on the date above
written, and shall continue in effect for three (3) years, unless sooner
terminated pursuant to Section 12.
12. Termination. (a) In general. When IACP and TRACKER are unable
to agree on approved text of promotional material using IACP's name or
trademarks, either IACP or TRACKER may terminate this Agreement upon 30 days'
notice in writing to the other party.
(b) For cause. Either IACP or TRACKER may terminate this
Agreement immediately upon written notice to the other in the event of the
other's insolvency, fraud, willful misconduct, or substantial breach of this
Agreement. IACP may terminate this Agreement immediately upon written notice to
TRACKER in the event TRACKER assigns its rights and obligations under this
Agreement, or merges, consolidates, or otherwise undergoes a reorganization
without the express consent of IACP.
(c) Future compensation. Upon termination of this
Agreement, TRACKER shall continue to pay royalties on renewal sales, as if the
Agreement remained in effect, for twelve (12) months from date of termination.
13. Waiver. Either party's waiver of, or failure to exercise, any
right provided for in this Agreement shall not be deemed a waiver of any further
or future right under this Agreement.
14. Successors and assigns. Subject to Section 12(b), this
Agreement shall be binding on the parties, and on their successors and assigns,
without regard to whether it is expressly acknowledged in any instrument of
succession or assignment.
15. Notices. Notices required by this Agreement shall be in
writing and shall be delivered either by personal delivery or by mail. If
delivered by mail, notices shall be sent by Express Mail, or by certified or
registered mail, return receipt requested, with all postage and charges prepaid.
All notices and other written communications under this Agreement shall be
addressed as indicated below, or as specified by subsequent written notice
delivered by the party whose address has changed.
4
<PAGE> 5
IF TO IACP: Mr. Dan Rosenblatt
Executive Director
International Association of Chiefs of Police
515 North Washington Street
Alexandria, Virginia 22314
IF TO TRACKER: Mr. I. Bruce Lewis
Chairman and CEO
The Tracker Corporation
15th Floor
1800 Dundas Street West
Toronto, Ontario M5G 1Z8
16. Governing Law. This Agreement shall be governed in all
respects, except as to conflicts of laws, by the laws of the Commonwealth of
Virginia.
17. Captions. The captions of each paragraph of this Agreement are
inserted solely for the reader's convenience, and are not to be construed as
part of the Agreement.
18. Severability. If any provision in this Agreement is determined
by a competent authority to be unenforceable, all other provisions of this
Agreement shall continue in full force and effect.
19. Amendment. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior writings or oral agreements. This
Agreement may be amended only by a writing clearly setting forth the amendments
and signed by both parties.
20. Warranty. Each party warrants that the individual signing this
License Agreement on its behalf is duly authorized to do so.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized agent.
INTERNATIONAL ASSOCIATION OF
CHIEFS OF POLICE
By: /s/ Dan Rosenblatt
-----------------------------------
Dan Rosenblatt
Executive Director
THE TRACKER CORPORATION
By: /s/ I. Bruce Lewis
-----------------------------------
I. Bruce Lewis
Chairman and CEO
5
<PAGE> 1
EXHIBIT 10.27
[LETTERHEAD OF THE TRACKER CORPORATION]
January 24, 1996
Ms. Louis Sauve-Nicholls
Marketing Development Manager
Consumer Distributing Inc.
6303 Airport Road, 5th Floor
Mississauga, Ontario
L4V 1RS
Dear Ms. Sauve-Nicholls:
This letter outlines the understanding of the joint promotion between Consumers
Distributing ("Consumers") and The Tracker Corporation ("Tracker") whereby
Consumers and Tracker will offer Tracker's Child Identification kit to
Consumer's "Propriety Cardholders."
1. Commencing February 2, 1996 for the test month of February 1996,
Consumers will place a Tracker insert into all of Consumers English
Propriety Card mailings (E.S.T. 65,000). Tracker will produce and
provide this insert to Consumers, at its own cost.
2. Tracker will offer Propriety Cardholders the option to purchase a
special two-year membership to Tracker Child Identification program for
(i) an up front fee of $39.85 or (ii) a fee of $6.95 per month, 6
payments each of which will be charged to their Consumers Propriety
Card. Fee must include applicable GST taxes with 30 day terms. The
normal 2-year fee is $49.90.
3. Consumers will furnish Tracker with a complete Propriety Card mailing
list, in order for Tracker to conduct a telemarketing follow-up test of
4,000-6,000 people, who have already received the advanced mailing
(Tracker insert). This list will be provided within 5 days of mailing.
4. Consumers will forward a cheque to Tracker for total gross sales minus
15% commission at the end of each month.
We trust this meets with your approval and look forward to working with
Consumers Distributing. If you have any questions, please give us a call.
Yours truly,
THE TRACKER CORPORATION Agreed:
/s/
-------------------------
/s/ Consumers Distributing
- -----------------------
Kevin Lewis January 26, 1996
cc: Ed Korhonen ----------------
Date:
<PAGE> 1
EXHIBIT 10.28
THE TRACKER CORP./TRACKER REFERRAL NETWORK, INT'L.
MARKETING AGREEMENT
This Agreement made by and between Tracker Referral Network, Int'l. with a
principal place of business at 3899 Oneida St. Bldg. B, New Hartford, NY 13413,
hereinafter called the "Company" and The Tracker Corporation, a Canadian
Corporation having its principal place of business at 180 Dundas Street West,
15th Floor, Toronto, Ontario Canada M5G1Z8, hereinafter called "Supplier."
WHEREAS, Supplier offers for sale the Tracker, Tracker Plus and Child ID
worldwide identification and recovery service and future Tracker products
hereinafter referred to as "The Product."
WHEREAS, Company is a direct sales company in the business of marketing through
independent distributors using a proprietary marketing plan, various products
and services and is desirous of marketing Supplier Products under an exclusive
Network Marketing (MLM) arrangement.
WHEREAS, the parties desire to set forth in writing the terms of their
arrangement in order to define the rights, responsibilities, and obligations of
each party, and to protect the parties' respective interest.
SECTION I
APPOINTMENT OF COMPANY
Supplier hereby appoints Company as the Exclusive Network Marketing (MLM)
Company of the Tracker Corporation. Supplier also grants the non-exclusive,
direct sale (i.e. Commercial/Business to Business) marketing rights to Company
for the Product subject to the terms, conditions and covenants set forth in this
Agreement, Company hereby accepts said appointment and agrees to comply with the
terms and to perform all conditions herein.
SECTION II
EXCLUSIVE MARKETING RIGHTS TERMS/CONDITIONS
AND USE OF THE TRACKER NAME
Supplier agrees to name Company as the Tracker Corporation's Network Marketing
(MLM) Consultant to other U.S.A. Network Marketing (MLM) Companies, licensees or
other foreign countries desiring to develop a Network Marketing (MLM) program
marketing Supplier Products. Company shall receive an ongoing brokerage
commission of ten percent (10%) based on the negotiated Supplier product cost.
Company shall form a Corporation named "Tracker Referral Network, Int'l."
Supplier agrees to allow the Company the legal use of the TrackerTM corporate
name and logo. Use of the TrackerTM Corporate name and logo without appropriate
release for each use will be deemed a material breach of this Agreement.
Company shall market all current and future Supplier Products EXCLUSIVELY.
Any/all future products to be marketed by the Company must be approved by
Supplier. For the purpose of this Agreement, Supplier Products do not include
Company Sales Materials, Training Materials, Training Seminars, Events,
Conventions or Company Video and Audio Cassettes.
SALES QUOTAS
Company sales quotas shall be as follows; effective from the date and signature
of this Agreement:
<PAGE> 2
A. The Company must sell a minimum total of 210,000 of Supplier Products
in the year 1996 or a combined total of 30,000 of Supplier Products by
July 1, 1996
B. In addition Company shall increase sales at the rate of twenty-five
percent (25%) each year during the term of this agreement.
Company will not sell membership kits to its Distributors below the
Company Distributor Suggested List Price as noted in Addendum A.
*Total Supplier Product Sales by definition shall include any/all
Supplier Membership Kits, Mini-Kits, Key Chain Tag (24 packs), Luggage
Tags (24 packs), Shoe Tag (24 packs), Free Trial Brochures (one-label
24 packs), additional labels totaling thirty-two (32) and any/all
Membership Renewal Sales and any/all future Supplier products.
SECTION III
SALES TERRITORY
The stated territory for the Exclusive Network (MLM) Marketing Rights of
Supplier Products shall be the United States of America. The territory for the
Non-Exclusive Commercial Marketing Rights shall be the United States of America,
and other world wide markets upon approval of Supplier.
SECTION IV
RELATIONSHIP OF COMPANY AND SUPPLIER
Nothing in this Agreement shall be construed to constitute the Company as a
partner, employee, shareholder, or officer of the Supplier. Neither party,
unless expressly provided herein, shall have any authority to bind the other
party. It is intended that each party to this Agreement shall remain an
independent agent and responsible for its duties as set forth herein.
SECTION V
SOLICITATION AND TAKING OF ORDERS
Company shall solicit and take orders for sales of Supplier Products and/or
services as set forth above. Company and Supplier shall establish costs and
administration procedures by mutual consent (Refer to Addendum A).
Company will directly purchase Product only from Supplier for resale to its
customers and/or independent representative sales force. Supplier shall be
responsible to ship directly to Company accounts and bill Company a shipping
charge of three dollars and fifty cents ($3.50) per Membership Product.
Company will make direct sales of Supplier's Product to other third party
businesses, organizations, National Unions, Insurance Companies, Fund Raising
Groups, Network Marketing Companies and other markets deemed by the Company
subject to registration of accounts and approval of Supplier. These accounts
shall hereinafter be referred to as Business to Business Accounts. Company and
Supplier will mutually agree upon ordering and administration procedures by
which these accounts can order direct from Supplier. In all Business to Business
sales, Company shall act as the Marketing Representative of Supplier, and if
necessary, use the Supplier's Sales and Service Agreements as provided by
Supplier.
2
<PAGE> 3
SECTION VI
ACCEPTANCE OF ORDERS
All Business to Business orders are to be formalized on the Supplier or other
agreed upon order form. Supplier agrees to provide Company with necessary forms
and sales materials to conclude Business to Business transactions. No agreement
or order shall constitute a binding obligation upon either party until it is
accepted by Supplier. Supplier reserves the right to reject a purchase order if
it does not comply with the terms as agreed upon by Supplier. Arrangement for
payment shall be made to and approved by Supplier prior to shipment of any
Product.
SECTION VII
COMMISSIONS
Unless specifically mutually agreed upon otherwise, in writing, Supplier will
pay Company a commission for all Business to Business purchases and sales of
Product upon receipt of payment by Supplier, as set forth in the attached
"Addendum A," See Section VIII. Commissions shall be deemed earned when entire
invoice(s) is paid to Supplier.
The commissions due the Company shall be paid on a monthly basis as collected by
Supplier no later than the tenth day of the month following receipt of payments
to Supplier.
If this Agreement is terminated, Company shall be entitled to the applicable
commissions for the duration of all Company orders and membership renewals paid
to Supplier.
SECTION VIII
BUSINESS TO BUSINESS COMMISSIONS
Supplier shall pay the following commission pursuant to all purchases and sale
of Products made via Business to Business by the Company:
1) Subject to the actual Company Product cost as illustrated in "Addendum
A" pricing/commission schedule.
2) No shipping charges shall be billed to Company if orders (P.O.'s) and
collection of funds are facilitated directly by Supplier.
SECTION IX
PURCHASE SCHEDULE
Company agrees to direct purchase Product(s) and sales materials only from
Supplier in specific compliance to the Price Schedule (Addendum A) outlining
order quantity and price per unit, as noted in the mutually agreed Sections II,
VII and VIII of this Agreement.
SECTION X
COMPANY RESPONSIBILITY
Company shall put forth its best efforts to contract with independent
distributors (who shall not be deemed agents or employees of the Company) to
sell Supplier's Products EXCLUSIVELY. Company shall
3
<PAGE> 4
make the same effort to sell Supplier's Product directly to other entities the
Company warrants upon Supplier approval.
Company shall, also, provide Supplier with the following:
1) Summary of any marketing problems.
2) Summary of customer complaints and critical comments as received,
either verbally or by fax.
3) An updated list of Business to Business Accounts it is working on for
Account Registration purposes and Supplier approval.
4) Company shall communicate any Supplier policies and/or procedures
provided by Supplier.
SECTION XI
EXPENSES
Company shall pay all of its own expenses in connection with the solicitation of
purchase orders and contracts unless mutually agreed upon by both parties in
writing. If the Supplier requires Company to travel or incur expenditures
outside the normal conduct of Company business, Supplier agrees to reimburse
Company. Such arrangements will be agreed upon in advance, in writing.
SECTION XII
SUPPLIER'S RESPONSIBILITY TO COMPANY
1) List of terms, order forms, contracts, etc., necessary to acquire
Business to Business accounts.
2) Copy of Supplier's certificate of product liability insurance and an
explanation of coverage. Supplier agrees to sole responsibility for
keeping sufficient product liability insurance current and in force
throughout the term of this Agreement. Supplier agrees to list Company
in its policy, if admissible.
3) Supplier shall be responsible for all timely shipping of Supplier's
Product to Company and other purchasers of same. Supplier agrees to
ship directly to Company's customers and clients on an individual
basis. Supplier and Company shall agree upon procedures and the
shipping terms as outlined in "Addendum B" of this Agreement.
4) Supplier shall provide Supplier Product promotional and sales
literature to Company for its distributors and/or Company to promote
Supplier Products. In specific compliance to Price Schedule Addendum A,
Supplier shall provide the following promotional materials and finished
literature ready for distribution:
A. Growth Industry Reports.
B. Label Brochure indicating the Company 800#.
C. Tracker One Label Brochure indicating the necessary and
applicable Company notations.
D. Tracker Corp. video.
E. Angie Dickinson video with tag line changes to reflect Company
data.
F. Pending the Company fulfillment of the July 1, 1996 sales
quota, Supplier shall make a cassette audio tape stating the
sales features, special benefits, technical information, and
answers to most commonly asked questions concerning products
provided by the Supplier. Additionally, the cassette audio
tape shall include suggested tips on how to
4
<PAGE> 5
sell or market the Supplier's Products. Said tape may be in
any of the following formats: a narration from a script, a
live seminar or presentation, an interview in a question and
answer format. This shall be done at no cost to Company and
shall be subject to review and final approval by Company.
Company shall be responsible for final editing. Company shall
cooperate in providing advice and input in making tape as well
as providing an interviewer if necessary. Supplier shall
duplicate tape for Company distribution.
G. Supplier agrees that Company shall be permitted the use of
materials and Supplier warrants the legality and
permissibility of aforesaid representations for aiding in
Company selling Supplier Products only.
Supplier will inventory sufficient literature, videos and
audio cassettes described above for Company to order on a
weekly basis as needed. Company shall pay for above materials.
Pricing shall be agreed upon and so noted in "Addendum A"
Price/Commission Schedule.
5) Supplier to provide Company with monthly Company order and shipping
reports indicating quantities.
6) Supplier to provide Company with monthly summary reports relative to
Company's sales of Supplier's Products.
7) Continuous and accurate updates, to the best of Supplier's knowledge,
in writing, of regulatory opinion or mandates and legal action relative
to the use and sale of Supplier's Products.
8) Supplier agrees to clearly state its product warranty and return
policy, in writing, to Company and agrees to perform in accordance with
same.
9) Supplier, in its normal course of business, will on a best effort
basis, facilitate membership renewals for all Company consumers and/or
distributors and provide the Company with the applicable documentation
and commissions on a monthly basis.
10) Supplier shall provide monthly sales reports of all Company
membership/product renewals as applicable.
11) Supplier to provide Company with a separate and distinct Child ID
Membership Product subject to "Addendum A" pricing and terms.
12) Supplier, in its sole judgment, shall incorporate Company's articles on
a regular basis in Supplier's Members Newsletters.
SECTION XIII
INDEMNIFICATION
To the extent of its proportionate liability as determined by a court of
competent jurisdiction, Supplier agrees to indemnify Company, its participants,
employees, and Independent Representatives against all claims, damages, losses
and expenses, including reasonable attorney fees, arising from the use of
Supplier's products, unless caused by Company's negligence. Supplier agrees to
maintain sufficient and adequate product liability insurance.
5
<PAGE> 6
The Company also agrees to indemnify the Supplier, its principals and employees
against all claims, damages, losses and expenses, including reasonable attorney
fees arising from the acts of the Company to the extent of the Company's
proportionate liability as determined by a court of competent jurisdiction.
SECTION XIV
COVENANTS CONCERNING COMPETITION AND CONFIDENTIALITY
Supplier expressly covenants and agrees that the Company's Independent
Distributor list, and client list, are the exclusive property of the Company,
and that the Supplier is prohibited from any contact with said parties, other
than that which is required to service Company's accounts, or is required under
the terms of this Agreement.
Supplier and its principals further agrees not to duplicate, simulate, or copy
Company's marketing plan or go into any venture, enterprise, or business
directly or through a third party utilizing the Company's official Company
literature. Supplier expressly agrees that the Company's marketing plan is
proprietary to the Company. Supplier and its principals agrees and acknowledges
that the Company client list, distributor list, records, genealogy reports,
computer programs, information on the working of the marketing plan, internal
memoranda, product pricing, and legal information and documents are proprietary
information and trade secrets of the Company. Supplier and its principals agree
to keep all the above Company trade secrets proprietary information confidential
and not to disclose it to any third party that could bring harm to Company or
anyone entering into competition with the Company.
It is further agreed that said materials and information are made available to
Supplier and its principals in trust, creating a fiduciary responsibility under
law for Supplier and its principals to protect Company's interest in handling
said information and materials. Supplier will not use the confidential or
proprietary information, property or trade secrets in any way for their own
personal gain during the term of this Agreement or after termination of this
contract. Breach of this covenant would entitle Company jurisdiction and to
damages.
Supplier and its principals agree not to solicit, approach, recruit or involve
in any way, personally or through another party, any Company distributor or
customer into any other venture, marketing plan, MLM program or business or give
the names obtained by Supplier from Company to any other entity or person who
might do the same or sell products or services directly through a third party to
any Company distributor for a period of one (1) year from the termination of
this Agreement in writing by one of the parties.
Additionally, Supplier hereby agrees that for a period of two (2) years from the
date of termination of this Agreement or two (2) years from the date of
conclusion of the last transaction between the parties, whichever date is later,
neither Supplier nor Supplier's employees, agents, consultants, corporations,
divisions, subsidiaries or partnerships (or other groups over which Supplier has
authority or control) will make any contact with or enter into any transaction
of a money nature with any Company distributor which has been introduced to
Supplier by Company without consent of Company and presence of a written
agreement executed between Supplier and Company concerning remuneration to be
paid to Company.
6
<PAGE> 7
SECTION XV
MODIFICATION
This Agreement may not be modified unless by written amendment, executed by each
of the parties hereto.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same original.
SECTION XVI
ADVERTISING
Company shall be allowed to use whatever form of advertising method it feels is
beneficial to the promotion of Supplier's Products, so long as it acts within
guidelines of the FTC and various state regulatory agencies. Content of all said
advertising is subject to Supplier's prior approval.
SECTION XVII
TRACKER STOCK OWNERSHIP
Refer to Addendum C.
SECTION XVIII
ASSIGNMENT
This Agreement is personal to the parties hereto and may not be assigned by
either party in whole, or in part, without the prior written consent of the
parties, and such consent shall not be reasonably withheld. This Agreement shall
be binding upon and inure to the benefit of, the parties hereto, their
successors and permitted assigns.
SECTION XIX
TERMINATION OF AGREEMENT
This Agreement shall continue for a period of five (5) years from the date of
this Agreement and may be terminated by either party, both of which must show
and prove cause, upon the giving of a sixty (60) day prior notice. Cause, for
the purpose of this Agreement, is defined as mutual consent and/or breach of any
term of this Agreement.
This Agreement shall be automatically renewed by the respective parties for a
period of five (5) years upon the Company's attainment of sales quotas during
initial five (5) year term of this Agreement.
RIGHTS UPON TERMINATION
Upon termination of this Agreement with cause, the Company and/or its assignee
shall be entitled to accrued Commissions on those orders already signed and
accepted by Supplier, and for a period of five (5) years on re-orders
(membership renewals) received on accounts attained by the Company during the
duration of its Agreement with the Supplier.
7
<PAGE> 8
NOTICES
All notices shall be given in writing and sent by certified mail, return receipt
requested, and shall be addressed to:
IF TO COMPANY: IF TO SUPPLIER:
Mr. John S. Messa Jr. Mr. Bruce Lewis
Tracker Referral Network, Int'l. The Tracker Corporation
3899 Oneida Street Bldg. B 180 Dundas Street West, 15th Fl.
New Hartford, NY 13413 Toronto, Ontario, Canada M5G1Z8
Or to other addressed as provided by either party.
SECTION XX
SUPPLIER TRADE SECRETS
The Company and its principals agree to keep confidential the Supplier's
business practices, patents and other pertinent proprietary information.
SECTION XXI
APPLICABLE LAW
This Agreement, and any amendment hereto, shall be governed and construed in
accordance with the laws of the Province of Ontario.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT this 8th day of
April, 1996.
Tracker Referral Network, International, Inc.
By: /s/ John S. Messa Jr.
----------------------------
John S. Messa Jr. CEO
The Tracker Corporation
By: /s/ Bruce Lewis
----------------------------
Bruce Lewis CEO
Witnessed by:
/s/ Mark J. Gertzbein
- ---------------------
8
<PAGE> 9
THE SPECIFICATION AND DESCRIPTION OF EACH PRODUCT TO BE SOLD TO COMPANY AND
GOVERNED BY THIS AGREEMENT ARE ATTACHED HERETO AS "ADDENDUM A"
ADDENDUM A
PRICE/COMMISSION SCHEDULE
The Supplier shall provide the Company Tracker Products and marketing materials
at the following costs:
MEMBERSHIP RENEWALS shall be based at two dollars ($2.00) over Company Product
Cost. The difference between cost and retail, per Tracker Product shall be
deemed as the Commission payable to the Company. Commissions shall be paid to
Company on a monthly basis upon Supplier's collection of good funds.
BUSINESS TO BUSINESS COMMISSIONS shall be reimbursed to Company based on the
brokerage commission when applicable as outlined in Section II, Paragraph 1,
and, when applicable, Section VIII of the Agreement.
<TABLE>
<CAPTION>
PRODUCTS COMPANY COST SUGGESTED COMPANY
DISTRIBUTOR LIST PRICE
<S> <C> <C> <C>
Tracker (1 year) $10.00 ea. $29.95
Tracker + (1 year) $20.00 ea. $59.95
(subject to review in
six [6] months)
Child ID (24 months) $15.00 ea. $49.95
Business in a Box $100.00 ea. $349.00
Tracker One Label (free trial) $ 15.60 ea. $46.95
(24 pack) Product Brochures
Key Chain Tags (24 w/labels) $15.60 $46.95
Luggage Tags (24 w/labels) $15.60 $46.96
Shoe Tags (12 pr. w/labels) $15.60 $46.95
Cloth Labels (8 labels) $2.35 pkg. $7.05
Adhesive Labels (24 labels) $3.25 pkg. $9.75
Window Decals (3-pack) $2.00 $4.00
Photo Fingerprint ID (5-pack) $1.25 $3.75
Tracker Magnet (5-pack) $2.50 $5.00
TRNI Business Development (pricing to be determined)
Training Manual
Marketing Materials (Sales Aids):
Comic Strips Brochure $ .30 each
Growth Report $ .50 ea.
Angie Dickinson Video $2.50 ea.
Tracker Corp. Video $2.50 ea.
Tracker Audio Cassette (pricing to be determined)
Tracker Binder $14.80
</TABLE>
9
<PAGE> 10
ADDENDUM B
SHIPPING TERMS AND PROCEDURES
A) Supplier shall ship all Company Product Orders and Accessories directly
to Company clients and/or Representatives.
B) Company shall place P.O.'s with Supplier on a daily or weekly basis.
Supplier shall ship product directly to Company distributors and/or
customers listed on P.O.
C) Company shall pay the actual shipping charges only for brochures,
videos and other Supplier marketing materials ordered by the Company.
These materials shall be sent directly to Company for distribution.
D) Normal shipping time shall be within ten to fourteen (10-14) days from
the date Supplier receives order and/or shall not exceed twenty-one
(21) days. Supplier warrants that it shall continuously strive to
expedite shipment of its Products within seven (7) days from date
Supplier receives order.
COMMERCIAL ACCOUNTS/BUSINESS TO BUSINESS
If Supplier facilitates the original order and collects the necessary
funds for Company Commercial Orders, and/or Company Membership
Renewals, there will be no applicable shipping charge to the Company.
10
<PAGE> 11
ADDENDUM C
TRACKER CORPORATION STOCK (SYMBOL TRKR)
As an incentive and part of this Agreement herein:
Upon the Company's successful achievement of fulfilling or surpassing the Sales
Quotas as outlined in this Agreement between the parties, the Supplier shall
award the Company ten thousand (10,000) shares of TRKR Common Stock.
In addition, Supplier shall make available for the Company or its assignees, an
Option to purchase an additional ten thousand (10,000) shares of TRKR Common
Stock for the purchase price of two dollars ($2.00) per Share.
11
<PAGE> 1
EXHIBIT 10.29
[LETTERHEAD OF THE TRACKER CORPORATION]
March 6, 1996
Mr. John Heeny
Vice President - General Manager
Samsonite Canada Inc.
753 Ontario Street
Stratford, Ontario
N5A 6V1
Dear John:
This letter shall serve as an Agreement between The Tracker Corporation
("Tracker") and Samsonite Canada Inc. ("Samsonite"). The terms and conditions of
this Agreement are as follows:
1. Samsonite and Tracker will launch and announce the "Tracker" promotion
with Samsonite on April 28, 1996.
2. Tracker will provide and pay for the services of TV celebrity, Angie
Dickinson, promoting Tracker and its services in Samsonite's 40th
Anniversary even on April 28, 1996.
3. Tracker will supply to Samsonite 70,000 POP mail-back string-tied
hanging tags ("Tags"), which Samsonite will affix, to its merchandise,
at point of manufacture, to be sold in Canada. Each of these Tags will
provide Samsonite customers with an explanation of the benefits of
Tracker's Worldwide Recovery service and the opportunity to receive
free, compliments of Samsonite, through a mail-back order form, either
(a) an adhesive Tracker label or (b) a Tracker luggage tag, all
included within a "Keep What You Own" brochure, sent by Tracker, and
will include a covering welcome letter signed by Samsonite and Tracker.
4. Tracker and Samsonite will mutually prepare the graphics and script to
be on the Tags noted in 3 above.
5. Tracker will reimburse Samsonite for the cost of affixing and shipping
the Tags. Such costs will be documented and submitted to the attention
of Tracker's accounting department at 180 Dundas Street West, Suite
1502, Toronto, Ontario M5G 1Z8 for payment.
6. Tracker will grant Samsonite a one-year exclusivity in the luggage
industry within Canada from the date of the signing this Agreement.
Tracker will extend the Samsonite exclusivity by a period of one (1)
additional year, subject to (a) Tracker receiving a
<PAGE> 2
minimum of a 10% upgrade sales response from the total number of Tags
as noted in 3 above, and (b) Samsonite continues the "Tracker"
promotion for an addItional year on terms and conditions to be mutually
agreed upon at that time.
7. All customer information acquired by Tracker through the Samsonite
"Tracker" promotion will be considered privileged. Tracker cannot and
will not share this information will any third party unless it involves
a police investigation.
8. Tracker agrees to obtain authorization from Samsonite to issue a press
release regarding the signing of this Agreement. This authorization
will not be unreasonably withheld.
We trust this Agreement meets with your approval. Please sign on the appropriate
line below. We are looking forward to a long and prosperous business
relationship.
Yours truly,
THE TRACKER CORPORATION Agreed and accepted by:
/s/ /s/
- -------------------------------- ----------------------------
Kevin Lewis John Heeny
Account Manager Samsonite Canada Inc.
Date: March 7, 1996
cc Mark Gertzbein, Tracker CFO
Gigi Lipton, Tracker VP Information Systems
<PAGE> 1
EXHIBIT 10.30
[LETTERHEAD OF THE TRACKER CORPORATION]
March 22, 1996
Mr. Tony Smith
National Marketing Manager, Retail
Sony of Canada Ltd.
Marketing Headquarters
409 Gordon Baker Road
Willowdale, Ontario M2H 2S6
Dear Tony:
This letter shall serve as an Agreement between Sony of Canada Ltd. ("Sony") and
The Tracker Corporation ("Tracker") whereby Sony will offer Tracker's Worldwide
Personal Property Security Kits ("Kit" or "Kits") throughout their 85 Sony
Stores across Canada. The terms and conditions are as follows:
1) Sony will implement a "Tracker" program beginning on or about May 1,
1996, as specified below.
2) Sony Store representatives ("Reps") will sell to its retail customers
Tracker Kits which will be clearly marked with bronze, silver or gold
foil stickers indicating to the Reps the life span of the Tracker
membership within each Kit (i.e. 1, 2, or 3 years respectively).
3) Tracker will ensure that the back of the activation cards within each
Kit will allow Reps to indicate their name and store number for Sony
commission purposes. Tracker will supply to Sony by the second of each
month a report describing Rep sales activities which will enable Sony
to distribute commissions properly.
4) Sony will supply camera ready graphics on diskette to be used by
Tracker to produce a sufficient amount of POP material to place in each
of the Sony stores to support the Tracker program.
5) Sony will include a write up on the Tracker program in each of its
monthly newsletters for the life of this program.
6) Tracker will supply to Sony 5,000 "Keep What You Own" one-label
brochures to be used by Sony in their Camcorder promotion during 1996,
the cost of which will be offset by the one quarter page advertisement
noted in 7 below.
7) Sony will include a feature on the Tracker program in a one-quarter
page advertisement within its national brochure, the costs of which
will be offset by the 5,000 "Keep What You Own" brochures noted in 6
above.
8) Tracker will forward to Sony, on an annual basis, a cheque amounting to
a 20% commission on renewal revenues received by Tracker relating to
sales generated from the Kits sold through Sony for two (2) renewal
terms. Such payment will be made to Sony on or before April 30th of
each year commencing on April 30, 1997.
9) Sony will purchase from Tracker, on 30 day terms, via a head office
purchase order, a minimum initial order of nine (9) Kits per store as
follows:
<PAGE> 2
(i) Cost schedule
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
No. of Kits Kit type Cost to Sony Retail Selling Price
----------------------------------------------------------------------------
<S> <C> <C> <C>
2 1 year $15.00/ea $29.95/ea
----------------------------------------------------------------------------
3 2 year $22.50/ea $44.95/ea
----------------------------------------------------------------------------
4 3 year $30.00/ea $59.95/ea
----------------------------------------------------------------------------
</TABLE>
All prices are quoted in Canadian dollars and are F.O. B. Sony
Store locations or Sony Warehouse as directed by Sony.
(ii) Volume discounts
<TABLE>
<CAPTION>
------------------------------------------------------------
Total # of Kits purchased Volume discounts
------------------------------------------------------------
<S> <C>
5001 to 10,000 $0.25 off each Kit
------------------------------------------------------------
10,001 to 15,000 $0.50 off each Kit
------------------------------------------------------------
15,001 to 20,000 $0.75 off each Kit
------------------------------------------------------------
20,001 to 30,000 $1.00 off each Kit
------------------------------------------------------------
30,001+ $1.50 off each Kit
------------------------------------------------------------
</TABLE>
Volumes stated to qualify for discounts are cumulative annual
volumes. Volume discounts will be paid to Sony on or before
April 30th of each year commencing on April 30, 1997.
(iii) Shipping instructions:
Shipping instructions must be clearly marked for each Sony
store address with appropriate contact names and telephone
numbers. Quantities for subsequent orders will be determined
on an individual store basis. All reorders must follow the
same terms and shipping instructions as noted above.
(iv) Lead times for each order:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Region Lead times
--------------------------------------------------------------------
<S> <C>
Ontario 3 to 5 business days
--------------------------------------------------------------------
all other provinces, excluding Ontario 7 to 10 business days
--------------------------------------------------------------------
</TABLE>
(v) Contact list - (416) 595-6222:
Pointman - Kevin Lewis, Account Manager (Ext.
239)
Shipping & Fulfillment - Chris Creed, VP Operations (Ext. 234)
Accounting - Michael Lee, Controller (Ext 226)
(vi) Return policy:
All Tracker Kits come with a 21-day return policy, from the
date of purchase by the customer. A full refund is given less
a 20% restocking charge, providing all returned goods are in
resalable conditions. Costs for return shipments are to be the
responsibility of Sony. All return shipments must be
pre-authorized by Chris Creed, VP Operations of Tracker.
10) Tracker and Sony will develop and send to each store an easy to follow
training summary of the benefits of the Tracker service offered within
each Kit, and explaining to each Rep the activation card procedure and
the incentive commission structure available to them as noted below:
<PAGE> 3
<TABLE>
<CAPTION>
--------------------------------------------------
Kit type sold Rep Commission
--------------------------------------------------
<S> <C>
Bronze - 1 year service $ 5.00
--------------------------------------------------
Silver - 2 year service $ 7.50
--------------------------------------------------
Gold - 3 year service $12.00
--------------------------------------------------
</TABLE>
11) Tracker shall indemnify Sony and hold Sony harmless from any and all
claims, suits, actions, liabilities and costs of any kind, including
reasonable legal fees and all costs of litigation, for any and all
claims by any party resulting directly or indirectly from any acts,
representations or omissions by Tracker relating to this Agreement or
the performance of Tracker or of the Kits. Tracker shall, at the
request of Sony, assume the defense of any claims or proceedings
brought against Sony by reason thereof and pay damages payable by Sony
as a result of the disposition of any such claims or proceedings.
12) Tracker shall maintain accurate records and accounts of all
transactions pertaining to this Agreement, including renewals, and
shall retain the same for a period two (2) years. If Sony requires any
information in connection with such accounts and records, the aforesaid
accounts and records shall be made available by Tracker during its
normal business hours for examination by Sony or its representative
appointed in writing.
13) Sony agrees that Tracker may promote the Kits using the name "SONY" and
all insignia and other identifying names and marks which Sony instructs
Tracker to use in connection with any such name, provided that Tracker
shall do so only in conformity with such directions as may be given
from time to time by Sony. Notwithstanding the foregoing, Tracker does
not have nor will Tracker acquire any rights or interest in such names,
marks or insignia and at the option of Sony, Tracker will promptly
cease and desist using or displaying said names, marks or insignia
and/or abandon or assign to Sony any rights which Tracker may acquire
by operation of law or otherwise with respect to said names, marks or
insignia and Tracker will promptly execute such documents as in the
opinion of Sony are or may be necessary to give effect to the
foregoing. In the event this Agreement is terminated for any reason,
Tracker will, at Tracker's expense, immediately destroy any materials
which contain any reference thereon to the said names, marks or
insignia.
We trust this Agreement meets with your approval. Please sign on the appropriate
line below. We are looking forward to a long and prosperous business
relationship.
Yours very truly,
The Tracker Corporation
Agreed and accepted by:
/s/ /s/
Kevin Lewis
Account Manager National Marketing Manager, Retail
Sony of Canada Ltd.
cc Mark Gertzbein, Tracker CFO
Hope Carlson-Hamm, Sony Sr. Buyer
<PAGE> 1
EXHIBIT 10.31
LEAD GENERATION / CORPORATE RELATIONS AGREEMENT
THIS AGREEMENT is made this 20th day of November, 1995, between CORPORATE
RELATIONS GROUP, INC., a Florida corporation (hereinafter "CRG"), and THE
TRACKER CORPORATION, (hereinafter the "Client").
RECITALS
1. The Client wishes to retain CRG to provide corporate relations services
to the Client.
2. CRG is willing to provide such corporate relations services as are more
fully described herein.
NOW THEREFORE, in consideration of the mutual promises contained herein, it is
agreed as follows:
I. Furnishing of Information by Client. The Client shall furnish to CRG
information about the Client such as copies of disclosure and filing
materials, financial statements, business plans, promotional
information and background of the Client's officers and directors
("Information Package"). The Client shall update the Information
Package on a continuous basis. The Client understands that the sole
purpose for providing CRG with the Information Package is for
utilization in a Lead Generation / Corporate Relations program. CRG is
not obligated to assess the financial viability of the Client. CRG may
rely on, and assume the accuracy of the Information Package.
II. Representations and Warranties of Client. The Client represents that
all information included in the Information Package furnished to CRG
shall disclose all material facts and shall not omit any facts
necessary to make statements made on behalf of the Client not
misleading.
III. Covenants of the Client. The Client covenants and warrants that any
information submitted for dissemination will be truthful, accurate, in
compliance with all copyright laws and all other applicable laws and
regulations and will not be submitted in connection with any improper
or illegal act or deed.
IV. Based on the Information Package, CRG will perform the services more
fully described in Exhibit "A" for a period of twelve (12) months
pursuant to the terms hereof, which services shall specifically include
CRG making oral representations on behalf of the Client pursuant to the
following procedures:
A. Preparation of Proofs. CRG shall prepare proofs and or tapes
of the agreed upon materials and information, as set for
dissemination, for the Client's review and approval;
/s/ , /s/
-------- -------
Initials
1
<PAGE> 2
B. Correction and Changes of Proofs and or Tapes. CRG shall make
all corrections and changes that the Client may request.
C. Sign Offs. All approvals, corrections and change of proofs by
the Client shall be signed by a duly authorized representative
of the Client. The Client hereby designates the individual(s)
listed in Exhibit "C" hereof as authorized representatives for
purposes of this paragraph 4(a), (b) and (c); and CRG may rely
upon this designation.
V. Compensation. Refer to Exhibit "B".
VI. IT IS UNDERSTOOD AND AGREED BY THE PARTIES THAT THE ABOVE COMPENSATION
IN U.S. CURRENCY, OR FREE TRADING SHARES OF THE COMPANY, SHOULD BE PAID
TIMELY UPON EXECUTION OF THIS AGREEMENT. CRG WILL RETAIN THE OPTION,
BUT IS NOT COMPELLED TO BEGIN ITS PERFORMANCE UNDER THIS AGREEMENT
PRIOR TO THE PAYMENT OF SUCH COMPENSATION IN U.S. CURRENCY OR FREE
TRADING SHARES.
VII. Assumption of Liability and Indemnification. The Client assumes and
claims all responsibility and liability for the content of all
information disseminated on behalf of the Client which have been
approved by Client. The Client shall indemnify and hold CRG, its
subsidiaries and parent company harmless from and against all demands,
claims or liability arising for any reason due to the context of
information disseminated on behalf of the Client. This indemnity shall
include all costs incurred by CRG including, but not limited to, legal
fees and expenses incurred both in administrative proceedings, at trial
and appellate levels, in settlement of claims and payment of any
judgment against CRG.
VIII. Assignment and Delegation. Neither party may assign any rights or
delegate any duties hereunder without the other party's express prior
written consent.
IX. Entire Agreement. This writing contains the entire agreement of the
parties. No representations were made or relied upon by either party,
other than those expressly set forth. Furthermore, the Client
understands that CRG makes no guarantees, assurances or representations
in regard to the results of its corporate relations program. No agent,
employee or other representative of either party is empowered to alter
any of the above terms, unless done in writing and signed by an
executive officer of the respective parties.
X. Controlling Law and Venue. This Agreement's validity, interpretation
and performance shall be controlled by and construed under the laws of
the State of Florida. The proper venue and jurisdiction shall be the
circuit Court in Orange County, Florida.
XI. Prevailing Party. In the event of the institution of any legal
proceedings or litigation, at the trial level or appellate level, with
regard to this Agreement, the prevailing party shall be entitled to
receive from the non-prevailing party all costs, reasonable attorney's
fees and expenses.
/s/ , /s/
-------- -------
Initials
2
<PAGE> 3
XII. Failure to Object not a Waiver. The failure of either party to this
Agreement to object to, or to take affirmative action with respect to
any conduct of the other which is in violation of the terms of this
Agreement shall not be construed as a waiver of the violation or
breach, or of any future violation, breach or wrongful conduct.
XIII. Notices. All notices or other documents under this Agreement shall be
in writing and delivered personally or mailed by certified mail,
postage prepaid, addressed to the representative or Company as follows:
COMPANY: CORPORATE RELATIONS GROUP, INC.
1801 Lee Road, Suite 301
Winter Park, LF 32789
Attention: Roberto E. Veitia, President
CLIENT: THE TRACKER CORPORATION
180 Dundas Street West, Suite 1502
Toronto, Ontario M5G 1Z8
Attention: Bruce Lewis, Chairman
XIV. Headings. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
XV. Time. For all intents and purposes, time is of the essence with this
agreement.
XVI. Agreement Not To Hire. The Client understands and appreciates that CRG
has invested a tremendous amount of time, energy and expertise in the
training of its employees to be able to provide the very service that
Client desires. Client further understands that should an employee be
enticed to leave, then CRG will be damaged in an amount the parties are
incapable of calculating at this time. Therefore, the Client agrees not
to offer employment to any employee or subcontractor of CRG, nor to
allow any officer or director of Client to offer such employment with
Client or any other company with whom officers and directors of Client
are employed or hold a financial stake for a period of three (3) years.
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
CORPORATE RELATIONS GROUP, INC.
BY: /s/ Roberto E. Veitia BY: James W. Spratt
---------------------------- ----------------------------------
Roberto E. Veitia, President James W. Spratt, III
Vice President/Investment Banking
THE TRACKER CORPORATION
BY: /s/ Bruce Lewis
----------------------------
Bruce Lewis, Chairman
/s/ , /s/
-------- -------
Initials
3
<PAGE> 4
EXHIBIT "A"
The Corporate Relations Services to be provided by CRG for a twelve (12) month
period are as follows:
I. ADVERTISING AND PRINTING SERVICES
A. MONEYWORLD MAGAZINE - Lead Generation mailing (400,000 print
run total for the twelve month period)
- Eighteen page, four color magazine will be created of
which four page advertorial will be dedicated to the
Client.
- Creative concept, color separations, copy work and
printing
- 400,000 to be mailed
B. GROWTH INDUSTRY REPORT - Four page, four color follow-up mail
piece designed for additional informational purposes that is
mailed to respondents. A total of 10,000 will be printed.
C. THE CORE BROKER PROGRAM - CRG will produce a core of 8-10
retail brokers, market makers and or money managers who will
take positions in the stock of "THE TRACKER CORPORATION". This
process will begin immediately upon CRG receiving the payment
as stipulated in Exhibit "B" and will be completed no later
than a month before mailing occurs. Upon completion, selection
and approval of the Core Broker Group, CRG will arrange a Core
Broker meeting. This will last for two days, which will
include; a show and tell form the top management of "THE
TRACKER CORPORATION" in intense training of these core
brokers.
D. Public relations exposure to newsletter writers, trade
publications and financial gurus. At CRG's discretion, it will
pay for any special reports that may be required. The Client
shall be totally responsible for all travel expenses for the
purpose of due diligence of the company by financial
newsletter writers and/or brokers. The Client will have total
pre-approval rights on these trips.
E. Inclusion as a featured "Lead Generator of the Month" in
CONFIDENTIAL FAX ALERT, a newsletter transmitted by fax to
over 3,000 Brokers. This newsletter will be sent out a second
time with an update. (First to be completed, as soon as
possible).
F. Preparation of a Broker Bullet Sheet to be sent to every
broker who shows interest in working the leads and the stock.
(As soon as possible).
4
<PAGE> 5
EXHIBIT "A"
PAGE -2-
G. Lead Tracking Summary maintained for all response leads
generated and provided.
H. Follow-up with shareholders, brokers, funds and institutions.
I. Investor Relations - Press release placements in market
publications. The Client shall pay the actual cost incurred
for these wire services.
J. Two Location Road Shows - Locations to be determined. Client
will cover all expenses of Road Shows. Client will have prior
approval over those expenses.
K. Junior Page Advertising in four (4) separate issues of Money
World magazine.
L. Advertising Insert in MARKET EXPRESS mailed to 25,000 active
subscribers.
M. CRG will distribute at its cost the due diligence packages to
all inquiring brokers. The Client shall supply the necessary
materials for this package.
N. CRG guarantees a minimum of 3% return of qualified investor
leads specifically generated for the Company.
O. Advice on Fund Raising.
1. If travel is required, the Client will pay
transportation and hotel expenses.
P. Assistance in review of documentation to be sent to brokers.
1. If travel is required, the Client will pay
transportation and hotel expenses.
Q. Assistance in public relations with investment newsletter
writers and financial institutions.
1. If travel is required, the Client will pay
transportation and hotel expenses.
R. Advice on mergers and acquisitions.
1. If travel is required, the Client will pay
transportation and hotel expenses.
5
<PAGE> 6
EXHIBIT "B"
PAYMENT AGREEMENT
made by and between
THE TRACKER CORPORATION
and
CORPORATE RELATIONS GROUP, INC.
THIS AGREEMENT is made this 20th day of November, 1995, and will serve as
confirmation of payment terms for services to be provided THE TRACKER
CORPORATION ("CLIENT") whereby CORPORATE RELATIONS GROUP, INC. ("CRG") has
agreed to perform said services as defined in the "Lead Generation / Corporate
Relations Agreement."
TERMS
A. CLIENT will pay to CRG, FIVE HUNDRED SEVENTY THOUSAND DOLLARS ($570,000
U.S. cy) or as a convenience to Client, 570,000 DOLLARS worth of free
trading THE TRACKER CORPORATION common shares. The formula shall be the
$570,000 U.S. cy divided by the BID PRICE of the shares on the date of
signing this Agreement which has been determined to be $1.75 per share.
This will equal the amount of shares payable to CRG. This has been
determined to be 326,000 common shares of THE TRACKER CORPORATION.
B. This Agreement is subject to compliance with the rules of the Exchanges
and Securities Commissions on which Client is listed and registered.
C. IT IS UNDERSTOOD AND AGREED BY THE PARTIES THAT THE ABOVE COMPENSATION
IN U.S. CURRENCY, OR FREE TRADING SHARES OF THE COMPANY, SHOULD BE PAID
TIMELY UPON EXECUTION OF THIS AGREEMENT. CRG WILL RETAIN THE OPTION,
BUT IS NOT COMPELLED TO BEGIN ITS PERFORMANCE UNDER THIS AGREEMENT
PRIOR TO THE PAYMENT OF SUCH COMPENSATION IN U.S. CURRENCY OR FREE
TRADING SHARES.
D. In the event of termination of the Agreement by Client, CRG shall be
fully released and forever discharged by Client from any further
obligations or liabilities with respect to the "Lead Generation /
Corporate Relations Agreement" and any results therefrom, save and
except liabilities arising from CRG's own negligence during the term of
this Agreement. Concurrently, Client shall be fully released and
forever discharged by CRG from any and all obligations of further
payments or liabilities with respect to the "Lead Generation /
Corporate Relations Agreement." This release in no way affects Point
#7, Page 2 of the "Lead Generation / Corporate Relations Agreement."
<PAGE> 7
EXHIBIT "B"
PAGE -2-
E. Shares shall be made free trading through the registration that is
mutually agreed upon by the Company's attorney and CRG's attorney.
F. Company shall issue options to CRG as outlined below.
<TABLE>
<CAPTION>
Amount Price Duration
------ ----- --------
<S> <C>
100,000 shares at $2.00 One (1) year from the date of this Agreement
100,000 shares at $2.40 Two (2) years from the date of this Agreement
100,000 shares at $2.60 Three (3) years from the date of this Agreement
100,000 shares at $2.80 Five (5) years from the date of this Agreement
100,000 shares at $3.00 Five (50) years from the date of this Agreement
</TABLE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
CORPORATE RELATIONS GROUP, INC.
BY: /s/ Roberto E. Vietia BY: /s/ James W. Spratt
----------------------------- ---------------------------------
Roberto E. Veitia James W. Spratt, III
President Vice President/Investment Banking
THE TRACKER CORPORATION
BY: /s/ Bruce Lewis
-----------------------------
Bruce Lewis
Chairman
<PAGE> 8
EXHIBIT "C"
THE TRACKER CORPORATION hereby designates the following person or persons to act
on its behalf for purposes of signing off on all copies pursuant to Paragraph 4
of this Corporation Relations Agreement. CRG may rely upon the signature of any
of the following:
/s/ Bruce Lewis Bruce Lewis
- ------------------------------- -----------------------------
DIRECTOR (PLEASE SIGN) DIRECTOR (PLEASE PRINT)
/s/ Ed J. Korhonen Ed J. Korhonen
- ------------------------------- -----------------------------
PRESIDENT (PLEASE SIGN) PRESIDENT (PLEASE PRINT)
/s/ Mark Gertzbein Mark Gertzbein
- ------------------------------- -----------------------------
VICE PRESIDENT (PLEASE SIGN) VICE PRESIDENT (PLEASE PRINT)
<PAGE> 9
AMENDMENT
TO THE MARKETING AGREEMENT
BETWEEN
THE TRACKER CORPORATION OF AMERICA AND
CORPORATE RELATIONS GROUP, INC.
DATED DECEMBER 5, 1995.
WHEREAS, CORPORATE RELATIONS GROUP, INC. (Hereinafter referred to as
"CRG"), agrees to provide THE TRACKER CORPORATION OF AMERICA (Hereinafter
referred to as "TRACKER") with 12 hours per month of CRG's marketing
department's assistance at no charge. This department is headed by Patrick
Charuhas and is to consist of 12 hours of labor only, all other costs are to be
billed to TRACKER and paid on a monthly basis in cash or stock at the bid price
on the date of invoice, and
WHEREAS, TRACKER also has the availability of our public relations
department headed by Stephanie Jones for setting up various media roll-outs and
other events as needed. Any hourly billings by CRG's Marketing, Public
Relations, or any other department not covered under this marketing agreement
will be billed at $150.00 per hour.
IN WITNESS WHEREOF this agreement is executed as of the date set forth
below.
CORPORATE RELATIONS GROUP, INC.
By: /s/ Roberto E. Vietia Dated: 12/5/95
------------------------------
Roberto E. Veitia
President
THE TRACKER CORPORATION
By: /s/ Bruce Lewis Dated: 12/6/95
------------------------------
Bruce Lewis, Chairman
<PAGE> 1
EXHIBIT 10.32
INDEPENDENT CONTRACTOR AGREEMENT
BETWEEN:
THE TRACKER CORPORATION
(Hereinafter called "Tracker")
OF THE FIRST PART
- and -
DATATRACK INC.
(Hereinafter called the "Independent Contractor")
OF THE SECOND PART
WHEREAS Tracker is in the business of direct telemarketing its Credit
Card Registration Service to individuals with credit cards to protect
("potential members");
AND WHEREAS the Independent Contractor has agreed to assist Tracker in
the sale of a Tracker Credit Card Registration Service to potential members via
telemarketing on a straight commission fee basis (the "Fees");
NOW THEREFORE in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
1. The Independent Contractor, and its agents, shall report all firm and
final sales to potential members via telemarketing in the United States of
America (the "Territory") on a daily basis to Tracker.
2. a.) Tracker shall pay the Independent Contractor Fees equal to
fifty percent (50% of the proceeds from firm and final sales
in lawful money of the United States of America (i.e.
non-cancelled sales, net of applicable taxes, generated by the
Independent Contractor, and its agents, to potential members
in the Territory, which are paid via authorized credit card).
The Fees shall be paid by Tracker to the Independent
Contractor, each Thursday on a weekly basis but shall not be
paid later than seven business days subsequent to receiving
authorization of credit card numbers.
b.) Notwithstanding the foregoing, Tracker may retain up to 20% of
the Fees on a weekly basis (the "Holdback") to be applied
against cancellations. All Holdback not applied against
cancellations shall be released and paid to the Independent
Contractor not later than 38 days after the occurrence of such
Holdback. The percentage of the Holdback may be adjusted by
the parties from time to time based upon actual cancellation
experience.
c.) The Fees shall be accompanied by a detailed weekly
reconciliation of the Fees and the Holdback, itemized per
sales representative, and presented to the
<PAGE> 2
Independent Contractor each Thursday by 6 p.m. The
reconciliation shall cover all firm and final sales generated
up to and including 11:59 p.m. on the Tuesday of that week.
d.) Notwithstanding the foregoing, until all start up costs as
outlined in Schedule A are recovered, the Independent
Contractor shall be paid $50 (CDN) per firm and final sale
without Holdback.
3. Tracker agrees to send out the mutually agreed upon Tracker Credit Card
Registration Service kit (the "Kit") to all firm and final sales authorized
potential members within 7 to 10 business days of when such firm and final sales
were generated by the Independent Contractor. The mutually agreed upon Kit will
include 24 adhesive labels, all linked to a 5-year membership in the Tracker
Credit Card Registration Service. The contents of the Kit may vary as agreed in
writing by the parties from time to time.
4. Tracker and the Independent Contractor agree that the Kit will be sold
to Tracker's potential members in the Territory at $139.00 (U.S.) or at such
other price as the parties may from time to time otherwise in writing agree.
5. The Independent Contractor, and its agents, shall be responsible and
agree that it is a condition of this Agreement, to have all of its presentation
materials, sales presentation scripts, sales methods and wording of approach
(the "Materials") APPROVED IN WRITING BY TRACKER PRIOR TO MAKING SALES
PRESENTATIONS. The Independent Contractor, and its agents, agree at all times to
use and follow the "Materials".
6. Where this Agreement is terminated in accordance with its terms, any
Fees paid to the Independent Contractor on sales that subsequently cancel and
are not covered by the Holdback will be paid back by the Independent Contractor.
Notwithstanding the foregoing, Tracker acknowledges that any sale that cancels
21 or more days after receipt of the Kit shall be for the sole account of
Tracker and not the Independent Contractor.
7. The Independent Contractor, and its agents, agree that if this
Agreement is terminated in accordance with its terms, it will not for a period
of one (1) year within the geographic boundaries of the Territory, either by
itself or in partnership with or in conjunction with or as an employee, officer,
director, manager or agent of any other person, firm or corporation or in any
other capacity whatsoever, either directly or indirectly, undertake, carry on or
be engaged in or have any financial interest in, or in any manner advise or
assist any person, firm or corporation other than Tracker or pursuant to any
other agreement, be engaged or interested in any business purposes which are
directly or indirectly competitive with the telemarketing of the Tracker Credit
Card Registration Service.
8. During the normal course of the sales presentation, should any repeated
unreasonable deviation from the pre-approved Materials occur during the
presentations, then Tracker shall notify the Independent Contractor in writing
of such deviations and if such deviations are not corrected within 10 days after
such written notification, Tracker in its sole discretion, may consider the
Independent Contractor or its agents to have repeatedly misrepresented
themselves, and such conduct will be grounds to terminate this Agreement
immediately.
2
<PAGE> 3
9. The Agreement shall run for consecutive automatically renewing one year
terms and may only be terminated as provided herein, provided profit projections
shown in Schedule A are met on an annual basis. If production in any quarter
exceeds the projection set out in Schedule A then such excess production may be
carried forward for the balance of that one year term and applied towards any
future shortfall in production during such term. Where there is a shortfall in
production in any quarter it may be made up by production in excess of the
projection in the next consecutive quarter during that one year term. If such
profit projections are not met during any two consecutive quarters, Tracker, in
its sole discretion may immediately terminate this Agreement.
10. The Independent Contractor may terminate this Agreement at any time on
not less than 90 days prior written notice to Tracker and Tracker may at that
time solicit all or any employees or independent contractors of the Independent
Contractor.
11. Tracker may also terminate this Agreement at any time for cause or
breach of this Agreement and cause shall be defined as grossly negligent or
fraudulent conduct or conduct which brings discredit or negatively affects the
reputation of Tracker.
12. Where this Agreement is terminated in accordance with its terms, within
15 business days of such termination, the Independent Contractor shall change
its name to a name that does not use the word "Track" or any variation thereof
whatsoever.
13. This Agreement shall be binding on and enure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement may be assigned by either party on the written consent of the other
party, such consent not to be unreasonably withheld or unduly delayed.
14. Except for those costs specifically itemized to be for the account of
the Independent Contractor as set out in paragraph 15 below, Tracker shall pay
all costs associated with the business including without limitation all costs
listed in Schedule A, on an ongoing basis, including any other reasonable costs
not listed which may arise from time to time or on an ongoing basis in the
conduct of the business.
15. The Independent Contractor shall pay all salaries, commissions, fees
and all other remuneration necessary to conduct the sale of the Tracker Credit
Card Registration Service. The Independent Contractor shall also call back all
potential members to verify the information initially obtained by its sales
representatives and to tape, date and file all verification phone calls. The
Independent Contractor shall pay the remuneration required for all verification
personnel.
16. Provided profit projections in Schedule B are maintained on an annual
basis, if the business is expanded to any other territory or territories other
than the Territory or if the Tracker Credit Card Registration Service is sold by
any method other than telemarketing the Independent Contractor shall have the
right of first refusal to provide its existing services in the expanded
territory or territories or by the new method of selling in any territory on the
same terms and conditions as are contained in this Agreement.
3
<PAGE> 4
17. Provided profit projections in Schedule B are maintained on an annual
basis, the Independent Contractor shall be entitled to twenty percent (20%) of
net profits after expenses for all memberships which are renewed or continued
after the initial term of their membership, where such renewal or continuation
is automatically billed.
18. It is hereby acknowledged and agreed a partnership relationship shall
not be created by the terms of this Agreement, and neither this Agreement nor
the operations conducted under it shall be considered as creating such a
relationship. It is further acknowledged that neither party is an agent of the
other, and neither party has any authority to contractually or otherwise legally
bind the other party in any way.
19. The Independent Contractor acknowledges the following:
a. it has read this Agreement and understands the contents;
b. it has had an opportunity to review the terms of this
Agreement to its satisfaction;
and
c. it has received a duplicate executed copy of this Agreement.
20. This Agreement shall be enforceable in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein.
21. This Agreement is the entire agreement between the parties hereto
pertaining to the subject matter hereof.
22. The Independent Contractor agrees to indemnify and save Tracker
harmless in respect of all losses, costs and liabilities suffered, sustained or
incurred by Tracker as a result of the acts or omissions of the Independent
Contractor and its agents including any losses, damages, costs and liabilities
suffered as a result of any breach of the terms and conditions of this
Agreement.
DATED at Toronto as of the 12th day of January, 1996.
THE TRACKER CORPORATION
Per: /s/ Gigi Lipton 1/11/96
-------------------------------------
Gigi Lipton,
Vice-President Information Systems
DATATRACK INC.
Per: /s/ Don Davies
-------------------------------------
Don Davies,
President
/s/
-------------------------------------
Witness to Signatures
4
<PAGE> 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD REGISTRY PROGRAM SCHEDULE "A"
- -----------------------------------------------------------------------------------------------------------------------------------
P&L forecast for 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Start Up Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
# of sales 0 360 720 1080 1440 1440 1440 1440 1440 1440 1440 1440 1440 15120
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 0 67554 135108 202662 270216 270216 270216 270216 270216 270216 270216 270216 270216 2837268
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Tracker Revenues 0 33777 67554 101331 135108 135108 135108 135108 135108 135108 135108 135108 135108 1418634
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Rent allocation - 26th floor 0 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 45000
- -----------------------------------------------------------------------------------------------------------------------------------
Leaseholds 8000 0 0 0 0 0 0 0 0 0 0 0 0 8000
- -----------------------------------------------------------------------------------------------------------------------------------
Desks 3000 0 0 0 0 0 0 0 0 0 0 0 0 3000
- -----------------------------------------------------------------------------------------------------------------------------------
Chairs 3000 0 0 0 0 0 0 0 0 0 0 0 0 3000
- -----------------------------------------------------------------------------------------------------------------------------------
Dividers 2000 0 0 0 0 0 0 0 0 0 0 0 0 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Carpet 1500 0 0 0 0 0 0 0 0 0 0 0 0 1500
- -----------------------------------------------------------------------------------------------------------------------------------
Advertisements 0 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 45600
- -----------------------------------------------------------------------------------------------------------------------------------
Leads 0 4313 8625 12937 17250 17250 17250 17250 17250 17250 17250 17250 17250 181125
- -----------------------------------------------------------------------------------------------------------------------------------
Phones - Installation 3500 0 0 0 0 0 0 0 0 0 0 0 0 3500
- -----------------------------------------------------------------------------------------------------------------------------------
Phones - monthly 0 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 18000
- -----------------------------------------------------------------------------------------------------------------------------------
Long Distance 0 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 345600
- -----------------------------------------------------------------------------------------------------------------------------------
Administration (Billing) 0 400 800 1200 1600 1600 1600 1600 1600 1600 1600 1600 1600 16798
- -----------------------------------------------------------------------------------------------------------------------------------
Janitorial 0 100 100 100 100 100 100 100 100 100 100 100 100 1200
- -----------------------------------------------------------------------------------------------------------------------------------
Call Center Support 0 100 100 100 100 100 100 100 100 100 100 100 100 1200
- -----------------------------------------------------------------------------------------------------------------------------------
Brochure 0 54 108 162 216 216 216 216 216 216 216 216 216 2268
- -----------------------------------------------------------------------------------------------------------------------------------
Labels 0 270 540 810 1080 1080 1080 1080 1080 1080 1080 1080 1080 11340
- -----------------------------------------------------------------------------------------------------------------------------------
Inventory form 0 27 54 81 108 108 108 108 108 108 108 108 108 1134
- -----------------------------------------------------------------------------------------------------------------------------------
Return Envelope 0 18 36 54 72 72 72 72 72 72 72 72 72 756
- -----------------------------------------------------------------------------------------------------------------------------------
Window Envelope 0 18 36 54 72 72 72 72 72 72 72 72 72 756
- -----------------------------------------------------------------------------------------------------------------------------------
Postage 0 396 792 1188 1584 1584 1584 1584 1584 1584 1584 1584 1584 16632
- -----------------------------------------------------------------------------------------------------------------------------------
Return mail postage 0 122 245 367 490 490 490 490 490 490 490 490 490 5144
- -----------------------------------------------------------------------------------------------------------------------------------
Letter (card carrier) 0 36 72 108 144 144 144 144 144 144 144 144 144 1512
- -----------------------------------------------------------------------------------------------------------------------------------
Membership card 0 40 79 119 158 158 158 158 158 158 158 158 158 1660
- -----------------------------------------------------------------------------------------------------------------------------------
Fulfillment 0 162 324 486 648 648 648 648 648 648 648 648 648 6804
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 21000 43905 49761 55615 61472 61472 61472 61472 61472 61472 61472 61472 61472 723529
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Tracker Profit/Loss -21000 -10128 17793 45714 73636 73636 73636 73636 73636 73636 73636 73636 73636 695105
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1. Expenses do not include G.S.T.
2. Based on set up of 30 stations.
3. Revenues based on productivity of 2.4 (NET) sales per day per TSR
starting April 1, Jan-Mar represents gradual growth ($139 US selling
price converted at 1.35 CDN)
4. Tracker percentage at 50% of total revenues.
5. Rent allocation based on 2500 sq ft @ $15/sq ft.
6. Advertisements based on continuous running 1 1/16" x 1 1/2" (21 lines)
in Toronto Star.
7. Leads - initial purchases of 50,000 then at full production 150,000 per
month @ $115/'000.
8. Long Distance based on 240 minutes per day per operator (each 8 hours
shift = 480 minutes) @ $.20/min.
9. Janitorial - $100/mo.
10. Call Center Support - handling additional calls on the program & actual
credit card service
11. All fulfillment items - used figures from prior kit fulfillment.
12. Administration - incl. only billing, assume 72 bills is 8 hours work @
$10/hr.
Note: All management (other time devoted to the project is not accounted for
in the above forecasts.
5
<PAGE> 6
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD REGISTRY PROGRAM SCHEDULE "B"
- -----------------------------------------------------------------------------------------------------------------------------------
P&L forecast for 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Start Up Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
# of sales 0 540 1080 1620 2160 2160 2160 2160 2160 2160 2160 2160 2160 22680
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 0 101331 202662 303993 405324 405324 405324 405324 405324 405324 405324 405324 405324 4255902
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Tracker Revenues 0 50665 101331 151997 202662 202662 202662 202662 202662 202662 202662 202662 202662 2127951
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Rent allocation - 26th floor 0 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 3750 45000
- -----------------------------------------------------------------------------------------------------------------------------------
Leaseholds 8000 0 0 0 0 0 0 0 0 0 0 0 0 8000
- -----------------------------------------------------------------------------------------------------------------------------------
Desks 3000 0 0 0 0 0 0 0 0 0 0 0 0 3000
- -----------------------------------------------------------------------------------------------------------------------------------
Chairs 3000 0 0 0 0 0 0 0 0 0 0 0 0 3000
- -----------------------------------------------------------------------------------------------------------------------------------
Dividers 2000 0 0 0 0 0 0 0 0 0 0 0 0 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Carpet 1500 0 0 0 0 0 0 0 0 0 0 0 0 1500
- -----------------------------------------------------------------------------------------------------------------------------------
Advertisements 0 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 3800 45600
- -----------------------------------------------------------------------------------------------------------------------------------
Leads 0 4313 8625 12937 17250 17250 17250 17250 17250 17250 17250 17250 17250 181125
- -----------------------------------------------------------------------------------------------------------------------------------
Phones - Installation 3500 0 0 0 0 0 0 0 0 0 0 0 0 3500
- -----------------------------------------------------------------------------------------------------------------------------------
Phones - monthly 0 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 18000
- -----------------------------------------------------------------------------------------------------------------------------------
Administration (Billing) 0 600 1200 1800 2400 2400 2400 2400 2400 2400 2400 2400 2400 25197
- -----------------------------------------------------------------------------------------------------------------------------------
Long Distance 0 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 28800 345600
- -----------------------------------------------------------------------------------------------------------------------------------
Janitorial 0 100 100 100 100 100 100 100 100 100 100 100 100 1200
- -----------------------------------------------------------------------------------------------------------------------------------
Call Center Support 0 100 100 100 100 100 100 100 100 100 100 100 100 1200
- -----------------------------------------------------------------------------------------------------------------------------------
Brochure 0 81 162 243 324 324 324 324 324 324 324 324 324 3402
- -----------------------------------------------------------------------------------------------------------------------------------
Labels 0 405 810 1215 1620 1620 1620 1620 1620 1620 1620 1620 1620 17010
- -----------------------------------------------------------------------------------------------------------------------------------
Inventory form 0 41 81 122 162 162 162 162 162 162 162 162 162 1701
- -----------------------------------------------------------------------------------------------------------------------------------
Return Envelope 0 27 54 81 108 108 108 108 108 108 108 108 108 1134
- -----------------------------------------------------------------------------------------------------------------------------------
Window Envelope 0 27 54 81 108 108 108 108 108 108 108 108 108 1134
- -----------------------------------------------------------------------------------------------------------------------------------
Postage 0 594 1188 1782 2376 2376 2376 2376 2376 2376 2376 2376 2376 24948
- -----------------------------------------------------------------------------------------------------------------------------------
Return mail postage 0 184 367 551 734 734 734 734 734 734 734 734 734 7711
- -----------------------------------------------------------------------------------------------------------------------------------
Letter (card carrier) 0 54 108 162 216 216 216 216 216 216 216 216 216 2268
- -----------------------------------------------------------------------------------------------------------------------------------
Membership card 0 59 119 178 238 238 238 238 238 238 238 238 238 2495
- -----------------------------------------------------------------------------------------------------------------------------------
Fulfillment 0 243 486 729 972 972 972 972 972 972 972 972 972 10206
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 21000 44677 51304 57931 64558 64558 64558 64558 64558 64558 64558 64558 64558 755931
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Tracker Profit/Loss -21000 5988 50027 94066 138104 138104 138104 138104 138104 138104 138104 138104 138104 1372020
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1. Expenses do not include G.S.T.
2. Based on set up of 30 stations.
3. Revenues based on productivity of 2.4 (NET) sales per day per TSA
starting April 1, Jan-Mar represents gradual growth ($139 US selling
price converted at 1.35 CDN)
4. Tracker percentage at 50% of total revenues.
5. Rent allocation based on 2500 sq ft @ $15/sq ft.
6. Advertisements based on continuous running 1 1/16" x 1 1/2" (21 lines)
in Toronto Star.
7. Leads - initial purchases of 50,000 then at full production 150,000 per
month @ $115/'000.
8. Long Distance based on 240 minutes per day per operator (each 8 hours
shift = 480 minutes) @ $.20/min.
9. Janitorial - $100/mo.
10. Call Center Support - handling additional calls on the program & actual
credit card service.
11. All fulfillment items - used figures from prior kit fulfillment.
12. Administration Billing - based on 72 desks taking 8 hours of data entry
time @ $10/hr.
Note: No allowance made for mangement or other Tracker staff time in above
numbers.
6
<PAGE> 1
EXHIBIT 10.33
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement"), dated this ___ day of July,
1996, is made by and between Merchant Partners, L.P. ("Merchant Partners"), an
Illinois limited partnership, and The Tracker Corporation of America, a Delaware
corporation ("Tracker").
RECITALS
A. In conjunction with its subsidiary, The Tracker Corporation, an
Ontario corporation ("Tracker Canada"), Tracker is currently engaged in the
business of sale and operation of a personal property identification and
recovery system (the "Tracker Identification and Recovery System"). Tracker's
long-term goal is to develop a variety of personal property recovery services,
from its current Tracker Identification and Recovery System to a system of laser
etching of Tracker's symbology at points of manufacture. To this end, Tracker is
currently pursuing a marketing strategy for its products and services.
B. Merchant Partners invests in and assists emerging growth-oriented
businesses and leverage buy-outs in the consumer services, retailing and direct
marketing industries.
C. The parties desire to enter into an arrangement whereby, among other
things, (i) Merchant Partners shall actively introduce and promote Tracker to
Montgomery Ward & Co., Inc. ("Montgomery Ward"), ValueVision International, Inc.
("ValueVision") and certain other entities for the purpose of facilitating the
sale to such entities of the Tracker Identification and Recovery System, and
(ii) Merchant Partners shall be issued an option to acquire, in the aggregate,
up to 900,000 of the common shares (the "Option Shares") of Tracker (the
"Option"), on the terms and conditions contained herein.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Engagement, Activities and Term. Under the terms specified in this
Agreement, Tracker hereby engages Merchant Partners to actively introduce and
promote Tracker, its representatives and the Tracker Identification and Recovery
System to Montgomery Ward, ValueVision and certain, other entities, as set forth
in Exhibit A (individually, a "Prospect" and collectively, the "Prospects").
This Agreement shall commence on the date hereof and shall continue until the
fifth (5th) anniversary hereof, unless terminated earlier, as provided in
Section 8.
2. Consideration. As consideration for the services to be provided by
Merchant Partners hereunder, Tracker is executing and delivering to Merchant
Partners an options
<PAGE> 2
agreement (the "Options Agreement") in substantially the form attached hereto as
Exhibit B and a registration rights agreement (the "Registration Rights
Agreement") in substantially the form attached hereto as Exhibit C.
3. Pre-emptive Rights. Merchant Partners shall be entitled to
pre-emptive rights, as described in this Section 3, on all new issuances of
Tracker shares or other securities convertible into Tracker shares ("New
Issuances") issued for cash, except for: (i) additional issuances of Tracker
shares after the date of this Agreement to any of Tracker's officers, directors
or employees in an aggregate amount not to exceed ten percent (10%) of the
Tracker shares outstanding as of the date of this Agreement or pursuant to a
merger, exchange offer or transaction of a type specified in Rule 145(a) under
the Securities Act of 1933, as amended (the "Securities Act") or in connection
with the registration of securities issuable pursuant to an employee stock
option, stock purchase or similar plan; (ii) additional issuances of Tracker
shares after the date of this Agreement if such shares are issued pursuant to
the exercise, exchange or conversion of any options, warrants, evidences of
indebtedness, shares of stock or other securities which are convertible,
exchangeable or exercisable for Tracker shares, either immediately or upon the
arrival of a specified date or the happening of a specified event (collectively,
"Convertible Securities") that are outstanding as of the date of this Agreement
or of any Convertible Securities that have been authorized to be issued by
Tracker's Board of Directors as of the date of this Agreement (which authorized
but not yet outstanding Convertible Securities include 525 shares of Tracker's
Series B $1,000.00 6% Cumulative Convertible Preferred Stock); and (iii)
issuances that are registered under the Securities Act. No New Issuance shall
occur unless a prior written notice ("New Issuance Notice") is delivered to
Merchant Partners which notice shall specify (i) the number of Tracker shares to
be issued, (ii) the estimated date of such New Issuance, and (iii) the estimated
purchase price for such Tracker shares to be issued. After receipt of the New
Issuance Notice, Merchant Partners shall have a ten (10) business day period in
which to advise Tracker as to whether or not it wishes to exercise its
pre-emptive rights. Upon Merchant Partners' election to exercise its pre-emptive
rights with respect to such New Issuance, Merchant Partners shall have the right
to purchase its pro rata portion (based on a fraction the numerator of which is
the number of shares of Common Stock and Option Shares held by Merchant Partners
and the denominator of which is the number of shares of Common Stock and Class B
Stock (as defined below) issued and outstanding as of the date of the election
to exercise) of such New Issuance on terms as provided in the New Issuance
Notice. If within such ten (10) business day period after receipt of the New
Issuance Notice, Merchant Partners shall elect not to exercise its pre-emptive
rights with respect to such New Issuance, then Tracker shall be free to issue
such New Issuance to third parties, but, in no event, on more favorable terms
than those set forth in the New Issuance Notice received by Merchant Partners.
Failure to notify Tracker of the exercise of pre-emptive rights shall operate to
waive such rights.
4. Representations and Warranties of Tracker. Tracker hereby represents
and warrants to Merchant Partners that except as may have been otherwise
disclosed to Merchant Partners by Tracker in writing:
2
<PAGE> 3
(a) Tracker is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware. Tracker is in the business of
the sale and operation of a personal property identification and recovery system
and in the card registration business and wishes to develop a variety of other
recovery services. Tracker has no subsidiaries other than Tracker Canada and
614593 Alberta, Ltd. Tracker Canada is a corporation duly organized, existing
and in good standing under the laws of Ontario, Canada. Tracker Canada is in the
business of providing support to Tracker in the sale and operation of Tracker's
personal property identification and recovery system. 614593 Alberta, Ltd. is
not involved in the sale and operation of Tracker's personal property
identification and recovery system and does not conduct any other operations.
(b) Tracker has all requisite corporate power and authority to execute
and deliver this Agreement, the Options Agreement and the Registration Rights
Agreement and to perform its obligations hereunder and thereunder; such
execution, delivery and performance does not and shall not violate, or require
any consent, approval, or notice under, any provision of law or constitute a
violation of, conflict with, or result in the breach of the Certificate of
Incorporation or by-laws of Tracker or of any outstanding commitment,
arrangement, understanding, agreement or instrument to which Tracker is a party
or to which Tracker is subject; such execution, delivery and performance have
been duly authorized by all necessary corporate action on the part of Tracker;
and this Agreement, together with the Options Agreement and the Registration
Rights Agreement, has been duly authorized, executed and delivered by Tracker;
(c) There are no restrictions or any other limitations in the
Certificate of Incorporation or bylaws of Tracker which could restrict in any
way any issues of the stock by Tracker contemplated in this Agreement, the
Options Agreement or the Registration Rights Agreement;
(d) The authorized capital stock of Tracker consists of thirty (30)
million shares of Common Stock, par value $0.001 per share (the "Common Stock"),
twenty (20) million shares of Class B Voting Common Stock, par value $0.00000007
per share (the "Class B Stock"), and 500,000 shares of undesignated Preferred
Stock, par value $0.001 per share (the "Preferred Stock"). The number of issued
and outstanding shares, and the record and beneficial ownership thereof by
directors, officers and greater than ten percent (10%) beneficial owners are set
forth in Exhibit D, attached hereto. The Option Shares shall be validly issued,
fully paid and non-assessable if and when the Options granted under the Options
Agreement shall have been exercised in accordance with the terms of the Options
Agreement and Option Shares issued;
(e) Upon the purchase of any of the Option Shares in accordance with
the terms of the Options Agreement, Merchant Partners shall be vested with good,
valid and marketable title to such Option Shares free and clear of all
encumbrances such as pledges, liens, proxies, claims, charges, security
interests or any other encumbrances whatsoever (except for such restrictions as
may be imposed by federal or state securities laws), and no party, with the
exception of Saturn Investments, Inc. pursuant to a Right of First Refusal,
Co-Sale and Voting Rights Agreement in its favor (the "Saturn Agreement," a true
and complete copy of which has been
3
<PAGE> 4
provided to Merchant Partners), has any pre-emptive rights with respect to any
issuance of Option Shares;
(f) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other Person is required for or
in connection with the execution and delivery by Tracker of this Agreement, the
Options Agreement or the Registration Rights Agreement, or the consummation by
Tracker of the transactions contemplated hereby and thereby;
(g) Tracker possesses all licenses, permits, registrations,
governmental approvals and consents and agreements with governmental authorities
(each a "Permit"), the absence of which would have a material economic effect on
Tracker's business or financial condition, which are required in order for
Tracker to conduct its business as currently conducted and as conducted
consistent with past practice. All of such Permits are valid and unexpired and
no action or claim is pending or, to the knowledge of Tracker, threatened to
revoke or terminate any of such Permits or declare any such Permits invalid in
any material respect. To the knowledge of Tracker, it has taken all necessary
action to maintain such Permits;
(h) There is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any commission or
other administrative authority, pending or, to the best of the knowledge of
Tracker, threatened against it, any of its officers or directors, or Tracker
Canada which could reasonably be expected to have a material adverse effect on
the consummation of the transactions contemplated hereby. Tracker has not paid
or been required to pay direct, incidental, or consequential damages to any
Person in connection with marketing, distribution, servicing or monitoring of
Tracker Identification and Recovery Systems at any time since its inception.
Tracker is not a party to, or bound by, any decree, order or arbitration award
(or agreement entered into in any administrative, judicial or arbitration
proceeding with any governmental authority) with respect to or affecting its
properties, assets, liabilities, personnel or business activities. All Tracker
Identification and Recovery Systems and monitoring services provided in
connection therewith are and shall be free from any and all material defects in
materials and/or workmanship, and there are no material claims pending or, to
the best of the knowledge of Tracker, anticipated or threatened against each of
them with respect to the quality of or absence of defects in such Tracker
Identification and Recovery Systems or services;
(i) Tracker, its business, assets, properties and personnel are in
compliance in all material respects with all material applicable laws
(including, without limitation, any franchise, dealership or other business
opportunity laws), statutes, ordinances, rules, regulations and orders of any
governmental authority (collectively "Laws") with respect to the Tracker
Identification and Recovery System or any monitoring or other services rendered
in connection therewith, and Tracker has not received notice asserting any
violation thereof or non-compliance therewith; and
(j) To the knowledge of Tracker, Tracker owns or is duly licensed to
use all patents (if any), trademarks, service marks, trade names, processes,
technology, know-how, and trade
4
<PAGE> 5
secrets (the "Intellectual Property") used in, or otherwise necessary in the
conduct of, its business. Tracker has filed for trademark and/or service mark
protection in the United States and Canada, has filed an international patent
application pursuant to the Patent Cooperation Treaty for inventions related to
its personal property identification and recovery system and has employed
non-disclosure and other contractual agreements to protect any trade secrets
Tracker may have. Tracker has no knowledge of any claim that any third party
asserts ownership rights in any of the Intellectual Property. To the knowledge
of Tracker, there is no reason to believe that any such claims could be
reasonably asserted. To the knowledge of Tracker, its use of any Intellectual
Property or any of its business practices does not infringe any right of any
third party, contractual or otherwise. To the knowledge of Tracker, there is no
reason to believe that any such claims could be reasonably asserted. Tracker has
no knowledge or any reason to believe that any third party is infringing any of
its rights in any of the Intellectual Property.
5. Representations and Warranties of Merchant Partners. Merchant
Partners hereby represents and warrants to Tracker that:
(a) Merchant Partners has all requisite partnership power and authority
to execute and deliver this Agreement, the Options Agreement and the
Registration Rights Agreement, and to perform its obligations in accordance with
the terms of this Agreement; such execution, delivery and performance shall not
violate, or require any consent, approval or notice under, any provisions of law
or constitute a violation of, conflict with or result in the breach of the
Certificate of Limited Partnership or the Agreement of Limited Partnership of
Merchant Partners or of any outstanding commitment, arrangement, understanding,
agreement or instrument to which Merchant Partners is a party or to which
Merchant Partners is subject; such execution, delivery and performance have been
duly authorized by all necessary partnership action on the part of Merchant
Partners; and this Agreement, together with the Options Agreement and the
Registration Rights Agreement, have been duly executed and delivered by Merchant
Partners and constitute a legal, valid and binding agreement on the part of
Merchant Partners, enforceable against Merchant Partners in accordance with its
terms;
(b) Merchant Partners has been given the opportunity to ask questions
about Tracker and has been granted access to all information, financial and
otherwise, with respect to Tracker which has been requested, has examined such
information, and is satisfied with respect to the same; provided, however, that
Tracker has declined to answer certain questions regarding Tracker as it is in
the quiet period in connection with a registration statement filed under the
Securities Act;
(c) Merchant Partners has been provided by Tracker, or has acquired,
and has reviewed the publicly available copies of Tracker's most recent Annual
Report on Form 10-K/A, Tracker's most recent Quarterly Report on Form 10-Q/A,
Tracker's Registration Statement on Form S-1 (No. 33-99686), and the Saturn
Option Agreement;
(d) Merchant Partners, in determining to purchase the Option or the
Option Shares, as the case may be, has relied solely upon (i) the advice of its
legal counsel and accountants or
5
<PAGE> 6
other financial advisers with respect to the tax, economic and other
consequences involved in purchasing the Option and the Option Shares; (ii)
Merchant Partner's own independent evaluation of the business, operations and
prospects of Tracker and the merits and risks of the purchase of the Option or
the Option Shares; and (iii) the information indicated in Section 5(c);
(e) Other than the statements contained herein or in the information
indicated in Section 5(c) or as provided in writing by Tracker to Merchant
Partners, no oral or written representations or statements have been made by
Tracker concerning the Option or the Option Shares;
(f) Merchant Partners has no need for liquidity in the Option or the
Option Shares and is in a financial position to hold the Option and the Option
Shares for an indefinite period of time and to bear the economic risk of, and
withstand a complete loss of the investment in, the Option and the Option
Shares;
(g) Merchant Partners has the knowledge and experience in financial and
business matters that is necessary to evaluate the merits and risks of an
investment in the Option and the Option Shares. Merchant Partners has prior
investment experience, including investment in non- listed and non-registered
securities and, based on such prior investment experience and its knowledge and
experience in financial and business matters in general, Merchant Partners
understands the nature of this investment, is fully aware of and familiar with
the business operations of Tracker, and is able to evaluate the merits and risks
of an investment in the Option and the Option Shares. Merchant Partners
understands that its investment in the Option and the Option Shares is, by its
nature, highly speculative and involves a high degree of risk, that only
investors who can afford the loss of their entire investment should consider
investing in the Option and Option Shares, and that Merchant Partners may
sustain the loss of its entire investment;
(h) Merchant Partners understands that Tracker will require additional
financing in the near future in order to continue its business, that there can
be no assurance that Tracker will be able to obtain such financing at all or on
terms acceptable to Tracker, and that such additional financing, if obtained,
could dilute or otherwise affect Merchant Partners' interest in Tracker;
(i) Merchant Partners understands that Tracker has been advised that
the SEC may be inquiring into trading in Tracker's securities and that Tracker
has no reason to believe that it is the target of any such inquiry or that any
activity of Tracker would result in any liability under the federal securities
laws;
(j) The Option and Option Shares are being acquired for investment for
Merchant Partners' own account and not with a view to, or for resale in
connection with, any distribution thereof;
(k) No federal or state governmental agency, domestic or foreign,
including the SEC, has reviewed or approved or disapproved the Option or the
Option Shares, passed upon or
6
<PAGE> 7
endorsed the merits of the Option or the Option Shares, or made any finding or
determination as to the fairness of the Option or the Option Shares for private
investment;
(l) Neither the Option nor the Option Shares may be sold, transferred,
or otherwise disposed of in whole or in part without registration under the
Securities Act of 1933 (the "Act") and any other applicable securities laws or
the availability of an exemption therefrom, and in the absence of an effective
registration statement covering the shares or the availability of an exemption
from registration under the Act and any other applicable securities laws, it may
be necessary to hold the Option or the Option Shares indefinitely. In the
absence of an effective registration statement under the Act covering the Option
or the Option Shares, Merchant Partners will sell, transfer, or otherwise
dispose of the Option or the Option Shares only in a manner consistent with the
representations set forth herein, and as permitted by law;
(m) All certificates or documents evidencing the Option Shares shall
bear appropriate legends restricting their transfer in accordance with
applicable law;
(n) By exercising the Option at any time, or from time to time,
Merchant Partners shall thereby restate the foregoing representations,
warranties, and covenants (except for those contained in (f), (h), (i) and (j)
above and as otherwise reasonably specified to Tracker in writing at the time of
exercise) as of the date of such exercise(s); and
6. Joint Representations, Warranties and Covenants.
(a) Each party acknowledges that the other party has relied upon the
foregoing representations, warranties, and covenants, and each party hereby
agrees to indemnify, defend, and hold harmless the other party and its
affiliates and their respective officers, directors, controlling persons,
agents, employees, attorneys, successors, heirs, and assigns from and against
any and all losses, damages, liabilities, costs, expenses (including attorneys'
fees and disbursements), settlements, judgments, fines, penalties, or other
charges or liabilities (joint or several) (collectively "Losses") due to or
arising out of a breach of any such representation, warranty, or covenant.
(b) The person executing this Agreement on behalf of each party (i) has
made due inquiry to determine the truthfulness of the representations and
warranties made herein by such party and (ii) is duly authorized to enter into
and execute this Agreement on behalf of such party and, in the case of Merchant
Partners, to make this investment; provided, however, that Tracker has declined
to answer certain questions asked by Merchant Partners regarding Tracker as it
is in the quiet period in connection with a registration statement filed under
the Securities Act.
7. Covenants of Tracker. Without the prior written consent of Merchant
Partners, except in accordance with the provisions of this Agreement, Tracker
agrees that:
(a) Tracker shall not engage in any action which is inconsistent with
this Agreement, the Options Agreement or the Registration Rights Agreement, or
which would have the effect
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<PAGE> 8
of preventing Tracker from issuing, delivering or selling, as the case may be,
any of the Option Shares to Merchant Partners or otherwise performing their
obligations under this Agreement, the Options Agreement or the Registration
Rights Agreement, or omit to take any action which would have such effect;
(b) Tracker shall keep Merchant Partners informed on a timely basis of
any plans of Tracker to effect any public offering and shall provide Merchant
Partners with any and all documents and information in connection therewith,
including without limitation copies of final drafts of any registration
statements a reasonable time prior to filing;
(c) For any periods during which Tracker is not required to file annual
and quarterly reports with the Securities and Exchange Commission pursuant to
Sections 13(d) or 15(d) of the Securities Exchange Act of 1934, as amended,
Tracker shall provide Merchant Partners with the following information on a
timely basis: (i) unaudited quarterly and audited annual financial statements,
in each case prepared in accordance with generally accepted accounting
principles; (ii) information on all material developments affecting the
consolidated business or financial condition of Tracker; and (iii) any other
information that Merchant Partners reasonably requests in order to enable
Merchant Partners to decide whether or not to exercise the Option rights granted
hereunder including, without limitation, any registration rights pursuant to
Section 3 of this Agreement;
(d) Tracker shall at all times, cause to be done all things necessary
to maintain, preserve and renew its corporate existence and all qualifications
and Permits, the absence of which could reasonably be expected to have a
material adverse effect on Tracker's business or financial condition;
(e) Tracker shall maintain and preserve all of the Intellectual
Property necessary for the conduct of Tracker's business and shall own all
right, title and interest in and to, or have a valid license for, all of the
Intellectual Property and shall not take any action, or fail to take any action,
which would result in the invalidity, abuse, misuse or unenforceability of such
Intellectual Property or which would infringe upon any rights of other persons,
which could reasonably be expected to have a material adverse effect on
Tracker's business or financial condition;
(f) Tracker shall at all times comply in all material respects with all
material applicable Laws, whether now in effect or hereafter enacted or
promulgated, with which the failure to comply would have a material adverse
effect on Tracker's business or financial condition, and shall cause the Tracker
Identification and Recovery System to be at all times in material compliance
with all Laws including, but not limited to, labeling, health, safety, and
environmental regulations that apply to the use, manufacture, distribution,
promotion and sale of such personal property identification and recovery system,
except that Tracker may in good faith contest the validity of any Law as applied
to Tracker; and
8. Termination. This Agreement may be terminated by either Tracker or
Merchant
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Partners, upon ten (10) days written notice to the other party, upon Material
Breach (as defined herein) of this Agreement by the other party, and either
Tracker or Merchant Partners may sue to recover damages incurred as a result of
a Material Breach by the other party. For purposes of this Agreement:
(a) "Material Breach" on the part of Tracker shall mean: (i) such time
if any, as Tracker shall have entered against it by a court having jurisdiction
thereof a decree or order for relief in respect to Tracker in an involuntary
case under any applicable bankruptcy, insolvency of other similar law now or
hereafter in effect, or a receiver, liquidator, assignee, custodian, trusted
sequestrator or other similar official shall be appointed for Tracker or for any
substantial part of its property, or the winding up or liquidation of its
affairs shall have been ordered; or Tracker shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for such relief in an
involuntary case under any such law, or any such involuntary case shall
commence, and not be dismissed within sixty (60) days, or Tracker shall consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official for Tracker or for
any substantial part of its respective property, or make any general assignment
for the benefit of creditors; or (ii) a material breach by Tracker of any
representation, warranty or covenant made or agreed to by such party in this
Agreement, the Options Agreement or the Registration Rights Agreement, provided
that such breach continues for period of twenty (20) days (or such longer period
of time, not to exceed one hundred twenty (120) days, as may be required to cure
such breach) following written notice of such breach from Merchant Partners; and
(b) "Material Breach" on the part of Merchant Partners shall mean: (i)
such time, if any, as Merchant Partners shall have entered against it by a court
having jurisdiction thereof a decree or order for relief in respect to Merchant
Partners in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official shall be
appointed for Merchant Partners or for any substantial part of Merchant
Partner's property, or the winding up or liquidation of Merchant Partner's
affairs shall have been ordered; or Merchant Partners shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for such relief in an
involuntary case under any such law, or any such involuntary case shall
commence, and not be dismissed within sixty (60) days, or Merchant Partners
shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
for Merchant Partners or for any substantial part of Merchant Partner's
property, or make any general assignment for the benefit of creditors; or (ii) a
material breach by Merchant Partners of any material representation, warranty or
covenant made or agreed to by Merchant Partners in this Agreement, the Options
Agreement or the Registration Rights Agreement, provided that such breach
continues for period of twenty (20) days (or such longer period of time, not to
exceed one hundred twenty (120) days, as may be required to cure such breach)
following written notice of such breach from Tracker.
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9. Specific Performance. The parties hereto agree that irreparable
damage would occur if any of the provisions of this Agreement, the Options
Agreement or the Registration Rights Agreement are not performed by the parties
hereto and thereto in accordance with their specific terms, or were otherwise
breached. It is accordingly agreed that the non-breaching party shall be
entitled to an injunction or other equitable remedies to prevent any breach of
this Agreement, the Options Agreement or the Registration Rights Agreement and
to enforce specifically the terms and provisions hereof and thereof in any court
of the United States or any state having jurisdiction in addition to any other
remedy to which such non-breaching party is entitled at law or in equity.
10. Further Assurances. The parties shall execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
11. Expenses. No party hereto shall have any obligation to pay fees and
expenses incurred by any other party in connection with this Agreement,
including, without limitation, the fees and expenses of its respective financial
and legal advisors, unless otherwise specifically provided herein.
12. Parties in Interest; Assignment. This Agreement is binding upon and
is solely for the benefit of the parties hereto and their respective successors,
legal representatives and permitted assigns. Neither party may assign its rights
or obligations under this Agreement without the prior written consent of the
other parties; provided, however, that: (i) either party shall have the right to
assign any and all rights and obligations of the party under this Agreement to
an affiliate of the party in which the party has a majority equity interest,
provided that, in the case of Merchant Partners, no minority interest in such
affiliate is held by a person or entity engaged in the personal property
identification and recovery business; and (ii) Merchant Partners shall have the
right to assign any and all of its rights, but not its obligations, under this
Agreement to any one or more of the partners in Merchant Partners.
13. Amendments. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
14. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and may be delivered by hand, by
facsimile, by nationally recognized private courier, or by United States mail.
Notices delivered by mail shall be deemed given three (3) business days after
being deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested. Notices delivered by hand, by
facsimile or by nationally recognized private courier shall be deemed given on
the first business day following delivery; provided, however, that a notice
delivered by facsimile shall only be effective if such notice is also delivered
by hand, or deposited in the United States mail, postage prepaid, registered or
certified mail, on or prior two (2) business days following its delivery by
facsimile. All notices shall be addressed as follows:
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If to Tracker:
The Tracker Corporation of America
180 Dundas Street West, Suite 1502
Toronto, Ontario, Canada MSG1Z8
Attention: Mark Gertzbein
Facsimile: (416) 595-6220
with a copy to:
Fennemore Craig
Two North Central Avenue, Suite 2200
Phoenix, Arizona 85004
Attention: Robert J. Hackett
Facsimile: (602) 257-8527
If to Merchant Partners:
Merchant Partners, Limited Partnership
9690 Deereco, Suite 800
Timonium, Maryland 21093
Attention: Ray Bank, Vice President
with a copy to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, IL 60606
Attention: David W. Schoenberg, Esq.
Andrew W. McCune, Esq.
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their representatives, successors and
permitted assigns.
16. Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed in that State without regard to
its conflict of law rules. Each of the parties hereto agrees that all disputes
or controversies arising out of or in connection with this Agreement shall be
resolved exclusively by state or federal courts located in Chicago, Illinois or
Phoenix, Arizona. Each of the parties hereto waives in all such disputes or
controversies any objection that it may have to the location of any court in
Chicago, Illinois or Phoenix, Arizona
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considering such dispute or controversy, including any objection based on forum
non conveniens.
17. Arbitration. If the parties cannot settle any dispute or
controversy arising out of this Agreement, the parties shall submit such
controversy or dispute to binding arbitration before a panel of three
arbitrators (with one arbitrator to be selected by each party and with the third
arbitrator to be selected by the two arbitrators selected by the parties) in
Maricopa County, Arizona or Cook County, Illinois. For this purpose both parties
hereby expressly consent to such arbitration in such place. In such case, the
arbitrators shall receive, hear, and maintain all documents, testimony and
records in secrecy, available for inspection only by either party and its
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other respects, the parties and arbitrators
shall conduct the arbitration under the then-existing rules and regulations of
the American Arbitration Association governing commercial transactions, and any
award entered shall be subject to confirmation, opposition, modification, and
enforcement in accordance with the Uniform Arbitration Act as then in effect in
the State of Arizona or the State of Illinois. The parties shall equally bear
fees and related costs of the arbitrators. Notwithstanding anything herein to
the contrary, nothing in this Section shall preclude either party from seeking
interim or provisional relief, including without limitation, a temporary
restraining order or preliminary injunction, concerning the dispute or
controversy, if necessary to protect the interests of such party.
18. Attorneys' Fees. If either party to this Agreement brings a suit
(or institutes an arbitration) to collect money damages for breach hereof, the
parties agree that the prevailing party shall recover, in addition to any other
remedy, reimbursement for all reasonable attorneys' fees, court costs, costs of
investigation, and related expenses (such as fees of experts, trial exhibits,
and document and communication services) the prevailing party has incurred in
connection therewith.
19. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one agreement.
20. Effect of Headings. The descriptive headings contained herein are
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
21. Partial Invalidity. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity of enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
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22. Entire Agreement. This Agreement, the Options Agreement, and the
Registration Rights Agreement referred to herein or delivered pursuant hereto
contain the entire understanding of the parties with respect to the subject
matter hereof and thereof. There are no restrictions, agreements, promises,
warranties, covenants or undertakings other than those expressly set forth
herein or therein. This Agreement, the Options Agreement and the Registration
Rights Agreement supersede all prior agreements and understandings among the
parties with respect to the subject matter hereof and thereof.
23. Recitals. The recitals to this Agreement are hereby incorporated
herein by reference.
24. Publicity. Except as otherwise required by Law or applicable stock
exchange rules, any press releases concerning transactions contemplated by this
Agreement, the Options Agreement and the Registration Rights Agreement shall be
made only with the prior agreement of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE TRACKER CORPORATION MERCHANT PARTNERS L.P.
OF AMERICA
By:________________________________ By: MERCHANT ADVISORS, L.P.
its general partner
Its:_______________________________
By: MERCHANT DEVELOPMENT
CORP.
its general partner
By:_____________________________
Its:____________________________
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EXHIBIT A
Prospects
Signature Financial/Marketing Inc. and all its subsidiaries
Montgomery Ward & Co. Incorporated
Montgomery Ward Direct, L.P.
ValueVision International, Inc.
and all other subsidiaries of Montgomery Ward & Co. Incorporated
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EXHIBIT B
NEITHER THE OPTION REPRESENTED BY THIS OPTIONS AGREEMENT NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS. SUCH OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND SUCH OPTION
AND SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH OPTION
OR SHARES OR UNLESS, IN THE OPINION OF THE HOLDER'S COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO TRACKER, REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OR UNDER APPLICABLE STATE SECURITIES LAWS.
OPTIONS AGREEMENT
THIS OPTIONS AGREEMENT ("Agreement"), dated this _____ day of July,
1996 (the "Issuance Date"), is made by and between Merchant Partners, Limited
Partnership, an Illinois limited partnership ("Merchant Partners"), and The
Tracker Corporation of America, a Delaware corporation ("Tracker").
RECITALS
A. Tracker and Merchant Partners are concurrently herewith entering
into that certain Services Agreement (the "Services Agreement") whereby, among
other things, Merchant Partners shall actively introduce and promote Tracker to
Montgomery Ward & Co., Inc. ("Montgomery Ward"), ValueVision International, Inc.
("ValueVision"), and certain other entities (collectively, the "Prospects") for
the purpose of facilitating the sale to such entities of the Tracker
Identification and Recovery System.
B. In consideration for such services by Merchant Partners, Merchant
Partners shall be issued options to acquire, in the aggregate, 900,000 shares of
Common Stock pursuant to the terms set forth in this Agreement.
AGREEMENTS
SECTION 1. GRANT OF OPTIONS.
Tracker hereby grants to Merchant Partners the exclusive option and
privilege to purchase
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(the "Option"), upon the occurrence of certain events and from time to time
thereafter as set forth in Section 2.1 of this Agreement and terminating as
provided under Section 2.4 (the "Exercise Period"), nine hundred thousand
(900,000) shares (the "Option Share Number") of Common Stock, subject to
adjustment as provided in Section 4, at a price per share equal to the Exercise
Price (as defined herein).
This Option is issued pursuant to that certain Services Agreement (the
"Services Agreement") dated the Issuance Date by and between Tracker and
Merchant Partners. The terms, conditions, representations, warranties and
covenants contained in the Services Agreement are hereby incorporated by
reference into this Agreement. The terms which are capitalized herein shall have
the meanings set forth in the Services Agreement or in Section 14 hereof, as the
case may be, unless the context shall otherwise require.
SECTION 2. EXERCISE OF OPTION.
The Option Share Number purchasable hereunder shall equal, subject to
adjustment as provided in Section 4, nine hundred (900,000) shares of Common
Stock (subject to any Permitted Dilution). The Option shall be exercisable as
hereinafter set forth:
Section 2.1 Right to Exercise. This Option may be exercised in whole or
in part, at any time and from time to time during the Exercise Period, at the
times and in the manner set forth below, subject to the conditions hereinafter
set forth:
2.1.1 Tranche I. At any time, but in no event later than the
two (2) year anniversary of the Issuance Date, this Option shall be
exercisable for two hundred thousand (200,000) shares (the "Original
Tranche I Amount") of Common Stock (subject to adjustment as provided
in Section 4);
2.1.2 Tranche II. At any time after Tracker enters into one
(1) or more Sales Contracts within nine (9) months of the Issuance
Date, this Option shall thereafter be exercisable for four hundred
fifty thousand (450,000) shares (the "Original Tranche II Amount") of
Common Stock (subject to adjustment as provided in Section 4);
provided, however, that in no event shall the Option to purchase the
Original Tranche II Amount (subject to adjustment) be exercisable later
than the three (3) year anniversary of the Issuance Date;
2.1.3 Tranche III. At any time after Tracker enters into one
(1) or more Sales Contracts with a term of three (3) years or more
within twelve (12) months of the Issuance Date, this Option shall
thereafter be exercisable for two hundred fifty thousand (250,000)
shares (the "Original Tranche III Amount") of Common Stock (subject to
adjustment as provided in Section 4) (regardless of whether the
requirement in the immediately preceding clause 2.1.2 was met);
provided, however, that in no event shall the Option to purchase the
Original Tranche III Amount (subject to adjustment) be exercisable
later than the five (5) year anniversary of the Issuance Date (the
"Expiration
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Date"); and
2.1.4 For purposes of this Option, a "Sales Contract" means a
contract for the Tracker Identification and Recovery System with a
Prospect that is executed on behalf of Tracker by its President or
Executive Vice President. Notwithstanding any provision of this
Agreement, the Services Agreement, the Registration Rights Agreement,
or that certain binding letter of intent dated May 21, 1996, Tracker
shall have no obligation to enter into any Sales Contract and Merchant
Partners shall have no claim against Tracker, and no entitlement to
exercise the Option for Tranche II or Tranche III shares, as the case
may be, if Tracker determines, in its sole and absolute discretion, not
to enter into any Sales Contract which may be offered to it, whether
through the efforts of Merchant Partners or otherwise.
Section 2.2 Notice of Exercise, Surrender of Option, Partial Exercise.
Subject to the terms and conditions of this Agreement, this Option may be
exercised in whole or in part after the commencement of the Exercise Period with
respect to Tranche I and after the occurrence of the applicable events with
respect to Tranche II and III, as set forth in Section 2.1 above, but in no
event subsequent to the Expiration Date, by the holder delivering to Tracker at
its principal office: (a) a written notice, in substantially the form of the
exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of such
holder's election to exercise the Option, which shall be duly executed by the
holder or its duly authorized agent or attorney; (b) this Option; and (c)
payment to Tracker in immediately available funds of an amount equal to the
appropriate Exercise Price (as defined in Section 2.3 herein) for the number of
shares of Common Stock so purchased.
Section 2.3 Exercise Price. The Exercise Price per share for each
option granted under this Agreement (subject to the adjustments set forth in
Section 4) shall be as follows:
2.3.1 The Tranche I Exercise Price per share for Tranche I
Option Shares shall be $0.50.
2.3.2 The Tranche II Exercise Price per share for Tranche II
Option Shares shall be $0.75.
2.3.3 The Tranche III Exercise Price per share for Tranche III
Option Shares shall be $1.00.
Section 2.4 Termination of Option. This Option and all rights and
options hereunder shall expire and be of no further force or effect upon the
Expiration Date; provided, however, that the registration and other rights with
respect to shares of Common Stock referred to in Section 3 of the Services
Agreement shall survive any expiration or termination under this Section 2.4.
Section 2.5 Delivery of Stock Certificates. Tracker shall pay all
expenses, taxes and
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other charges payable in connection with the preparation, execution and delivery
of stock certificates pursuant to this Section 2, other than transfer taxes
(which shall be paid by Merchant Partners).
SECTION 3. RESERVATION.
Tracker shall at all times prior to the expiration of the Exercise
Period reserve and keep available such number of authorized shares of its Common
Stock solely for the purpose of issue upon the exercise of this Option (or any
part hereof) as provided herein for as may at any time and from time to time be
issuable upon the exercise of this Option (or any part hereof).
SECTION 4. PROTECTION AGAINST DILUTION.
The Exercise Price and the number of shares of Common Stock issuable
upon the exercise of this Option (or any part hereof) shall be adjusted as
hereinafter set forth:
Section 4.1 Stock Dividends, Subdivisions, Reclassifications and
Combinations. If after the date hereof Tracker shall:
4.1.1 declare a dividend, or make a distribution on any Common
Shares in Common Shares, or
4.1.2 subdivide or reclassify its outstanding Common Shares
into a larger number of Common Shares, or
4.1.3 combine or reclassify its outstanding Common Shares into
a smaller number of Common Shares,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of outstanding
Common Shares of Tracker immediately prior to such event and (ii) the
denominator of which shall be the total number of outstanding Common Shares
immediately after such event.
Section 4.2 Issuance of Additional Common Shares. If after the date
hereof Tracker shall issue any Additional Common Shares for a consideration less
than the then Fair Market Value Per Share, then the Exercise Price shall upon
each such issuance be adjusted to that price determined by multiplying the
Exercise Price in effect immediately prior to such event by a fraction:
4.2.1 the numerator of which shall be the number of Common
Shares outstanding immediately prior to the issuance of such Additional
Common Shares plus the number of full Common Shares which the aggregate
consideration for the total number of such Additional Common Shares so
issued would purchase at the then Fair
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Market Value Per Share, and
4.2.2 the denominator of which shall be the number of Common
Shares outstanding immediately prior to the issuance of such Additional
Common Shares plus the number of such Additional Common Shares so
issued.
The provisions of this Section 4.2 shall not apply to: (i) any
Additional Common Shares for which an adjustment is provided for under Section
4.1; (ii) the issuance of any Additional Common Shares which are issued pursuant
to the exercise, exchange or conversion of any Convertible Securities, if an
adjustment shall previously have been made upon the issuance of such Convertible
Securities; (iii) the issuance of any Additional Common Shares which are issued
pursuant to the exercise, exchange or conversion of any Convertible Securities
that are outstanding as of the date of this Agreement or of any Convertible
Securities that have been authorized to be issued by Tracker's Board of
Directors as of the date of this Agreement; (iv) the issuance of any Additional
Common Shares pursuant to the exercise by any employee of the Company or any of
its subsidiaries of any stock options, or pursuant to a grant of shares to any
employee of the Company or any of its subsidiaries, provided that the aggregate
of all such Additional Common Shares does not exceed five percent (5%) of the
then outstanding Common Shares; (v) to the issuance of any Additional Common
Shares pursuant to any exercise of this Option, or (vi) to the issuance of any
Additional Common Shares heretofore approved by Tracker's Board of Directors
pursuant to a stock wage plan to compensate Tracker employees in lieu of cash
payments in respect of wages.
Section 4.3 Issuance of Convertible Securities. If Tracker shall issue
any Convertible Securities after the date of this Agreement, other than
Convertible Securities that have been authorized to be issued by Tracker's Board
of Directors as of the date of this Agreement, and the consideration per share
for which Additional Common Shares may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the Fair
Market Value Per Share at the time of the initial issuance of such Convertible
Securities, then the Exercise Price shall be adjusted as provided in Section 4.2
above on the basis that:
4.3.1 the maximum number of Additional Common Shares issuable
pursuant to all such Convertible Securities shall be deemed to have
been issued as of the earlier of (i) the date on which Tracker shall
enter a firm contract or commitment for the issuance of such
Convertible Securities or (ii) the date of actual issuance of such
Convertible Securities, and
4.3.2 the aggregate consideration for such maximum number of
Additional Common Shares shall be deemed to be the minimum
consideration received and receivable by Tracker for the issuance of
such Additional Common Shares pursuant to the terms of such Convertible
Securities.
Section 4.4 Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments in the Exercise Price
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hereinbefore provided in this Section 4:
4.4.1 Computation of Consideration. To the extent that any
Additional Common Shares or any Convertible Securities shall be issued
for a cash consideration, the consideration received by Tracker
therefor shall be deemed to be the amount of the cash received by
Tracker therefor; if such Additional Common Shares or Convertible
Securities are offered by Tracker for subscription, the subscription
price; or if such Additional Common Shares or Convertible Securities
are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in any such
case excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts
or expenses paid or incurred by Tracker for and in the underwriting
thereof, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a Non-Cash Consideration, then,
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such Non-Cash
Consideration at the time of such issuance as determined by the
agreement of Tracker and the holder hereof pursuant to good faith
negotiations or, if they shall fail to agree upon the fair value of
such Non-Cash Consideration within sixty (60) days following the date
on which notice pursuant to Section 4.7 was served, by a reputable
investment banking firm or other appraisal company selected by Tracker
and the holder hereof (whose fees and expenses shall be paid equally by
Tracker and the holder hereof) whose determination shall be final and
binding on the parties. The consideration for any Additional Common
Shares issuable pursuant to any Convertible Securities shall be the
consideration received by Tracker for issuing such Convertible
Securities plus the additional consideration payable to Tracker upon
the exercise of such Convertible Securities. In case of the issuance at
any time of any Additional Common Shares or Convertible Securities in
payment or satisfaction of any dividend upon any class of equity
securities other than Common Shares, Tracker shall be deemed to have
received for such Additional Common Shares or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
4.4.2 Readjustment of Exercise Price.
4.4.2.1 Upon (A) the expiration of the right of conversion,
exercise or exchange of any Convertible Securities, or (B) any increase
in the minimum consideration receivable by Tracker for the issuance of
Additional Common Shares; and if any such Convertible Securities shall
not have been converted, exercised or exchanged in full, then the
number of Common Shares deemed to be issued and outstanding upon such
conversion, exchange or exercise shall no longer be computed as set
forth above. In such case, the Exercise Price shall forthwith be
readjusted and thereafter be the price which it would have been (but
reflecting any other adjustments, appropriately recalculated, in the
Exercise Price made pursuant to the provisions of this Section 4 after
the issuance of such Convertible Securities) had the adjustment of the
Exercise Price made upon the issuance or sale of such Convertible
Securities been made on the basis of
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the issuance only of the number of Additional Common Shares actually
issued upon such conversion, exchange or exercise, or issuable on the
basis of such increased minimum consideration, as the case may be, and
thereupon only the number of Additional Common Shares actually so
issued plus the number thereof then issuable on the basis of such
increased minimum consideration shall be deemed to have been issued and
only the consideration actually received plus such increased minimum
consideration receivable by Tracker (computed in accordance with
Section 4.4.1) shall be deemed to have been received by Tracker; and
4.4.2.2 Upon (A) any decrease in the minimum consideration
receivable by Tracker for the issuance of Additional Common Shares upon
the conversion, exercise or exchange of any Convertible Securities, or
(B) the increase in the maximum number of Additional Common Shares
issuable upon such conversion, exchange or exercise; and if any such
Convertible Securities shall not have been converted, exercised or
exchanged in full, then the number of Common Shares deemed to be issued
and outstanding upon such conversion, exchange or exercise shall no
longer be computed as set forth above. In such case the Exercise Price
shall forthwith be readjusted and thereafter be the price which it
would have been (but reflecting any other adjustments, appropriately
recalculated, in the Exercise Price made pursuant to the provisions of
this Section 4 after the issuance of such Convertible Securities) had
the adjustment of the Exercise Price made upon the issuance or sale of
such Convertible Securities been made on the basis of such decreased
minimum consideration or such increased number of Additional Common
Shares issuable pursuant to such Convertible Securities, as the case
may be, and thereupon the number of Additional Common Shares actually
issued plus the number thereof issuable on the basis of such decreased
minimum consideration or such increased number of Additional Common
Shares issuable pursuant to such Convertible Securities shall be deemed
to have been issued and the consideration actually received plus such
decreased minimum consideration receivable by Tracker (computed in
accordance with Section 4.4.1) shall be deemed to have been received by
Tracker.
Section 4.5 Dividends. If Tracker shall at any time or from time to
time declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of Tracker or any of its
subsidiaries by way of dividend or spin-off) on the Common Shares, other than as
set forth in the last sentence of this Section or as a regularly declared
quarterly dividend on the Common Stock, then in each such case, the Exercise
Price shall be adjusted to that price determined by multiplying the Exercise
Price in effect on the day immediately before the record date for the
determination of stockholders entitled to receive such dividend or distribution
by a fraction, (x) the numerator of which shall be the Fair Market Value Per
Share as of such day immediately before such record date, less the sum of (i)
the per share cash amount plus (ii) the per share fair market value of the
Non-Cash Consideration being so paid or distributed, and (y) the denominator of
which shall be such Fair Market Value Per Share. An adjustment made pursuant to
this Section shall be made upon the opening of business on the next business day
following the date on which any such dividend or distribution is made
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and shall be effective retroactively immediately after the close of business on
the record date for the determination of stockholders entitled to receive such
dividend or distribution. For purposes of this Section 4.5, any redemption or
repurchase of the shares of Common Shares by Tracker shall, to the extent that
the consideration per share therefor exceeds the Fair Market Value Per Share, be
deemed to be a dividend hereunder (and with respect to such deemed dividend and
for purposes of the calculation to be made above, the amounts to be calculated
in clauses (i) and (ii) above shall be included only to the extent of the excess
thereof over the Fair Market Value Per Share). No adjustment shall be made
pursuant to this Section if Tracker declares, orders, pays, or makes
distributions of shares of Common Shares that are referred to in Section 4.1, or
warrants, Convertible Securities or other rights that are referred to in Section
4.3, in either case if an adjustment is made under those Sections.
Section 4.6 Adjustment of Number of Shares Purchasable. Upon each
adjustment of the relevant Exercise Price, the number of shares of Common Stock
purchasable under Section 2 shall be adjusted as follows:
4.6.1 under Section 2.1.1, the number of shares of Common
Stock purchasable shall be adjusted by dividing the Aggregate Tranche I
Price by the Exercise Price in effect immediately following such
adjustment;
4.6.2 under 2.1.2, the number of shares of Common Stock
purchasable shall be adjusted by dividing the Aggregate Tranche II
Price by the Exercise Price in effect immediately following such
adjustment; and
4.6.3 under Section 2.1.3, the number of shares of Common
Stock purchasable shall be adjusted by dividing the Aggregate Tranche
III Price by the Exercise Price in effect immediately following such
adjustment.
Section 4.7 Notice of Adjustments. Whenever the Exercise Price or the
number of shares deliverable upon exercise of this Option shall be adjusted
pursuant to this Section 4, Tracker shall promptly prepare a certificate signed
by its President and Chief Financial Officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and shall promptly cause copies
of such certificate to be mailed (by first class mail, postage prepaid) to the
holder of this Option.
If the parties are to negotiate, as provided in Section 4.4.1, with
respect to the computation of the fair value of any Non-Cash Consideration
received or receivable by Tracker for the issuance of Additional Common Shares
(or any Convertible Securities), then such certificate shall set forth the event
requiring such adjustment and request that the parties meet for the purpose of
determining the value of such non-cash consideration.
Section 4.8 Special Adjustment. If Tracker takes actions to which
provisions hereof are not strictly applicable or, if applicable, would not
operate to implement the essential intentions and principles hereof, or if
Tracker otherwise takes actions which would have a
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dilutive effect on the holder of this Option, unless the adjustment necessary
shall be agreed upon by Tracker and the holder of this Option, Tracker shall
appoint a firm of independent certified public accountants of recognized
standing, reasonably acceptable to the holder hereof, which, at the expense of
the holder of this Option (unless the written opinion results in an adjustment
that is more favorable to Merchant Partners than the last adjustment offered by
Tracker to Merchant Partners, in which case the opinion shall be at the expense
of Tracker), shall render its written opinion on the necessary adjustment in the
Exercise Price, so as to implement such essential intentions and principles or
to otherwise prevent dilution. Upon receipt of such opinion, Tracker shall
forthwith make the adjustments described therein. Notwithstanding anything to
the contrary contained herein, if any anti-dilution or other similar adjustment
is made under any other warrant or similar right issued by Tracker and such
adjustment is more favorable to the holders of such warrants or similar rights
than any adjustment to be made under the terms of this Agreement (whether or not
an adjustment is to then be made under this Agreement (but for the operation of
this sentence)), then upon any such adjustment, an adjustment shall be made
hereunder so that the holder of this Option shall receive the benefits of such
more favorable adjustment.
SECTION 5. MERGERS, CONSOLIDATIONS, SALES.
If there shall occur any consolidation or merger of Tracker with
another entity, or any reorganization or reclassification of the Common Shares
or other equity securities of Tracker, in either case, not constituting a Change
of Control, then lawful and adequate provision shall be made whereby the holder
of this Option shall thereafter have the right to receive upon the exercise of
this Option and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, such shares of stock, securities or assets as would (by
virtue of such consolidation, merger, reorganization or reclassification) be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock issued upon
exercise of this Option had this Option been exercised in full immediately prior
to such consolidation, merger, reorganization or reclassification, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of this Option so that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon exercise of this Option.
No such consolidation or merger shall be consummated unless prior to or
simultaneously with the consummation thereof, the successor entity (if other
than Tracker) which will result from such consolidation or merger shall assume
by written instrument executed and mailed or delivered to the holders of this
Option the obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
SECTION 6. DISSOLUTION OR LIQUIDATION.
If there shall occur any proposed distribution of the assets of Tracker
in dissolution or liquidation, except under circumstances when the foregoing
Section 5 shall be applicable, Tracker shall mail notice thereof to the holders
of this Option and shall make no distribution to
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shareholders until the expiration of 45 days from the date of mailing of the
aforesaid notice and, in any such case (but provided that this Option is then
exercisable in accordance with the terms hereof), the holder of this Option may
exercise this Option, to the extent provided in Section 2, within 45 days from
the date of mailing such notice and all rights herein granted not so exercised
within such 45-day period shall thereafter become null and void.
SECTION 7. NOTICE OF DIVIDENDS.
Without limiting the rights or obligations of Tracker, and the holders
of this Option, if the Board of Directors of Tracker shall declare any dividend
or other distribution on its Common Shares, or shall declare any redemption or
repurchase of its Common Shares, Tracker shall mail notice thereof to the holder
of this Option not less than 30 days prior to the record date fixed for
determining shareholders entitled to participate in such dividend, distribution,
redemption or repurchase and the holder of this Option shall not participate in
such dividend, distribution, redemption or repurchase or be entitled to any
rights on account or as a result thereof unless and to the extent that this
Option is exercised prior to such record date. The provisions of this paragraph
shall not apply to distributions made in connection with transactions covered by
Section 5.
SECTION 8. FRACTIONAL SHARES.
Fractional shares may be issued upon the exercise of this Option in any
case where any holder hereof would be entitled to receive a fractional share
upon the exercise of this Option in order to receive the appropriate number of
shares of Common Stock.
SECTION 9. FULLY PAID STOCK; TAXES.
Tracker covenants and agrees that the shares represented by each and
every certificate for its Common Stock to be delivered on any exercise of this
Option and the payment of the applicable purchase price herein provided for
shall, at the time of such delivery and upon such payment, be validly issued and
outstanding and be fully paid and nonassessable. Tracker further covenants and
agrees that it will pay when due and payable any and all issuance, stamp,
documentary and other similar taxes (excluding transfer taxes, which shall be
paid by Merchant Partners) which may be payable in respect of this Option or any
Common Stock or certificates therefor upon the exercise of the rights herein
provided for pursuant to the provisions hereof.
SECTION 10. TRANSFERS OR ASSIGNMENTS.
This Option and the beneficial ownership hereof may be transferred or
assigned by the holder hereof to a partner in Merchant Partners, to a subsidiary
of Merchant Partners or to a corporation, partnership, limited liability company
or limited liability partnership in which Merchant Partners has a majority
equity interest (collectively, a "Merchant Partners Affiliate") upon compliance
with the restrictions on transfer indicated on the first page of this Agreement.
This Option and the beneficial ownership hereof may not be transferred or
assigned by Merchant
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Partners to any party other than a Merchant Partners Affiliate.
SECTION 11. CLOSING OF TRANSFER BOOKS.
The right to exercise this Option shall not be suspended during any
period that the stock transfer books of Tracker for its Common Shares may be
closed.
SECTION 12. REGISTRATION RIGHTS.
The Registration Rights Agreement sets forth certain rights of the
holders of this Option and the shares of Common Stock issuable upon the exercise
hereof with respect to the registration thereof under applicable securities
laws. This Option and the Option Shares are hereby entitled to the benefits of
and made subject to the Registration Rights Agreement.
SECTION 13. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
If this Option is exercised in part only, the holder hereof shall be
entitled to receive a new Option covering the number of shares in respect of
which this Option shall not have been exercised as provided in Section 2.
Subject to Section 10 hereof, if this Option is partially assigned, this Option
shall be surrendered at the principal office of Tracker (together with the
partial assignment form attached to this Option duly executed), and thereupon a
new Option shall be issued to the holders hereof covering the number of shares
not assigned. The assignee of such partial assignment of this Option shall also
be entitled to receive a new Option covering the number of shares so assigned.
SECTION 14. DEFINITIONS.
In addition to the terms defined elsewhere in this Option, the
following terms have the following respective meanings:
14.1 The term "Additional Common Shares" shall mean all Common Shares
issued by Tracker on and after the Issuance Date, other than shares of Common
Stock issued upon exercise of this Options Agreement.
14.2 The term "Aggregate Tranche I Price" shall equal the product of
(i) the Original Tranche I Amount and (ii) the Tranche I Exercise Price.
14.3 The term "Aggregate Tranche II Price" shall equal the product of
(i) the Original Tranche II Amount and (ii) the Tranche II Exercise Price.
14.4 The term "Aggregate Tranche III Price" shall equal the product of
(i) the Original Tranche III Amount and (ii) the Tranche III Exercise Price.
14.5 The term "Change of Control" shall mean, without limiting the
generality of the
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foregoing, (i) any sale or issuance or series of sales and/or issuances of
shares of Tracker's capital stock or any merger, spin-off, consolidation or
combination to which Tracker is a party which results in the present owners of
Tracker's common stock as of the Issuance Date as a group no longer (A) owning,
in the aggregate, at least fifty percent (50%) of such stock (or any new or
surviving corporation with which Tracker merges, consolidates or combines) or
(B) possessing the voting power (under ordinary circumstances) to elect a
majority of the Board of Directors of Tracker (or the board of directors of any
new or surviving corporation with which Tracker merges, consolidates or
combines), (ii) any repurchases or redemptions or series of repurchases or
redemptions of shares of Tracker as a result of which the number of Tracker's
shares outstanding immediately following such repurchases or redemptions shall
be less than eighty five percent (85%) of the number of shares of Tracker
outstanding on the Issuance Date; provided, however, that any repurchase or
redemption of shares of preferred stock of Tracker outstanding as of the
Issuance Date shall not constitute a Change of Control, provided that any such
repurchase or redemption is for a purchase price per share not exceeding $1, or
(iii) any sale or transfer of all or substantially all of the assets of Tracker;
provided, however, that any sale of any accounts of any of subsidiary of
Tracker, whereby all proceeds resulting therefrom are used solely to pay off the
indebtedness incurred to acquire such accounts by such subsidiary, shall not
constitute a Change of Control.
14.6 The term "Common Shares" shall mean shares of the Common Stock,
par value $0.001 per share, of Tracker, and shares of the Class B Voting Common
Stock, par value $0.00000007 per share, of Tracker.
14.7 The term "Common Stock" shall mean shares of the Common Stock, par
value $0.001 per share, of Tracker.
14.8 The term "Convertible Securities" shall mean options, warrants,
evidences of indebtedness, shares of stock or other securities which are
convertible or exercisable into or exchangeable for Additional Common Shares,
either immediately or upon the arrival of a specified date or the happening of a
specified event, which rights have not expired or terminated.
14.9 The term "Exercise Date" shall mean a date on which this Option is
exercised.
14.10 The term "Exercise Notice" shall have the meaning set forth in
Section 2.2 of this Agreement.
14.11 The term "Exercise Price" shall have the meaning set forth in
Section 2 of this Agreement.
14.12 The term "Fair Market Value Per Share" shall mean the closing
price on any stock exchange or quotation system on which the Common Stock is
listed or, if the Common Stock is not so listed, the low bid price in the
over-the-counter-market on the date in question.
14.13 The term "Merchant Partners Affiliate" shall have the meaning set
forth in Section
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10 of this Agreement.
14.14 The term "Non-Cash Consideration" shall mean consideration other
than cash.
14.15 The term "Option" shall have the meaning set forth in Section 1
of this Agreement.
14.16 The term "Option Shares" shall have the meaning set forth in
Section 2 of the Services Agreement.
14.17 The term "Original Tranche I Amount" shall have the meaning set
forth in Section 2.1.1 of this Agreement.
14.18 The term "Original Tranche II Amount" shall have the meaning set
forth in Section 2.1.2 of this Agreement.
14.19 The term "Original Tranche III Amount" shall have the meaning set
forth in Section 2.1.3 of this Agreement.
14.20 The term "Permitted Dilution" shall mean any dilution or other
reduction to the percentage of outstanding shares owned (or entitled upon
exercise of the Option to be owned) by Merchant Partners upon any issuance of
Additional Common Shares.
14.21 The term "Prospect" shall have the meaning set forth in Section 1
of the Services Agreement.
14.22 The term "Sales Contract" shall have the meaning set forth in
Section 2.1.4 of this Agreement.
14.23 The term "Tranche I Exercise Price" shall have the meaning set
forth in Section 2.3.1 of this Agreement.
14.24 The term "Tranche II Exercise Price" shall have the meaning set
forth in Section 2.3.2 of this Agreement.
14.25 The term "Tranche III Exercise Price" shall have the meaning set
forth in Section 2.3.3 of this Agreement.
SECTION 15. SEVERABILITY.
Should any part of this Agreement for any reason be declared invalid,
such determination shall not affect the validity of any remaining portion, which
remaining portion shall remain in force and effect as if this Agreement had been
executed with the invalid portion thereof
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eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed and accepted the remaining portion of this Agreement
without including therein any such part, parts or portion which may, for any
reason, be hereafter declared invalid.
SECTION 16. MISCELLANEOUS.
The descriptive headings of the various sections of this Agreement are
for convenience only and shall not affect the meaning or construction of the
provisions hereof. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party in accordance with the procedures
set forth below. The provisions of this Agreement shall not be modified, waived
or amended except pursuant to an instrument in writing executed and delivered on
behalf of Tracker and by the prior written consent of Merchant Partners. This
Agreement shall be governed and controlled as to validity, enforcement,
interpretation, construction, effect and in all other respects by the internal
laws of the State of Illinois applicable to contracts made in that State.
SECTION 17. ARBITRATION AND ATTORNEY'S FEES.
17.1 Arbitration. If the parties cannot settle any dispute or
controversy arising out of this Agreement, the parties shall submit such
controversy or dispute to binding arbitration before a panel of three
arbitrators (with one arbitrator to be selected by each party and with the third
arbitrator to be selected by the two arbitrators selected by the parties) in
Maricopa County, Arizona or Cook County, Illinois. For this purpose both parties
hereby expressly consent to such arbitration in such place. In such case, the
arbitrators shall receive, hear, and maintain all documents, testimony and
records in secrecy, available for inspection only by either party and its
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other respects, the parties and arbitrators
shall conduct the arbitration under the then-existing rules and regulations of
the American Arbitration Association governing commercial transactions, and any
award entered shall be subject to confirmation, opposition, modification, and
enforcement in accordance with the Uniform Arbitration Act as then in effect in
the State of Arizona or the State of Illinois. The parties shall equally bear
fees and related costs of the arbitrators. Notwithstanding anything herein to
the contrary, nothing in this Section shall preclude either party from seeking
interim or provisional relief, including without limitation, a temporary
restraining order or preliminary injunction, concerning the dispute or
controversy, if necessary to protect the interests of such party.
17.2 Attorneys' Fees. If either party to this Agreement brings a suit
(or institutes an arbitration) to collect money damages for breach hereof, the
parties agree that the prevailing party shall recover, in addition to any other
remedy, reimbursement for all reasonable attorneys'
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fees, court costs, costs of investigation, and related expenses (such as fees of
experts, trial exhibits, and document and communication services) the prevailing
party has incurred in connection therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE TRACKER CORPORATION MERCHANT PARTNERS L.P.
OF AMERICA
By: ______________________________ By: MERCHANT ADVISORS, L.P.
its general partner
Its:______________________________
By: MERCHANT DEVELOPMENT CORP.
its general partner
By: _______________________
Its: _______________________
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated this ____ day
of July 1996, is made by and between Merchant Partners, L.P., an Illinois
limited partnership ("Merchant Partners"), and The Tracker Corporation of
America, a Delaware corporation ("Tracker").
RECITALS
A. Tracker and Merchant Partners are concurrently herewith entering
into that certain Services Agreement (the "Services Agreement") whereby, among
other things, (i) Merchant Partners shall actively introduce and promote Tracker
to Montgomery Ward & Co., Inc. ("Montgomery Ward"), ValueVision International,
Inc. ("ValueVision"), and certain other entities (collectively, the "Prospects")
for the purpose of facilitating the sale to such entities of the Tracker
Identification and Recovery System, and (ii) in consideration for Merchant
Partners' services, Merchant Partners shall be issued options to acquire, in the
aggregate, up to 900,000 of the shares of Tracker, pursuant to the terms set
forth in the herewith concurrently executed options agreement (the "Options
Agreement").
B. Tracker and Merchant Partners desire to enter into this Agreement to
provide for their respective rights and obligations with regard to registrations
of Registrable Securities (as defined herein).
This Agreement is entered into pursuant to the Services Agreement and
the terms, conditions, representations, warranties and covenants contained in
the Services Agreement are hereby incorporated by reference into this Agreement.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Services Agreement or Section 9 hereof.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEMAND REGISTRATIONS
1.1 Requests for Registration. From and after the date of this
Agreement, subject to the terms and conditions of this Agreement, the holders of
Registrable Securities shall be entitled to make from time to time written
requests of Tracker (each such request, a "Demand") for registration under the
Securities Act of 1933, as amended (the "Securities Act"), of all or part
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of such holders' Registrable Securities (a "Demand Registration"). Merchant
Partners shall be entitled to two (2) Demand Registrations with such
registrations to be on such forms as Tracker determines, in its sole discretion,
to be appropriate. Such Demand shall specify: (i) the aggregate number and kind
of Registrable Securities requested to be registered; and (ii) the intended
method of distribution in connection with such Demand Registration, to the
extent then known.
1.2 Satisfaction of Obligations. A registration shall be treated as a
permitted Demand for registration if (i) the applicable registration statement
under the Securities Act has been filed with the Securities and Exchange
Commission ("Commission") with respect to such Demand Registration and such
registration statement shall have become and been maintained continuously
effective for a period of at least ninety (90) days; or (ii) a holder of
Registrable Securities, after having made a Demand pursuant to this section,
withdraws its Demand pursuant to Section 3 hereof; provided, however, that a
withdrawn demand shall not be treated as a permitted Demand if (x) the
withdrawal is a result of an adverse action taken by Tracker that is unknown to
Merchant Partners at the time it made the Demand or the result of bad quarterly
operating results which are released to the public or given to Merchant Partners
after it made the Demand (in either such case with each party to bear its own
expenses), or (y) Merchant Partners pays to Tracker all of the expenses incurred
by Tracker in connection with the Demand prior to the notice of withdrawal
(excluding costs of employees of Tracker or for services performed not primarily
as a result of the Demand).
1.3 Restrictions on Demand Registrations. Tracker shall be entitled to
postpone (upon written notice to the holders of Registrable Securities) for up
to one hundred twenty (120) days the filing of a registration statement, or its
efforts to cause a filed registration statement to become effective, in respect
of a Demand (but no more than once in any period of twelve (12) consecutive
months and no more than three (3) times in total) if (A) Tracker would be
required to prepare any financial statements other than those it is otherwise
required to or customarily prepares; or (B) the Board of Directors of Tracker
determines in good faith that such Demand Registration in respect of such Demand
would have a material adverse affect on the negotiation or completion of any
material acquisition or disposition of assets (other than in the ordinary course
of business) or any material merger, consolidation, tender offer, financing
transaction or other similar transaction that the Board of Directors of Tracker
has affirmatively voted that Tracker pursue and attempt to complete.
1.4 Participation in Demand Registrations. Except as may be otherwise
required by agreements entered into by Tracker prior to the date of this
Agreement, neither Tracker nor any other Person (as defined herein) shall
include any securities other than Registrable Securities in a Demand
Registration, except with the written consent of Merchant Partners. Tracker
covenants and agrees that it will not after the date of this Agreement grant any
Person the right to include any securities in a Demand Registration. If, in
connection with a Demand Registration, any managing underwriter or, if such
Demand Registration is not an underwritten offering, a nationally recognized
independent underwriter that shall be selected by Tracker and reasonably
approved by the holders of a majority of the Registrable Securities sought to be
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registered in such Demand Registration, advises Tracker and such holders that,
in its opinion, the inclusion of all the Registrable Securities and, if
authorized pursuant to this paragraph, other securities of Tracker, in each
case, sought to be registered in connection with such Demand Registration would
adversely affect the marketability of the Registrable Securities sought to be
sold pursuant thereto, then Tracker shall include in the registration statement
applicable to such Demand Registration only such securities as the holders of
Registrable Securities sought to be registered therein ("Demanding Sellers") and
Tracker are advised by such underwriter can be sold without such an effect (the
"Secondary Maximum Number"), as follows and in the following order of priority:
1.4.1 first, the number of Registrable Securities sought to be
registered by each Demanding Seller, pro rata in proportion to the
number of Registrable Securities sought to be registered by all
Demanding Sellers; and
1.4.2 second, if the number of Registrable Securities to be
included under clause 1.5.1 next above is less than the Secondary
Maximum Number, the number of securities sought to be included by each
other seller, pro rata in proportion to the number of securities sought
to be sold by all such other sellers, which in the aggregate, when
added to the number of securities to be included pursuant to clause
1.5.1 next above, equals the Secondary Maximum Number.
1.5 Selection of Underwriters. If Merchant Partners requests that a
Demand Registration be an underwritten offering, then Merchant Partners shall
have the right to select an underwriter or underwriters to manage and administer
such offering, such underwriter or underwriters, as the case may be, to be
subject to the approval of Tracker, which approval shall not be unreasonably
withheld.
1.6 Other Registrations. Except as may be otherwise required by
agreements entered into by Tracker prior to the date of this Agreement, if
Tracker has received a Demand pursuant to this Section 1 and if the applicable
registration statement in respect of such Demand has not been withdrawn or
abandoned, Tracker shall not file or cause to be effected any other registration
of any of its equity securities or securities convertible or exchangeable into
or exercisable for its equity securities under the Securities Act (except on
Form S-4 or S-8 or any successor form), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of at least
ninety (90) days has elapsed from the effective date of a firm commitment
underwritten Demand Registration or a period of at least ninety (90) days has
elapsed from the effective date of any other Demand Registration, unless, in
each case, a shorter period of time is approved by the holders of the
Registrable Securities; provided, however, that Tracker may file and cause to be
effected during such period any registration of which Tracker provided notice to
Merchant Partners as required by Section 2.1 prior to the Demand by Merchant
Partners.
SECTION 2. PIGGYBACK REGISTRATIONS.
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2.1 Right to Piggyback. Whenever Tracker proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration, a registration of securities issuable pursuant to an employee
stock option, stock purchase or similar plan, or pursuant to a merger, exchange
offer or transaction of a type specified in Rule 145(a) under the Securities
Act) (a "Piggyback Registration"), whether for its own benefit or for the
benefit of any other Person, Tracker shall give prompt written notice (but not
less than twenty (20) days prior to the time when any such registration
statement is filed with the Commission) to the holders of Registrable Securities
of its intention to effect such a registration. Such notice (a "Piggyback
Notice") shall specify, at a minimum, the number and kind of securities so
proposed to be registered, the proposed date of filing of such registration
statement with the Commission, the proposed means of distribution, the proposed
managing underwriter or underwriters (if any and if known), and a good faith
estimate by Tracker of the proposed minimum offering price thereof (if any and
if known), as such price is proposed to appear on the facing page of such
registration statement. Upon the written request of a holder of Registrable
Securities, given within fifteen (15) business days of such holder's receipt of
the Piggyback Notice (which written request shall specify the number and kind of
Registrable Securities intended to be disposed of by such holder and the
intended method of distribution thereof), Tracker shall include in such
registration all Registrable Securities with respect to which Tracker has
received such written requests for inclusion. The parties hereby agree that this
Agreement constitutes a written request by Merchant Partners to have the 900,000
shares issuable to Merchant Partners pursuant to the Options Agreement
registered pursuant to Tracker's currently pending registration statement on
Form S-1 (No. 33-99686), with Merchant Partners to distribute such shares, if it
chooses to do so, as specified in the "Plan of Distribution" section of such
registration statement. Such registration of Option Shares in accordance with
the foregoing sentence shall not be deemed to be a Demand for purposes of this
Agreement. Tracker shall conduct all piggyback registrations on behalf of
Merchant Partners at Tracker's own expense.
2.2 Priority on Piggyback Registrations. If, in connection with a
Piggyback Registration, any managing underwriter or, if such Piggyback
Registration is not an underwritten offering, an independent underwriter that is
mutually agreeable to Tracker and Merchant Partners (and whose fees and expenses
shall be borne solely by Tracker) advises Tracker and the holders of the
Registrable Securities to be included in such Piggyback Registration, that, in
its opinion, the inclusion of all the securities sought to be included in such
Piggyback Registration by (i) Tracker, (ii) any Persons who have sought to have
shares registered thereunder pursuant to rights to demand (other than pursuant
to so-called "piggyback" or other incidental or participation registration
rights) such registration (such demand rights being "Other Demand Rights" and
such Persons being "Other Demanding Sellers"), (iii) any holders of Registrable
Securities seeking to sell such securities in such Piggyback Registration
("Piggyback Sellers") and (iv) any other proposed sellers, in each case, if any,
would adversely affect the marketability of the securities sought to be sold
pursuant thereto, then Tracker shall include in the registration statement
applicable to such Piggyback Registration only such securities as Tracker and
the Piggyback Sellers are so advised by such underwriter can be sold without
such an effect (the "Piggyback Maximum Number"), as follows and in the following
order of priority:
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2.2.1 if the Piggyback Registration is an offering on behalf
of Tracker and not any Person exercising Other Demand Rights
(whether or not other Persons seek to include securities
therein pursuant to so-called "piggyback" or other incidental
or participatory registration rights) (a "Primary Offering"),
then (A) first, such number of securities to be sold by
Tracker as Tracker, in its reasonable judgment and acting in
good faith and in accordance with sound financial practice,
shall have determined, (B) second, if the number of securities
to be included under clause (a) next above is less than the
Piggyback Maximum Number, the number of Registrable Securities
of each Piggyback Seller, pro rata in proportion to the number
of securities sought to be registered by all the Piggyback
Sellers, which in the aggregate, when added to the number of
securities to be registered under clause (A) next above,
equals the Piggyback Maximum Number, and (C) third, if the
number of securities to be included under clauses (A) and (B)
next above is less than the Piggyback Maximum Number, the
number of securities of each other proposed seller, pro rata
in proportion to the number of securities sought to be
registered by all such other proposed sellers, which in the
aggregate, when added to the number of securities to be
registered under clauses (A) and (B) next above, equals the
Piggyback Maximum Number;
2.2.2 if the Piggyback Registration is an offering other than
pursuant to a Primary Offering, then (A) first, such number of
securities sought to be registered by each Piggyback Seller
and each Other Demanding Seller, pro rata in proportion to the
number of securities sought to be registered by each such
Piggyback Seller and Other Demanding Sellers, and (B) second,
if the number of securities included under clause (A) next
above is less than the Piggyback Maximum Number, the number of
securities of each other proposed seller, pro rata in
proportion to the number of securities sought to be included
by all such other proposed sellers, which in the aggregate,
when added to the number of securities to be registered under
clause (A) next above, equals the Piggyback Maximum Number.
2.3 Withdrawal by Tracker. If, at any time after giving written notice
of its intention to register any of its securities as set forth in Section 2.1
and prior to the time the registration statement filed in connection with such
registration is declared effective, Tracker shall determine for any reason not
to register such securities, Tracker may, at its election, give written notice
of such determination to the holders of Registrable Securities and thereupon
shall be relieved of its obligation to register any Registrable Securities in
connection with such particular withdrawn or abandoned registration (but not
from its obligations to pay the Registration Expenses in connection therewith as
provided herein), and such registration shall thereupon not constitute a
Piggyback Registration hereunder.
SECTION 3. WITHDRAWAL RIGHTS
Any holder of Registrable Securities upon having notified or directed
Tracker to include
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any or all of its Registrable Securities in a registration statement under the
Securities Act (whether pursuant to Section 1 or 2 hereof) shall have the right
to withdraw any such notice or direction with respect to any or all of the
Registrable Securities designated for registration thereby by giving written
notice to such effect to Tracker prior to the effective date of such
registration statement except that a withdrawal of any or all of a holder's
Registrable Securities included in a registration statement pursuant to Section
1 hereof (other than (x) a withdrawal that is a result of an adverse action
taken by Tracker that is unknown to Merchant Partners at the time it made the
Demand or is the result of bad quarterly operating results which are released to
the public or given to Merchant Partners after it made the Demand (in either
such case with each party to bear its own expenses), or (y) a withdrawal where
Merchant Partners pays to Tracker all of the expenses incurred by Tracker in
connection with the Demand prior to the notice of withdrawal (excluding costs of
employees of Tracker or for services performed not primarily as a result of the
Demand)) shall constitute a Demand pursuant to section 1 hereof and Tracker and
Merchant Partners shall share equally any expenses associated with such Demand
pursuant to Section 6 hereof. In the event of any such withdrawal, Tracker shall
not include such Registrable Securities in the applicable registration and such
Registrable Securities shall continue to be Registrable Securities hereunder. No
such withdrawal shall affect the obligations of Tracker with respect to the
Registrable Securities not so withdrawn; provided that in the case of a
registration pursuant to Section 1 hereof, if such withdrawal shall reduce the
number of Registrable Securities below fifty percent (50%) of the Registrable
Securities requested to be included in the registration statement, as the case
may be, then Tracker shall as promptly as practicable give each holder of
Registrable Securities so to be registered notice to such effect, referring to
this Agreement and summarizing this Section, and within five (5) business days
following the effectiveness of such notice, either Tracker or the holders of a
majority of the Registrable Securities may, by written notice to each holder of
Registrable Securities or Tracker respectively, elect that such registration
statement not be filed or, if theretofore filed, withdrawn. During such five (5)
business day period, Tracker shall not file such registration statement if not
theretofore filed or, if such registration statement has been theretofore filed,
Tracker shall not seek, and shall use its best efforts to prevent, the
effectiveness thereof. In the event of any election contemplated by the proviso
to the second next preceding sentence, any applicable piggyback rights with
respect thereto shall terminate but only with respect to such specific
registration.
SECTION 4. HOLDBACK AGREEMENTS
4.1 Holders of Registrable Securities. Anything in this Agreement to
the contrary notwithstanding, each holder of Registrable Securities agrees not
to effect any public sale or distribution (including Demand Registrations and
sales pursuant to Rule 144) of equity securities of Tracker, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven (7) days immediately prior to and the one hundred eighty (180)-day period
subsequent to the effective date of any firm commitment underwritten Demand
Registration or any firm commitment underwritten Piggyback Registration (in each
case, except as part of such underwritten registration), to the extent that the
underwriters managing such registered public offering require such a period. The
holders of a majority of the Registrable Securities included
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in a Demand Registration may waive the limitation contained in this paragraph
with respect to such Demand Registration.
4.2 Tracker. Except as may be otherwise required by agreements entered
into by Tracker prior to the date of this Agreement, Tracker agrees (i) not to
effect, whether for itself or for any other Person, any public sale or public
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days
immediately prior to and the ninety (90)-day period beginning on the effective
date of any firm commitment underwritten registration in connection with a
Demand Registration or a Piggyback Registration (except as part of such
underwritten registration to the extent permitted pursuant to this Agreement or
pursuant to a merger, exchange offer or transaction of a type specified in Rule
145(a) under the Securities Act) and (ii) in connection with a Demand
Registration to cause each of Tracker's officers and to use its best efforts to
cause each of its directors and each holder of at least 5% of its Common Stock,
or Common Stock and any securities convertible into or exchangeable or
exercisable for Common Stock, representing, in the aggregate, at least 5% of the
Common Stock (on a fully diluted basis) to agree not to effect any public sale
or public distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such underwritten registration
to the extent permitted pursuant to the terms of this Agreement); provided,
however, that in the case of a Demand Registration, Tracker may effect a public
sale or public distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during such
period if Tracker provided notice to Merchant Partners as required by Section
2.1 prior to the Demand by Merchant Partners.
SECTION 5. REGISTRATION PROCEDURES.
Whenever a holder of Registrable Securities has requested that any
Registrable Securities be registered pursuant to this Agreement (whether
pursuant to Section 1 or Section 2 of this Agreement but subject to Tracker's
withdrawal rights under Section 2.3), Tracker shall use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof and, in connection
therewith, Tracker shall as expeditiously as possible:
5.1 prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective;
5.2 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a continuous period of not less than ninety
(90) days (or, if earlier, until all Registrable Securities included in
such registration statement have been sold thereunder in accordance
with the manner of distribution set forth in the Demand in respect
thereof) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
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registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof as set forth in
such registration statement (including, without limitation, by
incorporating in a prospectus supplement or post-effective amendment,
at the request of a seller of Registrable Securities, the terms of the
sale of such Registrable Securities);
5.3 before filing with the Commission any such registration
statement or prospectus or any amendments or supplements thereto,
Tracker shall, a reasonable time prior to filing, furnish to counsel
selected by a majority of the holders of Registrable Securities and
counsel for the underwriter or sales or placement agent, if any, in
connection therewith, final drafts of all such documents proposed to be
filed and provide such counsel with a reasonable opportunity for review
thereof and comment thereon, such review to conducted and such comments
to be delivered with reasonable promptness, and with respect to any
Short-Form Registration, include such information as reasonably
requested by the holder of a majority of the Registrable Securities
covered by such registration statement, regardless of whether required
by the relevant short form as long as such information is permissible
to be included in such registration statement;
5.4 promptly (i) notify the holders of Registrable Securities
of each of (x) the filing and effectiveness of the registration
statement and prospectus and any amendments or supplements thereto, (y)
the receipt of any comments from the Commission or any state securities
law authorities or any other governmental authorities with respect to
any such registration statement or prospectus or any amendments or
supplements thereto, and (z) any oral or written stop order with
respect to such registration, any suspension of the registration or
qualification of the sale of such Registrable Securities in any
jurisdiction or any initiation or threatening of any proceedings with
respect to any of the foregoing, and (ii) use its best efforts to
obtain the withdrawal of any order suspending the registration or
qualification (or the effectiveness thereof) or suspending or
preventing the use of any related prospectus in any jurisdiction with
respect thereto;
5.5 furnish to the holders of Registrable Securities, the
underwriters and the sales or placement agent, if any, and counsel for
each of the foregoing, a conformed (or, if specifically requested, a
manually executed) copy of such registration statement and each
amendment and supplement thereto (in each case, including all exhibits
thereto and documents incorporated by reference therein) and such
additional number of copies of such registration statement, each
amendment and supplement thereto, the prospectus (including each
preliminary prospectus) included in such registration statement and all
exhibits thereto and documents incorporated by reference therein and
such other documents as the holders of Registrable Securities, the
underwriter, agent or counsel may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
holders, the use of each of which thereby and therefor to which Tracker
hereby consents;
5.6 if requested by the managing underwriter or underwriters
of any
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registration or by the holder of a majority of the Registrable
Securities included in any registration statement, Tracker shall,
subject to approval of counsel to Tracker in its reasonable judgment,
promptly incorporate in a prospectus, supplement or post-effective
amendment to the registration statement such information concerning
underwriters and the plan of distribution of the Registrable Securities
as such managing underwriter or underwriters or such holders reasonably
shall furnish to Tracker in writing and request be included therein,
including, without limitation, with respect to the number of
Registrable Securities being sold by such holders to such underwriter
or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of the
underwritten offering of the Registrable Securities to be sold in such
offering, and make all required filings of such prospectus, supplement
or post-effective amendment as soon as possible after being notified of
the matters to be incorporated in such prospectus, supplement or
post-effective amendment.
5.7 use its best efforts to register or qualify such
Registrable Securities under such securities or "blue sky" laws of such
jurisdictions as Tracker and Merchant Partners shall reasonably agree
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned
by such seller and keep such registration or qualification in effect
for so long as the registration statement remains effective under the
Securities Act (provided that Tracker shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph, (ii) subject
itself to taxation in any such jurisdiction where it would not
otherwise be subject to taxation but for this paragraph or (iii)
consent to general service of process in any jurisdiction where it
would not otherwise be subject to general services of process but by
this paragraph);
5.8 notify the holders of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under
the Securities Act, upon each of the discovery that, and of the
happening of any event as a result of which, the registration statement
covering such Registrable Securities, as then in effect, contains, to
Tracker's knowledge, an untrue statement of a material fact or omits to
state any material fact required to be stated therein or any fact
necessary to make the statements therein not misleading, and promptly
prepare and furnish to the holders of Registrable Securities a
supplement or amendment to the prospectus contained in such
registration statement so that such Registration Statement shall not,
and such prospectus as thereafter delivered to the purchasers of such
Registrable Securities shall not, contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or any fact necessary to make the statements therein not
misleading;
5.9 cause all such Registrable Securities to be listed on each
securities exchange and included in each established over-the-counter
market on which or through which similar securities of Tracker are then
listed or traded, if any, and, if not so listed or traded, to use its
reasonable efforts to cause all such Registrable Securities to be
listed
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on the NASD automated quotation system ("NASDAQ") and if listed on
NASDAQ, use its reasonable efforts to secure designation of all such
Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule
11Aa2-1 under the Securities Exchange Act of 1934, as amended, and,
without limiting the generality of the foregoing, to arrange for at
least two (2) market makers to register as such with respect to such
Registrable Securities with the NASD; provided, however, that Tracker
shall have no obligation to use any efforts to cause the Registrable
Securities to be listed on NASDAQ until such time, if ever, as Tracker
meets the minimum quantitative listing requirements of NASDAQ and that
Tracker shall have no obligation to take any action designed to assist
it in meeting such requirements; and provided further, however, that in
lieu of using reasonable efforts to list on Nasdaq, Tracker may use
reasonable efforts to list on any securities exchange which is mutually
agreeable to Tracker and Merchant Partners;
5.10 provide a transfer agent, registrar and CUSIP number for
all of such Registrable Securities not later than the effective date of
such registration statement;
5.11 within two (2) business days of a request for inspection,
make available for inspection, during customary business hours at
Tracker's offices, by any holder of Registrable Securities, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any holder of Registrable Securities or the underwriter,
all financial and other records, pertinent corporate documents and
properties of Tracker, and cause Tracker's officers, directors,
employees, attorneys and independent accountants to supply all
information reasonably requested by any such holders, underwriters,
attorneys, accountants or agents in connection with such registration
statement; provided, however, that Tracker may require as a condition
to such inspection the execution and delivery of a confidentiality
agreement by the inspecting person in respect of any information which
Tracker deems to be a trade secret or confidential or proprietary
information;
5.12 use its best efforts to comply with all applicable laws
related to such registration statement and offering and sale of
securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations promulgated by the Commission) and make
generally available to its security holders as soon as practicable (but
in any event not later than fifteen (15) months after the effectiveness
of such registration statement) an earnings statement of Tracker and
its subsidiaries complying with Section 11(a) of the Securities Act;
5.13 permit any holder of Registrable Securities, which
holder, in its sole and exclusive judgment, might be deemed to be an
underwriter or controlling person of Tracker, to participate in the
preparation of such registration statement and to require the insertion
therein of material, furnished to Tracker in writing, which in the
reasonable judgment of such holder, such holder's counsel and Tracker's
counsel should be
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included; provided, however, that any such holder shall enter into an
agreement with Tracker indemnifying Tracker against any claim which may
arise from any material furnished to Tracker in writing by such holder
for inclusion in the registration statement;
5.14 furnish to each holder of Registrable Securities a signed
counterpart of an opinion of counsel for Tracker (which counsel shall
be Fennemore Craig or such other counsel as shall be reasonably
acceptable to the holders of a majority of the Registrable Securities
being so registered and to Tracker) and use its best efforts to furnish
to each such holder of Registrable Securities a signed counterpart of a
"comfort" letter signed by the independent public accountants who have
certified Tracker's financial statements included or incorporated by
reference in such registration statement, covering such matters with
respect to such registration statement and, in the case of the
accountants' comfort letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' comfort letters
delivered to the underwriters in underwritten public offerings of
securities for the account of, or on behalf of, an issuer of common
stock, such opinion and comfort letters to be dated the date such
opinions and comfort letters are customarily dated in such
transactions, and covering, in the case of such legal opinion, such
other legal matters and, in the case of such comfort letter, such other
financial matters, as any holder of such Registrable Securities may
reasonably request; and
5.15 take all such other actions as Merchant Partners or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities; provided,
however, that Tracker shall have no obligation to take any action that
is outside the ordinary course of business or that would require the
expenditure of funds outside the ordinary course of business.
Without limiting any of the foregoing, if the offering of Registrable
Securities is to be made by or through an underwriter, Tracker shall enter into
an underwriting agreement with a managing underwriter or underwriters containing
representations, warranties, indemnities and agreements customarily included
(but not inconsistent with the agreements contained herein) by an issuer of
common stock in underwriting agreements with respect to offerings of common
stock for the account of, or on behalf of, such issuers. Merchant Partners shall
also enter into and perform its obligations under such an agreement. In
connection with the sale of Registrable Securities hereunder, any holder of such
Registrable Securities may, at its option, require that any and all
representations and warranties by, and indemnities and agreements of, Tracker to
or for the benefit of such underwriter or underwriters (or which would be made
to or for the benefit of such an underwriter or underwriter if such sale of
Registrable Securities were pursuant to an underwritten offering) be made to and
for the benefit of the holders of the Registrable Securities. In connection with
any offering of Registrable Securities registered pursuant to this Agreement,
Tracker shall (i) furnish to the underwriter, if any, (or, if no underwriter,
the purchasers of such Registrable Securities) unlegended certificates
representing ownership of the Registrable Securities being sold, in such
denominations as requested and (ii) instruct any transfer agent and registrar of
the Registrable Securities to release any stop transfer order with
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respect thereto.
Merchant Partners hereunder agrees that upon receipt of any notice from
Tracker of the happening of any event of the kind described in paragraph 5.8 of
this Section 5, Merchant Partners shall forthwith discontinue its disposition of
Registrable Securities pursuant to the applicable registration statement and
prospectus relating thereto until Merchant Partners' receipt of the copies of
the supplemented or amended prospectus contemplated by paragraph 5.8 of this
Section 5 and, if so directed by Tracker, deliver to Tracker (at Tracker's sole
cost and expense) all copies, other than permanent file copies, then in Merchant
Partners' possession of the prospectus current at the time of receipt of such
notice relating to such Registrable Securities. If Tracker shall give such
notice, the ninety (90)-day period during which such registration statement must
remain effective pursuant to this Agreement shall be extended by the number of
days during the period from the date of giving of a notice regarding the
happening of an event of the kind described in paragraph 5.8 of this Section to
the date when all such sellers shall receive such a supplemented or amended
prospectus and such prospectus shall have been filed with the Commission.
SECTION 6. REGISTRATION EXPENSES.
All expenses incident to Tracker's performance of, or compliance with,
its obligations under this Agreement (without implication that the contrary
would otherwise be true, whether or not a registration statement under the
Securities Act is filed with the Commission or becomes effective under the
Securities Act) including, without limitation, all registration and filing fees,
all fees and expenses of compliance with securities and "blue sky" laws
(including, without limitation, the "blue sky" fees and expenses of counsel for
underwriters or placement or sales agents in connection therewith), all printing
and copying expenses, all messenger and delivery expenses, all fees and expenses
of underwriters and sales and placement agents in connection therewith
(excluding discounts, commissions, non-accountable expense allowances and the
non- "blue sky" fees and expenses of counsel therefore), all fees and expenses
of Tracker's independent certified public accountants and counsel (including,
without limitation, with respect to "comfort" letters and opinions) and other
Persons retained by Tracker in connection therewith (collectively, the
"Registration Expenses") shall, subject to the last paragraph of this Section 6,
be borne by Tracker except that, in connection with Merchant Partners' two (2)
Demand Registrations, as set forth in Section 1.1, Tracker and Merchant Partners
shall share all such expenses on an equal basis (except that Merchant Partners
shall pay all discounts, commissions and non-accountable expense allowances).
In any event (and without implication that the contrary would otherwise
be true), Tracker shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties, the expense of any annual audit and the expense of
any liability insurance) (collectively, "Internal Expenses") and the expenses
and fees for listing the securities to be registered on each securities exchange
and included in each established over-the-counter market on which similar
securities issued by Tracker are then listed or, if not so listed, for listing
pursuant to paragraph 5.9 of Section 5 of this Agreement.
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SECTION 7. INDEMNIFICATION.
7.1 By Tracker. Tracker agrees to indemnify and hold harmless, to the
fullest extent permitted by law, Merchant Partners and each Person who controls
(within the meaning of the Securities Act) Merchant Partners against all losses,
claims, damages, liabilities and expenses ("Claims") to which each such
indemnified party may become subject under the Securities Act insofar as such
Claim arose out of (i) any untrue or alleged untrue statement of material fact
contained, on the effective date thereof, in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto, (ii) any omission or alleged omission of a material fact required to be
stated therein or a fact necessary to make the statements therein not
misleading, or (iii) any violation by Tracker of any federal, state or common
law rule or regulation applicable to Tracker in connection with any such
registration, except insofar as the same are caused by and contained in any
information furnished in writing to Tracker by such holder expressly for use
therein or by such holder's or its agent's or representative's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after Tracker has furnished such holder or agent or
representative with a sufficient number of copies of the same. In connection
with an underwritten offering, Tracker shall indemnify such underwriters, their
officers, directors, employees and agents and each Person who controls (within
the meaning of the Securities Act) such underwriters or such an other
indemnified Person to the same extent as provided above with respect to the
indemnification of Merchant Partners.
7.2 By Merchant Partners. In connection with any registration statement
in which Merchant Partners is participating, Merchant Partners will furnish to
Tracker in writing information regarding its ownership of Registrable
Securities, its intended method of distribution thereof and such other
information as shall be reasonably requested by Tracker and required under
applicable law for inclusion in the registration statement and, to the fullest
extent permitted by law, shall indemnify and hold harmless Tracker, its
directors, officers, employees and agents and each Person who controls (within
the meaning of the Securities Act) Tracker or such other indemnified Person
against any Claims to which such indemnified party may become subject under the
Securities Act insofar as such Claim arose out of (i) any untrue or alleged
untrue statement of material fact contained, on the effective date thereof, in
the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or (ii) any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but, in either case set forth in clause
(i) or (ii) above, only to the extent that such untrue statement or omission is
caused by and contained in such information so furnished in writing by Merchant
Partners.
7.3 Notice. Any Person entitled to indemnification hereunder shall give
prompt written notice to the indemnifying party of any claim with respect to
which its seeks indemnification; provided, however, that the failure to give
such notice shall not release the indemnifying party from its obligation under
this Section 7, except to the extent that the indemnifying party has been
materially prejudiced by such failure to provide such notice, and then only to
the extent of such prejudice.
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7.4 Survival. The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified Person and shall survive the transfer of the
Registrable Securities and any termination hereof.
SECTION 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
SECTION 9. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
following meanings:
9.1 The term "Claim" shall have the meaning assigned thereto in Section
7.1 hereof.
9.2 The term "Common Stock" shall mean the common stock, par value
$0.001 per share, of Tracker.
9.3 The term "Commission" shall have the meaning assigned thereto in
Section 1.2 of this Agreement.
9.4 The term "Demand" shall have the meaning assigned thereto in
Section 1.1 of this Agreement.
9.5 The term "Demanding Sellers" shall have the meaning assigned
thereto in Section 1.5 of this Agreement.
9.6 The term "Internal Expenses" shall have the meaning assigned
thereto in Section 6 of this Agreement.
9.7 The term "Other Demand Rights" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.8 The term "Other Demanding Sellers" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.9 The term "Person" means any individual, firm, corporation,
partnership, or other entity, and shall include any successor (by merger or
otherwise) of such entity.
9.10 The term "Piggyback Maximum Number" shall have the meaning
assigned thereto in Section 2.2 of this Agreement.
43
<PAGE> 44
9.11 The term "Piggyback Notice" shall have the meaning assigned
thereto in Section 2.1 of this Agreement.
9.12 The term "Piggyback Registration" shall have the meaning assigned
thereto in Section 2.1 of this Agreement.
9.13 The term "Piggyback Seller" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.14 The term "Primary Offering" shall have the meaning assigned
thereto in Section 2.2.1 of this Agreement.
9.15 The term "Registrable Securities" means (i) Common Stock (and all
other securities, if any), issued or issuable pursuant to the Options Agreement
and (ii) securities issued or issuable with respect to the Common Stock or other
securities referred to in clause (i) above or securities referred to in this
clause (ii) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (A) a registration statement
registering such securities under the Securities Act has been declared effective
and such securities have been sold or otherwise transferred by the holder
thereof pursuant to such effective registration statement; (B) such securities
are eligible to be sold in accordance with Rule 145(d) (or any successor
provision) promulgated under the Securities Act under circumstances in which any
legend borne by the certificates for such securities relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is or will be
removed by Tracker; or (C) such securities are eligible to be sold in accordance
with Rule 144(k) (or any successor provision) promulgated under the Securities
Act, or otherwise, under circumstances in which any legend borne by the
certificates for such securities relating to restrictions on transferability
thereof, under the Securities Act or otherwise, is or will be removed by
Tracker. For purposes of this Agreement, a Person will be deemed to be a holder
of Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (by conversion, exercise or otherwise, but disregarding
any legal restrictions upon the exercise of such right) whether or not such
acquisition has actually been effected.
9.16 The term "Registration Expenses" shall have the meaning assigned
thereto in Section 6 of this Agreement.
9.17 The term "Secondary Maximum Number" shall have the meaning
assigned thereto in Section 1.5 of this Agreement.
9.18 The term "Securities Act" shall have the meaning assigned thereto
in Section 1.1 of this Agreement.
9.19 The term "Services Agreement" shall have the meaning assigned
thereto in the
44
<PAGE> 45
heading of this Agreement.
9.20 The term "Short-Form Registration" shall mean Form S-3 or any
similar short form under the Securities Act.
SECTION 10. MISCELLANEOUS.
10.1 Existing Registration Rights; No Inconsistent Agreements. Tracker
represents and warrants that the only existing rights to require or request
Tracker to register any equity securities of Tracker, or any securities
convertible or exchangeable into or exercisable for such securities are those
described on Exhibit A hereto, that Merchant Partners has been provided copies
of all agreements with respect to such rights. Tracker 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.
10.2 Remedies. Subject to Section 10.9 of this Agreement, any Person
having rights under any provision of this Agreement will be entitled to enforce
such rights specifically, to recover damages caused by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
10.3 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived and Tracker may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if Tracker has obtained the written consent of Merchant
Partners.
10.4 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not, with the exception that all registration rights
pursuant to Sections 1 and 2 hereof shall inure to the benefit of Merchant
Partners or any one or more of the partners in Merchant Partners only and shall
lapse as to shares transferred by Merchant Partners to any Person other than a
partner in Merchant Partners upon any such transfer.
10.5 Severability. Whenever possible, each provision of this Agreement
will 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 will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
10.6 Certain Representations, Warranties and Covenants. Tracker's and
Merchant Partner's representations, warranties and covenants contained in
Sections 4 and 5 of the Services Agreement are hereby incorporated in this
Agreement by reference.
10.7 Descriptive Headings. The descriptive headings of this Agreement
are inserted
45
<PAGE> 46
for convenience only and do not constitute a part of this Agreement.
10.8 Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto will
be governed by the internal law, and not the law of conflicts of the State of
Illinois.
10.9 Arbitration. If the parties cannot settle any dispute or
controversy arising out of this Agreement, the parties shall submit such
controversy or dispute to binding arbitration before a panel of three
arbitrators (with one arbitrator to be selected by each party and with the third
arbitrator to be selected by the two arbitrators selected by the parties) in
Maricopa County, Arizona or Cook County, Illinois. For this purpose both parties
hereby expressly consent to such arbitration in such place. In such case, the
arbitrators shall receive, hear, and maintain all documents, testimony and
records in secrecy, available for inspection only by either party and its
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other respects, the parties and arbitrators
shall conduct the arbitration under the then-existing rules and regulations of
the American Arbitration Association governing commercial transactions, and any
award entered shall be subject to confirmation, opposition, modification, and
enforcement in accordance with the Uniform Arbitration Act as then in effect in
the State of Arizona or the State of Illinois. The parties shall equally bear
fees and related costs of the arbitrators. Notwithstanding anything herein to
the contrary, nothing in this Section shall preclude either party from seeking
interim or provisional relief, including without limitation, a temporary
restraining order or preliminary injunction, concerning the dispute or
controversy, if necessary to protect the interests of such party.
10.10 Attorneys' Fees. If either party to this Agreement brings a suit
(or institutes an arbitration) to collect money damages for breach hereof, the
parties agree that the prevailing party shall recover, in addition to any other
remedy, reimbursement for all reasonable attorneys' fees, court costs, costs of
investigation, and related expenses (such as fees of experts, trial exhibits,
and document and communication services) that the prevailing party has incurred
in connection therewith.
10.11 Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to Merchant Partners at the address set forth in the Services Agreement
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
46
<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE TRACKER CORPORATION OF MERCHANT PARTNERS L.P.
AMERICA
By: MERCHANT ADVISORS, L.P.,
By:_____________________________ its General Partner
Its:____________________________ By: MERCHANT DEVELOPMENT
CORP., its General Partner
By:_____________________________
Its:____________________________
47
<PAGE> 48
EXHIBIT D
THE NUMBER OF ISSUED AND OUTSTANDING SHARES AND
THE RECORD AND BENEFICIAL OWNERSHIP THEREOF BY
DIRECTORS, OFFICERS AND GREATER THAN 10% BENEFICIAL OWNERS
COMMON STOCK OUTSTANDING AS OF JUNE 25, 1996(1)(2): 15,921,647
(1) Includes 10,711,885 shares of Common Stock and 5,209,762 shares of
Class B Voting Common Stock outstanding as of June 25, 1996.
(2) Excludes 120,000 shares reserved for issuance in the future in
connection with Tracker U.S.'s Stock Incentive Plan, shares that may be
issued in the future if Tracker issues any more of the $810,471
aggregate principal amount of Second Series Convertible Debentures
which were authorized but not yet issued as of June 25, 1996 and if
such debentures are converted into Common Stock, 250,000 shares
reserved for issuance in the future upon exercise of the Common
Warrants, 500,000 shares reserved for issuance in the future upon
exercise of Tracker's other outstanding warrants, 15,577 shares
reserved for issuance upon the exercise of Tracker Canada Exchangeable
Preference Warrants into Tracker Canada Exchangeable Preference Shares
and the exchange of such shares into shares of Common Stock, shares
reserved for issuance in the future upon the exercise by Saturn
Investments, Inc. of its option to purchase an additional amount of
shares of Common Stock that would provide Saturn (when combined with
common shares held by Saturn at the time of exercise) with ownership of
25% of Tracker's issued and outstanding voting equity, 326,000 shares
and options to purchase 500,000 shares that may be issued in the future
pursuant to an agreement with Tracker's investor relations firm,
1,688,959 shares reserved for issuance in the future upon conversion of
Tracker's Convertible Debentures, 867,876 shares reserved for issuance
in the future upon conversion of Tracker's Convertible Preferred Stock,
and 200,000 shares reserved for issuance in the future upon exercise of
the TODA Warrant.
PREFERRED STOCK OUTSTANDING AS OF JUNE 25, 1996
- 100 shares of $1,000.00 6% Cumulative Convertible Preferred
Stock
- 250 shares of Series B $1,000.00 6% Cumulative Convertible
Preferred Stock
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND GREATER THAN 10% BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of June 25, 1996 by (i) each person
known to Tracker to own beneficially more than 10% of the total voting stock of
Tracker (i.e., Common Stock and Class B Voting
48
<PAGE> 49
Common Stock), (ii) the directors of Tracker, and (iii) the officers of Tracker.
Except as otherwise indicated below, to the knowledge of Tracker, all persons
listed below have sole voting and investment power with respect to their shares
of Common Stock, except to the extent that authority is shared by spouses under
applicable law. None of such persons is known by Tracker to own any shares of
Preferred Stock.
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of Class Total
Common B Voting Number of
Beneficial Owner Stock Common Stock Shares
<S> <C> <C> <C>
I. Bruce Lewis(1)(2) ............. 177,500 3,408,532 3,586,032
180 Dundas Street West,
Suite 1502
Toronto, Ontario, Canada
M5G 1Z8
Mark J. Gertzbein(1) ............. 786,278 0 786,278
180 Dundas Street West,
Suite 1502
Toronto, Ontario, Canada
M5G 1Z8
Ed J. Korhonen(1) ................ 101,750 142,864 244,614
180 Dundas Street West,
Suite 1502
Toronto, Ontario, Canada
M5G 1Z8
Quincy A.S. McKean III(8) ........ 46,082 0 46,082
75 West Front Street
Red Bank, New Jersey 07701
Charles J. Coronella(8) .......... 54,476 0 54,476
4521 East Via Los Caballos
Phoenix, Arizona 85028
Leonard Yakobovits(1) ............ 8,889 100 8,989
P. O. Box 243
Concord, Ontario, Canada
L4K 1B4
Wolfgang H. Kyser(3)(8) .......... 35,175 2,858 38,033
121 Richmond Street West,
#1000
Toronto, Ontario, Canada
M5H 2K1
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of Class Total
Common B Voting Number of
Beneficial Owner Stock Common Stock Shares
<S> <C> <C> <C>
Saturn Investments,
Inc.(1)(5) ..................... 3,903,797 1,052,564 4,956,361
c/o Anthony Bonanno, Esq
Gibson, Dunn & Crutcher
1050 Connecticut Ave., NW
Washington, D.C. 20036-
5306
Ismail A ....................... 4,132,369 1,052,564 5,184,933
Abudawood(1)(6)(9)
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Ayman I. Abudawood(1)(6) ....... 3,903,797 1,073,264 4,977,061
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Osama I. Abudawood(1)(6) ....... 3,903,797 1,125,564 5,029,361
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Anas I. Abudawood(1)(6) ........ 3,903,797 1,067,264 4,971,061
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Executive officers and ......... 1,210,150 3,003,781 4,213,931
directors
as a group including those
named
above (seven persons)(1)(7) ...
</TABLE>
- ------------------------------------
* Less than 1% of the outstanding Common Stock.
(1) Pursuant to that certain Exchange Agency and Trust Agreement dated July
12, 1994 among Tracker, Tracker Canada and Montreal Trust Company
("Trustee"), the Trustee holds, for the benefit of the holders of
Exchangeable Preference Shares, that number of shares of Voting Stock
as are held by the owners of Exchangeable Preference Shares. By
contractual agreement, prior to the exchange of the Exchangeable
Preference Shares, holders of Exchangeable Preference Shares receive
their voting rights from the Voting Stock held by the Trustee.
(2) Includes 1,236,436 Exchangeable Preference Shares over which Mr. Lewis
has voting power pursuant to agreements with Mr. Gertzbein, Mr. Johnson
and Mr. Jonathan Lewis, Mr. Lewis' son.
(3) Includes 2,858 shares of Class B Voting Common Stock held by Kyser
Investment Corporation, a company of which Mr. Kyser is the sole
stockholder.
(4) Includes 28,572 Exchangeable Preference Shares held by the Trustee for
the benefit of Spire Consulting Group, Inc.
(5) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn.
Pursuant to an option agreement dated March 14, 1994, Saturn has the
right to acquire that number of shares of the Tracker's Common Stock
which would provide Saturn (when combined with shares held by Saturn at
the time of exercise) with 25%, post-exercise issuance, of the
outstanding voting equity of Tracker. The purchase price of such shares
is their fair market value. Based on the number of shares of Tracker's
Common Stock issued and outstanding as of June 25, 1996, Saturn may
exercise the option for 3,903,797 shares of Tracker's
50
<PAGE> 51
Common Stock.
(6) Includes 1,052,564 Exchangeable Preference Shares owned by Saturn and
3,903,797 shares underlying Saturn's option. Ismail A. Abudawood is the
sole stockholder, and Ayman I. Abudawood, Osama I. Abudawood and Anas
I. Abudawood are directors, of Saturn. Accordingly, they may be deemed
to be beneficial owners of such shares.
(7) Includes currently exercisable options to acquire 9,999 shares of
Tracker Common, 607,858 shares held by individuals who are not
executive officers, directors or nominees over which Mr. Lewis has
voting power, and 78,005 shares held by individuals who are not
executive officers, directors or nominees over which Mr. Korhonen, or
failing him, Mr. Gertzbein, has voting power.
(8) Includes currently exercisable options to acquire 3,333 shares of
Tracker Common.
(9) Includes Convertible Debentures which are currently convertible into
228,572 shares of Tracker Common and which are held by Wafr Holdings
N.V. ("Wafr"). Ismail A. Abudawood beneficially owns Wafr. Accordingly,
he may be deemed to be a beneficial owner of the shares issuable
pursuant to the Convertible Debentures.
51
<PAGE> 52
NEITHER THE OPTION REPRESENTED BY THIS OPTIONS AGREEMENT NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER ANY STATE
SECURITIES LAWS. SUCH OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND SUCH OPTION
AND SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF A CURRENT AND EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH OPTION
OR SHARES OR UNLESS, IN THE OPINION OF THE HOLDER'S COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO TRACKER, REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OR UNDER APPLICABLE STATE SECURITIES LAWS.
OPTIONS AGREEMENT
THIS OPTIONS AGREEMENT ("Agreement"), dated this _____ day of July,
1996 (the "Issuance Date"), is made by and between Merchant Partners, Limited
Partnership, an Illinois limited partnership ("Merchant Partners"), and The
Tracker Corporation of America, a Delaware corporation ("Tracker").
RECITALS
A. Tracker and Merchant Partners are concurrently herewith entering
into that certain Services Agreement (the "Services Agreement") whereby, among
other things, Merchant Partners shall actively introduce and promote Tracker to
Montgomery Ward & Co., Inc. ("Montgomery Ward"), ValueVision International, Inc.
("ValueVision"), and certain other entities (collectively, the "Prospects") for
the purpose of facilitating the sale to such entities of the Tracker
Identification and Recovery System.
B. In consideration for such services by Merchant Partners, Merchant
Partners shall be issued options to acquire, in the aggregate, 900,000 shares of
Common Stock pursuant to the terms set forth in this Agreement.
AGREEMENTS
SECTION 1. GRANT OF OPTIONS.
Tracker hereby grants to Merchant Partners the exclusive option and
privilege to purchase (the "Option"), upon the occurrence of certain events and
from time to time thereafter as set
<PAGE> 53
forth in Section 2.1 of this Agreement and terminating as provided under Section
2.4 (the "Exercise Period"), nine hundred thousand (900,000) shares (the "Option
Share Number") of Common Stock, subject to adjustment as provided in Section 4,
at a price per share equal to the Exercise Price (as defined herein).
This Option is issued pursuant to that certain Services Agreement (the
"Services Agreement") dated the Issuance Date by and between Tracker and
Merchant Partners. The terms, conditions, representations, warranties and
covenants contained in the Services Agreement are hereby incorporated by
reference into this Agreement. The terms which are capitalized herein shall have
the meanings set forth in the Services Agreement or in Section 14 hereof, as the
case may be, unless the context shall otherwise require.
SECTION 2. EXERCISE OF OPTION.
The Option Share Number purchasable hereunder shall equal, subject to
adjustment as provided in Section 4, nine hundred (900,000) shares of Common
Stock (subject to any Permitted Dilution). The Option shall be exercisable as
hereinafter set forth:
Section 2.1 Right to Exercise. This Option may be exercised in whole or
in part, at any time and from time to time during the Exercise Period, at the
times and in the manner set forth below, subject to the conditions hereinafter
set forth:
2.1.1 Tranche I. At any time, but in no event later than the
two (2) year anniversary of the Issuance Date, this Option shall be
exercisable for two hundred thousand (200,000) shares (the "Original
Tranche I Amount") of Common Stock (subject to adjustment as provided
in Section 4);
2.1.2 Tranche II. At any time after Tracker enters into one
(1) or more Sales Contracts within nine (9) months of the Issuance
Date, this Option shall thereafter be exercisable for four hundred
fifty thousand (450,000) shares (the "Original Tranche II Amount") of
Common Stock (subject to adjustment as provided in Section 4);
provided, however, that in no event shall the Option to purchase the
Original Tranche II Amount (subject to adjustment) be exercisable later
than the three (3) year anniversary of the Issuance Date;
2.1.3 Tranche III. At any time after Tracker enters into one
(1) or more Sales Contracts with a term of three (3) years or more
within twelve (12) months of the Issuance Date, this Option shall
thereafter be exercisable for two hundred fifty thousand (250,000)
shares (the "Original Tranche III Amount") of Common Stock (subject to
adjustment as provided in Section 4) (regardless of whether the
requirement in the immediately preceding clause 2.1.2 was met);
provided, however, that in no event shall the Option to purchase the
Original Tranche III Amount (subject to adjustment) be exercisable
later than the five (5) year anniversary of the Issuance Date (the
"Expiration Date"); and
-2-
<PAGE> 54
2.1.4 For purposes of this Option, a "Sales Contract" means a
contract for the Tracker Identification and Recovery System with a
Prospect that is executed on behalf of Tracker by its President or
Executive Vice President. Notwithstanding any provision of this
Agreement, the Services Agreement, the Registration Rights Agreement,
or that certain binding letter of intent dated May 21, 1996, Tracker
shall have no obligation to enter into any Sales Contract and Merchant
Partners shall have no claim against Tracker, and no entitlement to
exercise the Option for Tranche II or Tranche III shares, as the case
may be, if Tracker determines, in its sole and absolute discretion, not
to enter into any Sales Contract which may be offered to it, whether
through the efforts of Merchant Partners or otherwise.
Section 2.2 Notice of Exercise, Surrender of Option, Partial Exercise.
Subject to the terms and conditions of this Agreement, this Option may be
exercised in whole or in part after the commencement of the Exercise Period with
respect to Tranche I and after the occurrence of the applicable events with
respect to Tranche II and III, as set forth in Section 2.1 above, but in no
event subsequent to the Expiration Date, by the holder delivering to Tracker at
its principal office: (a) a written notice, in substantially the form of the
exercise notice attached as Exhibit A hereto (the "Exercise Notice"), of such
holder's election to exercise the Option, which shall be duly executed by the
holder or its duly authorized agent or attorney; (b) this Option; and (c)
payment to Tracker in immediately available funds of an amount equal to the
appropriate Exercise Price (as defined in Section 2.3 herein) for the number of
shares of Common Stock so purchased.
Section 2.3 Exercise Price. The Exercise Price per share for each
option granted under this Agreement (subject to the adjustments set forth in
Section 4) shall be as follows:
2.3.1 The Tranche I Exercise Price per share for Tranche I
Option Shares shall be $0.50.
2.3.2 The Tranche II Exercise Price per share for Tranche II
Option Shares shall be $0.75.
2.3.3 The Tranche III Exercise Price per share for Tranche III
Option Shares shall be $1.00.
Section 2.4 Termination of Option. This Option and all rights and
options hereunder shall expire and be of no further force or effect upon the
Expiration Date; provided, however, that the registration and other rights with
respect to shares of Common Stock referred to in Section 3 of the Services
Agreement shall survive any expiration or termination under this Section 2.4.
Section 2.5 Delivery of Stock Certificates. Tracker shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of stock
-3-
<PAGE> 55
certificates pursuant to this Section 2, other than transfer taxes (which shall
be paid by Merchant Partners).
SECTION 3. RESERVATION.
Tracker shall at all times prior to the expiration of the Exercise
Period reserve and keep available such number of authorized shares of its Common
Stock solely for the purpose of issue upon the exercise of this Option (or any
part hereof) as provided herein for as may at any time and from time to time be
issuable upon the exercise of this Option (or any part hereof).
SECTION 4. PROTECTION AGAINST DILUTION.
The Exercise Price and the number of shares of Common Stock issuable
upon the exercise of this Option (or any part hereof) shall be adjusted as
hereinafter set forth:
Section 4.1 Stock Dividends, Subdivisions, Reclassifications and
Combinations. If after the date hereof Tracker shall:
4.1.1 declare a dividend, or make a distribution on any Common
Shares in Common Shares, or
4.1.2 subdivide or reclassify its outstanding Common Shares
into a larger number of Common Shares, or
4.1.3 combine or reclassify its outstanding Common Shares into
a smaller number of Common Shares,
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of outstanding
Common Shares of Tracker immediately prior to such event and (ii) the
denominator of which shall be the total number of outstanding Common Shares
immediately after such event.
Section 4.2 Issuance of Additional Common Shares. If after the date
hereof Tracker shall issue any Additional Common Shares for a consideration less
than the then Fair Market Value Per Share, then the Exercise Price shall upon
each such issuance be adjusted to that price determined by multiplying the
Exercise Price in effect immediately prior to such event by a fraction:
4.2.1 the numerator of which shall be the number of Common
Shares outstanding immediately prior to the issuance of such Additional
Common Shares plus the number of full Common Shares which the aggregate
consideration for the total number of such Additional Common Shares so
issued would purchase at the then Fair Market Value Per Share, and
-4-
<PAGE> 56
4.2.2 the denominator of which shall be the number of Common
Shares outstanding immediately prior to the issuance of such Additional
Common Shares plus the number of such Additional Common Shares so
issued.
The provisions of this Section 4.2 shall not apply to: (i) any
Additional Common Shares for which an adjustment is provided for under Section
4.1; (ii) the issuance of any Additional Common Shares which are issued pursuant
to the exercise, exchange or conversion of any Convertible Securities, if an
adjustment shall previously have been made upon the issuance of such Convertible
Securities; (iii) the issuance of any Additional Common Shares which are issued
pursuant to the exercise, exchange or conversion of any Convertible Securities
that are outstanding as of the date of this Agreement or of any Convertible
Securities that have been authorized to be issued by Tracker's Board of
Directors as of the date of this Agreement; (iv) the issuance of any Additional
Common Shares pursuant to the exercise by any employee of the Company or any of
its subsidiaries of any stock options, or pursuant to a grant of shares to any
employee of the Company or any of its subsidiaries, provided that the aggregate
of all such Additional Common Shares does not exceed five percent (5%) of the
then outstanding Common Shares; (v) to the issuance of any Additional Common
Shares pursuant to any exercise of this Option, or (vi) to the issuance of any
Additional Common Shares heretofore approved by Tracker's Board of Directors
pursuant to a stock wage plan to compensate Tracker employees in lieu of cash
payments in respect of wages.
Section 4.3 Issuance of Convertible Securities. If Tracker shall issue
any Convertible Securities after the date of this Agreement, other than
Convertible Securities that have been authorized to be issued by Tracker's Board
of Directors as of the date of this Agreement, and the consideration per share
for which Additional Common Shares may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the Fair
Market Value Per Share at the time of the initial issuance of such Convertible
Securities, then the Exercise Price shall be adjusted as provided in Section 4.2
above on the basis that:
4.3.1 the maximum number of Additional Common Shares issuable
pursuant to all such Convertible Securities shall be deemed to have
been issued as of the earlier of (i) the date on which Tracker shall
enter a firm contract or commitment for the issuance of such
Convertible Securities or (ii) the date of actual issuance of such
Convertible Securities, and
4.3.2 the aggregate consideration for such maximum number of
Additional Common Shares shall be deemed to be the minimum
consideration received and receivable by Tracker for the issuance of
such Additional Common Shares pursuant to the terms of such Convertible
Securities.
Section 4.4 Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments in the Exercise Price hereinbefore provided in this Section 4:
-5-
<PAGE> 57
4.4.1 Computation of Consideration. To the extent that any
Additional Common Shares or any Convertible Securities shall be issued
for a cash consideration, the consideration received by Tracker
therefor shall be deemed to be the amount of the cash received by
Tracker therefor; if such Additional Common Shares or Convertible
Securities are offered by Tracker for subscription, the subscription
price; or if such Additional Common Shares or Convertible Securities
are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in any such
case excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts
or expenses paid or incurred by Tracker for and in the underwriting
thereof, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a Non-Cash Consideration, then,
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such Non-Cash
Consideration at the time of such issuance as determined by the
agreement of Tracker and the holder hereof pursuant to good faith
negotiations or, if they shall fail to agree upon the fair value of
such Non-Cash Consideration within sixty (60) days following the date
on which notice pursuant to Section 4.7 was served, by a reputable
investment banking firm or other appraisal company selected by Tracker
and the holder hereof (whose fees and expenses shall be paid equally by
Tracker and the holder hereof) whose determination shall be final and
binding on the parties. The consideration for any Additional Common
Shares issuable pursuant to any Convertible Securities shall be the
consideration received by Tracker for issuing such Convertible
Securities plus the additional consideration payable to Tracker upon
the exercise of such Convertible Securities. In case of the issuance at
any time of any Additional Common Shares or Convertible Securities in
payment or satisfaction of any dividend upon any class of equity
securities other than Common Shares, Tracker shall be deemed to have
received for such Additional Common Shares or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
4.4.2 Readjustment of Exercise Price.
4.4.2.1 Upon (A) the expiration of the right of conversion,
exercise or exchange of any Convertible Securities, or (B) any increase
in the minimum consideration receivable by Tracker for the issuance of
Additional Common Shares; and if any such Convertible Securities shall
not have been converted, exercised or exchanged in full, then the
number of Common Shares deemed to be issued and outstanding upon such
conversion, exchange or exercise shall no longer be computed as set
forth above. In such case, the Exercise Price shall forthwith be
readjusted and thereafter be the price which it would have been (but
reflecting any other adjustments, appropriately recalculated, in the
Exercise Price made pursuant to the provisions of this Section 4 after
the issuance of such Convertible Securities) had the adjustment of the
Exercise Price made upon the issuance or sale of such Convertible
Securities been made on the basis of the issuance only of the number of
Additional Common Shares actually issued upon such conversion, exchange
or exercise, or issuable on the basis of such increased minimum
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consideration, as the case may be, and thereupon only the number of
Additional Common Shares actually so issued plus the number thereof
then issuable on the basis of such increased minimum consideration
shall be deemed to have been issued and only the consideration actually
received plus such increased minimum consideration receivable by
Tracker (computed in accordance with Section 4.4.1) shall be deemed to
have been received by Tracker; and
4.4.2.2 Upon (A) any decrease in the minimum consideration
receivable by Tracker for the issuance of Additional Common Shares upon
the conversion, exercise or exchange of any Convertible Securities, or
(B) the increase in the maximum number of Additional Common Shares
issuable upon such conversion, exchange or exercise; and if any such
Convertible Securities shall not have been converted, exercised or
exchanged in full, then the number of Common Shares deemed to be issued
and outstanding upon such conversion, exchange or exercise shall no
longer be computed as set forth above. In such case the Exercise Price
shall forthwith be readjusted and thereafter be the price which it
would have been (but reflecting any other adjustments, appropriately
recalculated, in the Exercise Price made pursuant to the provisions of
this Section 4 after the issuance of such Convertible Securities) had
the adjustment of the Exercise Price made upon the issuance or sale of
such Convertible Securities been made on the basis of such decreased
minimum consideration or such increased number of Additional Common
Shares issuable pursuant to such Convertible Securities, as the case
may be, and thereupon the number of Additional Common Shares actually
issued plus the number thereof issuable on the basis of such decreased
minimum consideration or such increased number of Additional Common
Shares issuable pursuant to such Convertible Securities shall be deemed
to have been issued and the consideration actually received plus such
decreased minimum consideration receivable by Tracker (computed in
accordance with Section 4.4.1) shall be deemed to have been received by
Tracker.
Section 4.5 Dividends. If Tracker shall at any time or from time to
time declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of Tracker or any of its
subsidiaries by way of dividend or spin-off) on the Common Shares, other than as
set forth in the last sentence of this Section or as a regularly declared
quarterly dividend on the Common Stock, then in each such case, the Exercise
Price shall be adjusted to that price determined by multiplying the Exercise
Price in effect on the day immediately before the record date for the
determination of stockholders entitled to receive such dividend or distribution
by a fraction, (x) the numerator of which shall be the Fair Market Value Per
Share as of such day immediately before such record date, less the sum of (i)
the per share cash amount plus (ii) the per share fair market value of the
Non-Cash Consideration being so paid or distributed, and (y) the denominator of
which shall be such Fair Market Value Per Share. An adjustment made pursuant to
this Section shall be made upon the opening of business on the next business day
following the date on which any such dividend or distribution is made and shall
be effective retroactively immediately after the close of business on the record
date for the determination of stockholders entitled to receive such dividend or
distribution. For purposes
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of this Section 4.5, any redemption or repurchase of the shares of Common Shares
by Tracker shall, to the extent that the consideration per share therefor
exceeds the Fair Market Value Per Share, be deemed to be a dividend hereunder
(and with respect to such deemed dividend and for purposes of the calculation to
be made above, the amounts to be calculated in clauses (i) and (ii) above shall
be included only to the extent of the excess thereof over the Fair Market Value
Per Share). No adjustment shall be made pursuant to this Section if Tracker
declares, orders, pays, or makes distributions of shares of Common Shares that
are referred to in Section 4.1, or warrants, Convertible Securities or other
rights that are referred to in Section 4.3, in either case if an adjustment is
made under those Sections.
Section 4.6 Adjustment of Number of Shares Purchasable. Upon each
adjustment of the relevant Exercise Price, the number of shares of Common Stock
purchasable under Section 2 shall be adjusted as follows:
4.6.1 under Section 2.1.1, the number of shares of Common
Stock purchasable shall be adjusted by dividing the Aggregate Tranche I
Price by the Exercise Price in effect immediately following such
adjustment;
4.6.2 under 2.1.2, the number of shares of Common Stock
purchasable shall be adjusted by dividing the Aggregate Tranche II
Price by the Exercise Price in effect immediately following such
adjustment; and
4.6.3 under Section 2.1.3, the number of shares of Common
Stock purchasable shall be adjusted by dividing the Aggregate Tranche
III Price by the Exercise Price in effect immediately following such
adjustment.
Section 4.7 Notice of Adjustments. Whenever the Exercise Price or the
number of shares deliverable upon exercise of this Option shall be adjusted
pursuant to this Section 4, Tracker shall promptly prepare a certificate signed
by its President and Chief Financial Officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and shall promptly cause copies
of such certificate to be mailed (by first class mail, postage prepaid) to the
holder of this Option.
If the parties are to negotiate, as provided in Section 4.4.1, with
respect to the computation of the fair value of any Non-Cash Consideration
received or receivable by Tracker for the issuance of Additional Common Shares
(or any Convertible Securities), then such certificate shall set forth the event
requiring such adjustment and request that the parties meet for the purpose of
determining the value of such non-cash consideration.
Section 4.8 Special Adjustment. If Tracker takes actions to which
provisions hereof are not strictly applicable or, if applicable, would not
operate to implement the essential intentions and principles hereof, or if
Tracker otherwise takes actions which would have a dilutive effect on the holder
of this Option, unless the adjustment necessary shall be agreed upon by Tracker
and the holder of this Option, Tracker shall appoint a firm of independent
certified
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public accountants of recognized standing, reasonably acceptable to the holder
hereof, which, at the expense of the holder of this Option (unless the written
opinion results in an adjustment that is more favorable to Merchant Partners
than the last adjustment offered by Tracker to Merchant Partners, in which case
the opinion shall be at the expense of Tracker), shall render its written
opinion on the necessary adjustment in the Exercise Price, so as to implement
such essential intentions and principles or to otherwise prevent dilution. Upon
receipt of such opinion, Tracker shall forthwith make the adjustments described
therein. Notwithstanding anything to the contrary contained herein, if any
anti-dilution or other similar adjustment is made under any other warrant or
similar right issued by Tracker and such adjustment is more favorable to the
holders of such warrants or similar rights than any adjustment to be made under
the terms of this Agreement (whether or not an adjustment is to then be made
under this Agreement (but for the operation of this sentence)), then upon any
such adjustment, an adjustment shall be made hereunder so that the holder of
this Option shall receive the benefits of such more favorable adjustment.
SECTION 5. MERGERS, CONSOLIDATIONS, SALES.
If there shall occur any consolidation or merger of Tracker with
another entity, or any reorganization or reclassification of the Common Shares
or other equity securities of Tracker, in either case, not constituting a Change
of Control, then lawful and adequate provision shall be made whereby the holder
of this Option shall thereafter have the right to receive upon the exercise of
this Option and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, such shares of stock, securities or assets as would (by
virtue of such consolidation, merger, reorganization or reclassification) be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock issued upon
exercise of this Option had this Option been exercised in full immediately prior
to such consolidation, merger, reorganization or reclassification, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the holders of this Option so that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon exercise of this Option.
No such consolidation or merger shall be consummated unless prior to or
simultaneously with the consummation thereof, the successor entity (if other
than Tracker) which will result from such consolidation or merger shall assume
by written instrument executed and mailed or delivered to the holders of this
Option the obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive.
SECTION 6. DISSOLUTION OR LIQUIDATION.
If there shall occur any proposed distribution of the assets of Tracker
in dissolution or liquidation, except under circumstances when the foregoing
Section 5 shall be applicable, Tracker shall mail notice thereof to the holders
of this Option and shall make no distribution to shareholders until the
expiration of 45 days from the date of mailing of the aforesaid notice and, in
any such case (but provided that this Option is then exercisable in accordance
with the terms
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hereof), the holder of this Option may exercise this Option, to the extent
provided in Section 2, within 45 days from the date of mailing such notice and
all rights herein granted not so exercised within such 45-day period shall
thereafter become null and void.
SECTION 7. NOTICE OF DIVIDENDS.
Without limiting the rights or obligations of Tracker, and the holders
of this Option, if the Board of Directors of Tracker shall declare any dividend
or other distribution on its Common Shares, or shall declare any redemption or
repurchase of its Common Shares, Tracker shall mail notice thereof to the holder
of this Option not less than 30 days prior to the record date fixed for
determining shareholders entitled to participate in such dividend, distribution,
redemption or repurchase and the holder of this Option shall not participate in
such dividend, distribution, redemption or repurchase or be entitled to any
rights on account or as a result thereof unless and to the extent that this
Option is exercised prior to such record date. The provisions of this paragraph
shall not apply to distributions made in connection with transactions covered by
Section 5.
SECTION 8. FRACTIONAL SHARES.
Fractional shares may be issued upon the exercise of this Option in any
case where any holder hereof would be entitled to receive a fractional share
upon the exercise of this Option in order to receive the appropriate number of
shares of Common Stock.
SECTION 9. FULLY PAID STOCK; TAXES.
Tracker covenants and agrees that the shares represented by each and
every certificate for its Common Stock to be delivered on any exercise of this
Option and the payment of the applicable purchase price herein provided for
shall, at the time of such delivery and upon such payment, be validly issued and
outstanding and be fully paid and nonassessable. Tracker further covenants and
agrees that it will pay when due and payable any and all issuance, stamp,
documentary and other similar taxes (excluding transfer taxes, which shall be
paid by Merchant Partners) which may be payable in respect of this Option or any
Common Stock or certificates therefor upon the exercise of the rights herein
provided for pursuant to the provisions hereof.
SECTION 10. TRANSFERS OR ASSIGNMENTS.
This Option and the beneficial ownership hereof may be transferred or
assigned by the holder hereof to a partner in Merchant Partners, to a subsidiary
of Merchant Partners or to a corporation, partnership, limited liability company
or limited liability partnership in which Merchant Partners has a majority
equity interest (collectively, a "Merchant Partners Affiliate") upon compliance
with the restrictions on transfer indicated on the first page of this Agreement.
This Option and the beneficial ownership hereof may not be transferred or
assigned by Merchant Partners to any party other than a Merchant Partners
Affiliate.
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SECTION 11. CLOSING OF TRANSFER BOOKS.
The right to exercise this Option shall not be suspended during any
period that the stock transfer books of Tracker for its Common Shares may be
closed.
SECTION 12. REGISTRATION RIGHTS.
The Registration Rights Agreement sets forth certain rights of the
holders of this Option and the shares of Common Stock issuable upon the exercise
hereof with respect to the registration thereof under applicable securities
laws. This Option and the Option Shares are hereby entitled to the benefits of
and made subject to the Registration Rights Agreement.
SECTION 13. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
If this Option is exercised in part only, the holder hereof shall be
entitled to receive a new Option covering the number of shares in respect of
which this Option shall not have been exercised as provided in Section 2.
Subject to Section 10 hereof, if this Option is partially assigned, this Option
shall be surrendered at the principal office of Tracker (together with the
partial assignment form attached to this Option duly executed), and thereupon a
new Option shall be issued to the holders hereof covering the number of shares
not assigned. The assignee of such partial assignment of this Option shall also
be entitled to receive a new Option covering the number of shares so assigned.
SECTION 14. DEFINITIONS.
In addition to the terms defined elsewhere in this Option, the
following terms have the following respective meanings:
14.1 The term "Additional Common Shares" shall mean all Common Shares
issued by Tracker on and after the Issuance Date, other than shares of Common
Stock issued upon exercise of this Options Agreement.
14.2 The term "Aggregate Tranche I Price" shall equal the product of
(i) the Original Tranche I Amount and (ii) the Tranche I Exercise Price.
14.3 The term "Aggregate Tranche II Price" shall equal the product of
(i) the Original Tranche II Amount and (ii) the Tranche II Exercise Price.
14.4 The term "Aggregate Tranche III Price" shall equal the product of
(i) the Original Tranche III Amount and (ii) the Tranche III Exercise Price.
14.5 The term "Change of Control" shall mean, without limiting the
generality of the foregoing, (i) any sale or issuance or series of sales and/or
issuances of shares of Tracker's capital stock or any merger, spin-off,
consolidation or combination to which Tracker is a party
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which results in the present owners of Tracker's common stock as of the Issuance
Date as a group no longer (A) owning, in the aggregate, at least fifty percent
(50%) of such stock (or any new or surviving corporation with which Tracker
merges, consolidates or combines) or (B) possessing the voting power (under
ordinary circumstances) to elect a majority of the Board of Directors of Tracker
(or the board of directors of any new or surviving corporation with which
Tracker merges, consolidates or combines), (ii) any repurchases or redemptions
or series of repurchases or redemptions of shares of Tracker as a result of
which the number of Tracker's shares outstanding immediately following such
repurchases or redemptions shall be less than eighty five percent (85%) of the
number of shares of Tracker outstanding on the Issuance Date; provided, however,
that any repurchase or redemption of shares of preferred stock of Tracker
outstanding as of the Issuance Date shall not constitute a Change of Control,
provided that any such repurchase or redemption is for a purchase price per
share not exceeding $1, or (iii) any sale or transfer of all or substantially
all of the assets of Tracker; provided, however, that any sale of any accounts
of any of subsidiary of Tracker, whereby all proceeds resulting therefrom are
used solely to pay off the indebtedness incurred to acquire such accounts by
such subsidiary, shall not constitute a Change of Control.
14.6 The term "Common Shares" shall mean shares of the Common Stock,
par value $0.001 per share, of Tracker, and shares of the Class B Voting Common
Stock, par value $0.00000007 per share, of Tracker.
14.7 The term "Common Stock" shall mean shares of the Common Stock, par
value $0.001 per share, of Tracker.
14.8 The term "Convertible Securities" shall mean options, warrants,
evidences of indebtedness, shares of stock or other securities which are
convertible or exercisable into or exchangeable for Additional Common Shares,
either immediately or upon the arrival of a specified date or the happening of a
specified event, which rights have not expired or terminated.
14.9 The term "Exercise Date" shall mean a date on which this Option is
exercised.
14.10 The term "Exercise Notice" shall have the meaning set forth in
Section 2.2 of this Agreement.
14.11 The term "Exercise Price" shall have the meaning set forth in
Section 2 of this Agreement.
14.12 The term "Fair Market Value Per Share" shall mean the closing
price on any stock exchange or quotation system on which the Common Stock is
listed or, if the Common Stock is not so listed, the low bid price in the
over-the-counter-market on the date in question.
14.13 The term "Merchant Partners Affiliate" shall have the meaning set
forth in Section 10 of this Agreement.
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14.14 The term "Non-Cash Consideration" shall mean consideration other
than cash.
14.15 The term "Option" shall have the meaning set forth in Section 1
of this Agreement.
14.16 The term "Option Shares" shall have the meaning set forth in
Section 2 of the Services Agreement.
14.17 The term "Original Tranche I Amount" shall have the meaning set
forth in Section 2.1.1 of this Agreement.
14.18 The term "Original Tranche II Amount" shall have the meaning set
forth in Section 2.1.2 of this Agreement.
14.19 The term "Original Tranche III Amount" shall have the meaning set
forth in Section 2.1.3 of this Agreement.
14.20 The term "Permitted Dilution" shall mean any dilution or other
reduction to the percentage of outstanding shares owned (or entitled upon
exercise of the Option to be owned) by Merchant Partners upon any issuance of
Additional Common Shares.
14.21 The term "Prospect" shall have the meaning set forth in Section 1
of the Services Agreement.
14.22 The term "Sales Contract" shall have the meaning set forth in
Section 2.1.4 of this Agreement.
14.23 The term "Tranche I Exercise Price" shall have the meaning set
forth in Section 2.3.1 of this Agreement.
14.24 The term "Tranche II Exercise Price" shall have the meaning set
forth in Section 2.3.2 of this Agreement.
14.25 The term "Tranche III Exercise Price" shall have the meaning set
forth in Section 2.3.3 of this Agreement.
SECTION 15. SEVERABILITY.
Should any part of this Agreement for any reason be declared invalid,
such determination shall not affect the validity of any remaining portion, which
remaining portion shall remain in force and effect as if this Agreement had been
executed with the invalid portion thereof eliminated, and it is hereby declared
the intention of the parties hereto that they would have
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executed and accepted the remaining portion of this Agreement without including
therein any such part, parts or portion which may, for any reason, be hereafter
declared invalid.
SECTION 16. MISCELLANEOUS.
The descriptive headings of the various sections of this Agreement are
for convenience only and shall not affect the meaning or construction of the
provisions hereof. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party in accordance with the procedures
set forth below. The provisions of this Agreement shall not be modified, waived
or amended except pursuant to an instrument in writing executed and delivered on
behalf of Tracker and by the prior written consent of Merchant Partners. This
Agreement shall be governed and controlled as to validity, enforcement,
interpretation, construction, effect and in all other respects by the internal
laws of the State of Illinois applicable to contracts made in that State.
SECTION 17. ARBITRATION AND ATTORNEY'S FEES.
17.1 Arbitration. If the parties cannot settle any dispute or
controversy arising out of this Agreement, the parties shall submit such
controversy or dispute to binding arbitration before a panel of three
arbitrators (with one arbitrator to be selected by each party and with the third
arbitrator to be selected by the two arbitrators selected by the parties) in
Maricopa County, Arizona or Cook County, Illinois. For this purpose both parties
hereby expressly consent to such arbitration in such place. In such case, the
arbitrators shall receive, hear, and maintain all documents, testimony and
records in secrecy, available for inspection only by either party and its
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other respects, the parties and arbitrators
shall conduct the arbitration under the then-existing rules and regulations of
the American Arbitration Association governing commercial transactions, and any
award entered shall be subject to confirmation, opposition, modification, and
enforcement in accordance with the Uniform Arbitration Act as then in effect in
the State of Arizona or the State of Illinois. The parties shall equally bear
fees and related costs of the arbitrators. Notwithstanding anything herein to
the contrary, nothing in this Section shall preclude either party from seeking
interim or provisional relief, including without limitation, a temporary
restraining order or preliminary injunction, concerning the dispute or
controversy, if necessary to protect the interests of such party.
17.2 Attorneys' Fees. If either party to this Agreement brings a suit
(or institutes an arbitration) to collect money damages for breach hereof, the
parties agree that the prevailing party shall recover, in addition to any other
remedy, reimbursement for all reasonable attorneys' fees, court costs, costs of
investigation, and related expenses (such as fees of experts, trial
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exhibits, and document and communication services) the prevailing party has
incurred in connection therewith.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE TRACKER CORPORATION MERCHANT PARTNERS L.P.
OF AMERICA
By: ______________________________ By: MERCHANT ADVISORS, L.P.
its general partner
Its:______________________________
By: MERCHANT DEVELOPMENT CORP.
its general partner
By: __________________________
Its: __________________________
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EXHIBIT A
EXERCISE NOTICE
(To be completed and signed only upon an exercise of
the Option in whole or in part)
To: Corporate Secretary of The Tracker Corporation of America (the "Company")
BY EXECUTING THIS EXERCISE NOTICE, THE UNDERSIGNED REPRESENTS, WARRANTS AND
ACKNOWLEDGES TO THE COMPANY THAT THE SHARES ACQUIRED UPON THE EXERCISE OF THIS
OPTION ARE NOT BEING ACQUIRED WITH A VIEW TO ANY UNREGISTERED DISTRIBUTION
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES
PROMULGATED THEREUNDER (COLLECTIVELY, THE "SECURITIES ACT"), OF SUCH SHARES, AND
THE UNDERSIGNED IS NOT, DIRECTLY OR INDIRECTLY, PARTICIPATING IN AN UNDERWRITING
OF ANY SUCH UNREGISTERED DISTRIBUTION. THE UNDERSIGNED WILL NOT SELL OR
OTHERWISE TRANSFER OR DISPOSE OF SUCH SHARES UNLESS SUCH SHARES ARE (1)
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) THE
UNDERSIGNED REPRESENTS THAT SUCH SHARES MAY BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED. THE UNDERSIGNED UNDERSTANDS THAT THE CERTIFICATES REPRESENTING
SUCH SHARES WILL BEAR RESTRICTIVE LEGENDS TO THIS EFFECT. BY EXECUTING THIS
EXERCISE NOTICE, THE UNDERSIGNED RESTATES ALL OF THE REPRESENTATIONS, WARRANTIES
AND COVENANTS TO THE COMPANY CONTAINED IN THE OPTION AS OF THE DATE OF THIS
EXERCISE NOTICE.
The undersigned, the Holder of the attached Options Agreement (the
"Option"), hereby irrevocably elects to exercise the purchase right represented
by the Option for, and to purchase thereunder, ______ shares of the Common Stock
of THE TRACKER CORPORATION OF AMERICA and herewith makes payment of
$___________________ therefor in immediately available funds. The undersigned
hereby requests that the Certificate(s) for such securities be issued in the
name(s) and delivered to the address(es) as follows:
Name:__________________________________________________________________________
Address:_______________________________________________________________________
Deliver to:____________________________________________________________________
Address:_______________________________________________________________________
(Attach additional sheets as necessary)
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If the foregoing Notice of Exercise evidences an exercise of the Option
to purchase fewer than all of the shares of the Common Stock to which the
undersigned is entitled under such Option, please issue a new Option, of like
tenor, for the remaining shares of Common Stock in the name(s), and deliver the
same to the address(es), as follows:
Name:__________________________________________________________________________
Address:_______________________________________________________________________
(Attach additional sheets as necessary)
DATED: _________________________.
______________________________________________________
(Name of Holder)
______________________________________________________
(Signature of Holder or Authorized
Signatory)
______________________________________________________
(Social Security or Taxpayer Identification
Number of Holder)
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<PAGE> 69
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated this ____ day
of July 1996, is made by and between Merchant Partners, L.P., an Illinois
limited partnership ("Merchant Partners"), and The Tracker Corporation of
America, a Delaware corporation ("Tracker").
RECITALS
A. Tracker and Merchant Partners are concurrently herewith entering
into that certain Services Agreement (the "Services Agreement") whereby, among
other things, (i) Merchant Partners shall actively introduce and promote Tracker
to Montgomery Ward & Co., Inc. ("Montgomery Ward"), ValueVision International,
Inc. ("ValueVision"), and certain other entities (collectively, the "Prospects")
for the purpose of facilitating the sale to such entities of the Tracker
Identification and Recovery System, and (ii) in consideration for Merchant
Partners' services, Merchant Partners shall be issued options to acquire, in the
aggregate, up to 900,000 of the shares of Tracker, pursuant to the terms set
forth in the herewith concurrently executed options agreement (the "Options
Agreement").
B. Tracker and Merchant Partners desire to enter into this Agreement to
provide for their respective rights and obligations with regard to registrations
of Registrable Securities (as defined herein).
This Agreement is entered into pursuant to the Services Agreement and
the terms, conditions, representations, warranties and covenants contained in
the Services Agreement are hereby incorporated by reference into this Agreement.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Services Agreement or Section 9 hereof.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEMAND REGISTRATIONS
1.1 Requests for Registration. From and after the date of this
Agreement, subject to the terms and conditions of this Agreement, the holders of
Registrable Securities shall be entitled to make from time to time written
requests of Tracker (each such request, a "Demand") for registration under the
Securities Act of 1933, as amended (the "Securities Act"), of all or part of
such holders' Registrable Securities (a "Demand Registration"). Merchant
Partners shall be entitled to two (2) Demand Registrations with such
registrations to be on such forms as Tracker determines, in its sole discretion,
to be appropriate. Such Demand shall specify: (i) the aggregate number and kind
of Registrable Securities requested to be registered; and (ii) the
<PAGE> 70
intended method of distribution in connection with such Demand Registration, to
the extent then known.
1.2 Satisfaction of Obligations. A registration shall be treated as a
permitted Demand for registration if (i) the applicable registration statement
under the Securities Act has been filed with the Securities and Exchange
Commission ("Commission") with respect to such Demand Registration and such
registration statement shall have become and been maintained continuously
effective for a period of at least ninety (90) days; or (ii) a holder of
Registrable Securities, after having made a Demand pursuant to this section,
withdraws its Demand pursuant to Section 3 hereof; provided, however, that a
withdrawn demand shall not be treated as a permitted Demand if (x) the
withdrawal is a result of an adverse action taken by Tracker that is unknown to
Merchant Partners at the time it made the Demand or the result of bad quarterly
operating results which are released to the public or given to Merchant Partners
after it made the Demand (in either such case with each party to bear its own
expenses), or (y) Merchant Partners pays to Tracker all of the expenses incurred
by Tracker in connection with the Demand prior to the notice of withdrawal
(excluding costs of employees of Tracker or for services performed not primarily
as a result of the Demand).
1.3 Restrictions on Demand Registrations. Tracker shall be entitled to
postpone (upon written notice to the holders of Registrable Securities) for up
to one hundred twenty (120) days the filing of a registration statement, or its
efforts to cause a filed registration statement to become effective, in respect
of a Demand (but no more than once in any period of twelve (12) consecutive
months and no more than three (3) times in total) if (A) Tracker would be
required to prepare any financial statements other than those it is otherwise
required to or customarily prepares; or (B) the Board of Directors of Tracker
determines in good faith that such Demand Registration in respect of such Demand
would have a material adverse affect on the negotiation or completion of any
material acquisition or disposition of assets (other than in the ordinary course
of business) or any material merger, consolidation, tender offer, financing
transaction or other similar transaction that the Board of Directors of Tracker
has affirmatively voted that Tracker pursue and attempt to complete.
1.4 Participation in Demand Registrations. Except as may be otherwise
required by agreements entered into by Tracker prior to the date of this
Agreement, neither Tracker nor any other Person (as defined herein) shall
include any securities other than Registrable Securities in a Demand
Registration, except with the written consent of Merchant Partners. Tracker
covenants and agrees that it will not after the date of this Agreement grant any
Person the right to include any securities in a Demand Registration. If, in
connection with a Demand Registration, any managing underwriter or, if such
Demand Registration is not an underwritten offering, a nationally recognized
independent underwriter that shall be selected by Tracker and reasonably
approved by the holders of a majority of the Registrable Securities sought to be
registered in such Demand Registration, advises Tracker and such holders that,
in its opinion, the inclusion of all the Registrable Securities and, if
authorized pursuant to this paragraph, other securities of Tracker, in each
case, sought to be registered in connection with such Demand Registration would
adversely affect the marketability of the Registrable Securities sought to be
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sold pursuant thereto, then Tracker shall include in the registration statement
applicable to such Demand Registration only such securities as the holders of
Registrable Securities sought to be registered therein ("Demanding Sellers") and
Tracker are advised by such underwriter can be sold without such an effect (the
"Secondary Maximum Number"), as follows and in the following order of priority:
1.4.1 first, the number of Registrable Securities sought to be
registered by each Demanding Seller, pro rata in proportion to the
number of Registrable Securities sought to be registered by all
Demanding Sellers; and
1.4.2 second, if the number of Registrable Securities to be
included under clause 1.5.1 next above is less than the Secondary
Maximum Number, the number of securities sought to be included by each
other seller, pro rata in proportion to the number of securities sought
to be sold by all such other sellers, which in the aggregate, when
added to the number of securities to be included pursuant to clause
1.5.1 next above, equals the Secondary Maximum Number.
1.5 Selection of Underwriters. If Merchant Partners requests that a
Demand Registration be an underwritten offering, then Merchant Partners shall
have the right to select an underwriter or underwriters to manage and administer
such offering, such underwriter or underwriters, as the case may be, to be
subject to the approval of Tracker, which approval shall not be unreasonably
withheld.
1.6 Other Registrations. Except as may be otherwise required by
agreements entered into by Tracker prior to the date of this Agreement, if
Tracker has received a Demand pursuant to this Section 1 and if the applicable
registration statement in respect of such Demand has not been withdrawn or
abandoned, Tracker shall not file or cause to be effected any other registration
of any of its equity securities or securities convertible or exchangeable into
or exercisable for its equity securities under the Securities Act (except on
Form S-4 or S-8 or any successor form), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of at least
ninety (90) days has elapsed from the effective date of a firm commitment
underwritten Demand Registration or a period of at least ninety (90) days has
elapsed from the effective date of any other Demand Registration, unless, in
each case, a shorter period of time is approved by the holders of the
Registrable Securities; provided, however, that Tracker may file and cause to be
effected during such period any registration of which Tracker provided notice to
Merchant Partners as required by Section 2.1 prior to the Demand by Merchant
Partners.
SECTION 2. PIGGYBACK REGISTRATIONS.
2.1 Right to Piggyback. Whenever Tracker proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration, a registration of securities issuable pursuant to an employee
stock option, stock purchase or similar plan, or pursuant to a merger, exchange
offer or transaction of a type specified in Rule 145(a) under the
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Securities Act) (a "Piggyback Registration"), whether for its own benefit or for
the benefit of any other Person, Tracker shall give prompt written notice (but
not less than twenty (20) days prior to the time when any such registration
statement is filed with the Commission) to the holders of Registrable Securities
of its intention to effect such a registration. Such notice (a "Piggyback
Notice") shall specify, at a minimum, the number and kind of securities so
proposed to be registered, the proposed date of filing of such registration
statement with the Commission, the proposed means of distribution, the proposed
managing underwriter or underwriters (if any and if known), and a good faith
estimate by Tracker of the proposed minimum offering price thereof (if any and
if known), as such price is proposed to appear on the facing page of such
registration statement. Upon the written request of a holder of Registrable
Securities, given within fifteen (15) business days of such holder's receipt of
the Piggyback Notice (which written request shall specify the number and kind of
Registrable Securities intended to be disposed of by such holder and the
intended method of distribution thereof), Tracker shall include in such
registration all Registrable Securities with respect to which Tracker has
received such written requests for inclusion. The parties hereby agree that this
Agreement constitutes a written request by Merchant Partners to have the 900,000
shares issuable to Merchant Partners pursuant to the Options Agreement
registered pursuant to Tracker's currently pending registration statement on
Form S-1 (No. 33-99686), with Merchant Partners to distribute such shares, if it
chooses to do so, as specified in the "Plan of Distribution" section of such
registration statement. Such registration of Option Shares in accordance with
the foregoing sentence shall not be deemed to be a Demand for purposes of this
Agreement. Tracker shall conduct all piggyback registrations on behalf of
Merchant Partners at Tracker's own expense.
2.2 Priority on Piggyback Registrations. If, in connection with a
Piggyback Registration, any managing underwriter or, if such Piggyback
Registration is not an underwritten offering, an independent underwriter that is
mutually agreeable to Tracker and Merchant Partners (and whose fees and expenses
shall be borne solely by Tracker) advises Tracker and the holders of the
Registrable Securities to be included in such Piggyback Registration, that, in
its opinion, the inclusion of all the securities sought to be included in such
Piggyback Registration by (i) Tracker, (ii) any Persons who have sought to have
shares registered thereunder pursuant to rights to demand (other than pursuant
to so-called "piggyback" or other incidental or participation registration
rights) such registration (such demand rights being "Other Demand Rights" and
such Persons being "Other Demanding Sellers"), (iii) any holders of Registrable
Securities seeking to sell such securities in such Piggyback Registration
("Piggyback Sellers") and (iv) any other proposed sellers, in each case, if any,
would adversely affect the marketability of the securities sought to be sold
pursuant thereto, then Tracker shall include in the registration statement
applicable to such Piggyback Registration only such securities as Tracker and
the Piggyback Sellers are so advised by such underwriter can be sold without
such an effect (the "Piggyback Maximum Number"), as follows and in the following
order of priority:
2.2.1 if the Piggyback Registration is an offering on behalf
of Tracker and not any Person exercising Other Demand Rights
(whether or not other Persons seek to include securities
therein pursuant to so-called "piggyback" or other incidental
or participatory registration rights) (a "Primary Offering"),
then (A) first, such
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number of securities to be sold by Tracker as Tracker, in its
reasonable judgment and acting in good faith and in accordance
with sound financial practice, shall have determined, (B)
second, if the number of securities to be included under
clause (a) next above is less than the Piggyback Maximum
Number, the number of Registrable Securities of each Piggyback
Seller, pro rata in proportion to the number of securities
sought to be registered by all the Piggyback Sellers, which in
the aggregate, when added to the number of securities to be
registered under clause (A) next above, equals the Piggyback
Maximum Number, and (C) third, if the number of securities to
be included under clauses (A) and (B) next above is less than
the Piggyback Maximum Number, the number of securities of each
other proposed seller, pro rata in proportion to the number of
securities sought to be registered by all such other proposed
sellers, which in the aggregate, when added to the number of
securities to be registered under clauses (A) and (B) next
above, equals the Piggyback Maximum Number;
2.2.2 if the Piggyback Registration is an offering other than
pursuant to a Primary Offering, then (A) first, such number of
securities sought to be registered by each Piggyback Seller
and each Other Demanding Seller, pro rata in proportion to the
number of securities sought to be registered by each such
Piggyback Seller and Other Demanding Sellers, and (B) second,
if the number of securities included under clause (A) next
above is less than the Piggyback Maximum Number, the number of
securities of each other proposed seller, pro rata in
proportion to the number of securities sought to be included
by all such other proposed sellers, which in the aggregate,
when added to the number of securities to be registered under
clause (A) next above, equals the Piggyback Maximum Number.
2.3 Withdrawal by Tracker. If, at any time after giving written notice
of its intention to register any of its securities as set forth in Section 2.1
and prior to the time the registration statement filed in connection with such
registration is declared effective, Tracker shall determine for any reason not
to register such securities, Tracker may, at its election, give written notice
of such determination to the holders of Registrable Securities and thereupon
shall be relieved of its obligation to register any Registrable Securities in
connection with such particular withdrawn or abandoned registration (but not
from its obligations to pay the Registration Expenses in connection therewith as
provided herein), and such registration shall thereupon not constitute a
Piggyback Registration hereunder.
SECTION 3. WITHDRAWAL RIGHTS
Any holder of Registrable Securities upon having notified or directed
Tracker to include any or all of its Registrable Securities in a registration
statement under the Securities Act (whether pursuant to Section 1 or 2 hereof)
shall have the right to withdraw any such notice or direction with respect to
any or all of the Registrable Securities designated for registration thereby by
giving written notice to such effect to Tracker prior to the effective date of
such
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registration statement except that a withdrawal of any or all of a holder's
Registrable Securities included in a registration statement pursuant to Section
1 hereof (other than (x) a withdrawal that is a result of an adverse action
taken by Tracker that is unknown to Merchant Partners at the time it made the
Demand or is the result of bad quarterly operating results which are released to
the public or given to Merchant Partners after it made the Demand (in either
such case with each party to bear its own expenses), or (y) a withdrawal where
Merchant Partners pays to Tracker all of the expenses incurred by Tracker in
connection with the Demand prior to the notice of withdrawal (excluding costs of
employees of Tracker or for services performed not primarily as a result of the
Demand)) shall constitute a Demand pursuant to section 1 hereof and Tracker and
Merchant Partners shall share equally any expenses associated with such Demand
pursuant to Section 6 hereof. In the event of any such withdrawal, Tracker shall
not include such Registrable Securities in the applicable registration and such
Registrable Securities shall continue to be Registrable Securities hereunder. No
such withdrawal shall affect the obligations of Tracker with respect to the
Registrable Securities not so withdrawn; provided that in the case of a
registration pursuant to Section 1 hereof, if such withdrawal shall reduce the
number of Registrable Securities below fifty percent (50%) of the Registrable
Securities requested to be included in the registration statement, as the case
may be, then Tracker shall as promptly as practicable give each holder of
Registrable Securities so to be registered notice to such effect, referring to
this Agreement and summarizing this Section, and within five (5) business days
following the effectiveness of such notice, either Tracker or the holders of a
majority of the Registrable Securities may, by written notice to each holder of
Registrable Securities or Tracker respectively, elect that such registration
statement not be filed or, if theretofore filed, withdrawn. During such five (5)
business day period, Tracker shall not file such registration statement if not
theretofore filed or, if such registration statement has been theretofore filed,
Tracker shall not seek, and shall use its best efforts to prevent, the
effectiveness thereof. In the event of any election contemplated by the proviso
to the second next preceding sentence, any applicable piggyback rights with
respect thereto shall terminate but only with respect to such specific
registration.
SECTION 4. HOLDBACK AGREEMENTS
4.1 Holders of Registrable Securities. Anything in this Agreement to
the contrary notwithstanding, each holder of Registrable Securities agrees not
to effect any public sale or distribution (including Demand Registrations and
sales pursuant to Rule 144) of equity securities of Tracker, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven (7) days immediately prior to and the one hundred eighty (180)-day period
subsequent to the effective date of any firm commitment underwritten Demand
Registration or any firm commitment underwritten Piggyback Registration (in each
case, except as part of such underwritten registration), to the extent that the
underwriters managing such registered public offering require such a period. The
holders of a majority of the Registrable Securities included in a Demand
Registration may waive the limitation contained in this paragraph with respect
to such Demand Registration.
4.2 Tracker. Except as may be otherwise required by agreements entered
into by
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Tracker prior to the date of this Agreement, Tracker agrees (i) not to effect,
whether for itself or for any other Person, any public sale or public
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days
immediately prior to and the ninety (90)-day period beginning on the effective
date of any firm commitment underwritten registration in connection with a
Demand Registration or a Piggyback Registration (except as part of such
underwritten registration to the extent permitted pursuant to this Agreement or
pursuant to a merger, exchange offer or transaction of a type specified in Rule
145(a) under the Securities Act) and (ii) in connection with a Demand
Registration to cause each of Tracker's officers and to use its best efforts to
cause each of its directors and each holder of at least 5% of its Common Stock,
or Common Stock and any securities convertible into or exchangeable or
exercisable for Common Stock, representing, in the aggregate, at least 5% of the
Common Stock (on a fully diluted basis) to agree not to effect any public sale
or public distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such underwritten registration
to the extent permitted pursuant to the terms of this Agreement); provided,
however, that in the case of a Demand Registration, Tracker may effect a public
sale or public distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during such
period if Tracker provided notice to Merchant Partners as required by Section
2.1 prior to the Demand by Merchant Partners.
SECTION 5. REGISTRATION PROCEDURES.
Whenever a holder of Registrable Securities has requested that any
Registrable Securities be registered pursuant to this Agreement (whether
pursuant to Section 1 or Section 2 of this Agreement but subject to Tracker's
withdrawal rights under Section 2.3), Tracker shall use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof and, in connection
therewith, Tracker shall as expeditiously as possible:
5.1 prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective;
5.2 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a continuous period of not less than ninety
(90) days (or, if earlier, until all Registrable Securities included in
such registration statement have been sold thereunder in accordance
with the manner of distribution set forth in the Demand in respect
thereof) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof as set forth in
such registration statement (including, without limitation, by
incorporating in a prospectus supplement or post-effective amendment,
at the request of a seller of Registrable Securities, the terms of the
sale of
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such Registrable Securities);
5.3 before filing with the Commission any such registration
statement or prospectus or any amendments or supplements thereto,
Tracker shall, a reasonable time prior to filing, furnish to counsel
selected by a majority of the holders of Registrable Securities and
counsel for the underwriter or sales or placement agent, if any, in
connection therewith, final drafts of all such documents proposed to be
filed and provide such counsel with a reasonable opportunity for review
thereof and comment thereon, such review to conducted and such comments
to be delivered with reasonable promptness, and with respect to any
Short-Form Registration, include such information as reasonably
requested by the holder of a majority of the Registrable Securities
covered by such registration statement, regardless of whether required
by the relevant short form as long as such information is permissible
to be included in such registration statement;
5.4 promptly (i) notify the holders of Registrable Securities
of each of (x) the filing and effectiveness of the registration
statement and prospectus and any amendments or supplements thereto, (y)
the receipt of any comments from the Commission or any state securities
law authorities or any other governmental authorities with respect to
any such registration statement or prospectus or any amendments or
supplements thereto, and (z) any oral or written stop order with
respect to such registration, any suspension of the registration or
qualification of the sale of such Registrable Securities in any
jurisdiction or any initiation or threatening of any proceedings with
respect to any of the foregoing, and (ii) use its best efforts to
obtain the withdrawal of any order suspending the registration or
qualification (or the effectiveness thereof) or suspending or
preventing the use of any related prospectus in any jurisdiction with
respect thereto;
5.5 furnish to the holders of Registrable Securities, the
underwriters and the sales or placement agent, if any, and counsel for
each of the foregoing, a conformed (or, if specifically requested, a
manually executed) copy of such registration statement and each
amendment and supplement thereto (in each case, including all exhibits
thereto and documents incorporated by reference therein) and such
additional number of copies of such registration statement, each
amendment and supplement thereto, the prospectus (including each
preliminary prospectus) included in such registration statement and all
exhibits thereto and documents incorporated by reference therein and
such other documents as the holders of Registrable Securities, the
underwriter, agent or counsel may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
holders, the use of each of which thereby and therefor to which Tracker
hereby consents;
5.6 if requested by the managing underwriter or underwriters
of any registration or by the holder of a majority of the Registrable
Securities included in any registration statement, Tracker shall,
subject to approval of counsel to Tracker in its reasonable judgment,
promptly incorporate in a prospectus, supplement or post-effective
amendment to the registration statement such information concerning
underwriters and
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the plan of distribution of the Registrable Securities as such managing
underwriter or underwriters or such holders reasonably shall furnish to
Tracker in writing and request be included therein, including, without
limitation, with respect to the number of Registrable Securities being
sold by such holders to such underwriter or underwriters, the purchase
price being paid therefor by such underwriter or underwriters and with
respect to any other terms of the underwritten offering of the
Registrable Securities to be sold in such offering, and make all
required filings of such prospectus, supplement or post-effective
amendment as soon as possible after being notified of the matters to be
incorporated in such prospectus, supplement or post-effective
amendment.
5.7 use its best efforts to register or qualify such
Registrable Securities under such securities or "blue sky" laws of such
jurisdictions as Tracker and Merchant Partners shall reasonably agree
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned
by such seller and keep such registration or qualification in effect
for so long as the registration statement remains effective under the
Securities Act (provided that Tracker shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph, (ii) subject
itself to taxation in any such jurisdiction where it would not
otherwise be subject to taxation but for this paragraph or (iii)
consent to general service of process in any jurisdiction where it
would not otherwise be subject to general services of process but by
this paragraph);
5.8 notify the holders of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under
the Securities Act, upon each of the discovery that, and of the
happening of any event as a result of which, the registration statement
covering such Registrable Securities, as then in effect, contains, to
Tracker's knowledge, an untrue statement of a material fact or omits to
state any material fact required to be stated therein or any fact
necessary to make the statements therein not misleading, and promptly
prepare and furnish to the holders of Registrable Securities a
supplement or amendment to the prospectus contained in such
registration statement so that such Registration Statement shall not,
and such prospectus as thereafter delivered to the purchasers of such
Registrable Securities shall not, contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or any fact necessary to make the statements therein not
misleading;
5.9 cause all such Registrable Securities to be listed on each
securities exchange and included in each established over-the-counter
market on which or through which similar securities of Tracker are then
listed or traded, if any, and, if not so listed or traded, to use its
reasonable efforts to cause all such Registrable Securities to be
listed on the NASD automated quotation system ("NASDAQ") and if listed
on NASDAQ, use its reasonable efforts to secure designation of all such
Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule
11Aa2-1 under the Securities Exchange Act of 1934, as amended, and,
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without limiting the generality of the foregoing, to arrange for at
least two (2) market makers to register as such with respect to such
Registrable Securities with the NASD; provided, however, that Tracker
shall have no obligation to use any efforts to cause the Registrable
Securities to be listed on NASDAQ until such time, if ever, as Tracker
meets the minimum quantitative listing requirements of NASDAQ and that
Tracker shall have no obligation to take any action designed to assist
it in meeting such requirements; and provided further, however, that in
lieu of using reasonable efforts to list on Nasdaq, Tracker may use
reasonable efforts to list on any securities exchange which is mutually
agreeable to Tracker and Merchant Partners;
5.10 provide a transfer agent, registrar and CUSIP number for
all of such Registrable Securities not later than the effective date of
such registration statement;
5.11 within two (2) business days of a request for inspection,
make available for inspection, during customary business hours at
Tracker's offices, by any holder of Registrable Securities, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any holder of Registrable Securities or the underwriter,
all financial and other records, pertinent corporate documents and
properties of Tracker, and cause Tracker's officers, directors,
employees, attorneys and independent accountants to supply all
information reasonably requested by any such holders, underwriters,
attorneys, accountants or agents in connection with such registration
statement; provided, however, that Tracker may require as a condition
to such inspection the execution and delivery of a confidentiality
agreement by the inspecting person in respect of any information which
Tracker deems to be a trade secret or confidential or proprietary
information;
5.12 use its best efforts to comply with all applicable laws
related to such registration statement and offering and sale of
securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations promulgated by the Commission) and make
generally available to its security holders as soon as practicable (but
in any event not later than fifteen (15) months after the effectiveness
of such registration statement) an earnings statement of Tracker and
its subsidiaries complying with Section 11(a) of the Securities Act;
5.13 permit any holder of Registrable Securities, which
holder, in its sole and exclusive judgment, might be deemed to be an
underwriter or controlling person of Tracker, to participate in the
preparation of such registration statement and to require the insertion
therein of material, furnished to Tracker in writing, which in the
reasonable judgment of such holder, such holder's counsel and Tracker's
counsel should be included; provided, however, that any such holder
shall enter into an agreement with Tracker indemnifying Tracker against
any claim which may arise from any material furnished to Tracker in
writing by such holder for inclusion in the registration statement;
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5.14 furnish to each holder of Registrable Securities a signed
counterpart of an opinion of counsel for Tracker (which counsel shall
be Fennemore Craig or such other counsel as shall be reasonably
acceptable to the holders of a majority of the Registrable Securities
being so registered and to Tracker) and use its best efforts to furnish
to each such holder of Registrable Securities a signed counterpart of a
"comfort" letter signed by the independent public accountants who have
certified Tracker's financial statements included or incorporated by
reference in such registration statement, covering such matters with
respect to such registration statement and, in the case of the
accountants' comfort letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' comfort letters
delivered to the underwriters in underwritten public offerings of
securities for the account of, or on behalf of, an issuer of common
stock, such opinion and comfort letters to be dated the date such
opinions and comfort letters are customarily dated in such
transactions, and covering, in the case of such legal opinion, such
other legal matters and, in the case of such comfort letter, such other
financial matters, as any holder of such Registrable Securities may
reasonably request; and
5.15 take all such other actions as Merchant Partners or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities; provided,
however, that Tracker shall have no obligation to take any action that
is outside the ordinary course of business or that would require the
expenditure of funds outside the ordinary course of business.
Without limiting any of the foregoing, if the offering of Registrable
Securities is to be made by or through an underwriter, Tracker shall enter into
an underwriting agreement with a managing underwriter or underwriters containing
representations, warranties, indemnities and agreements customarily included
(but not inconsistent with the agreements contained herein) by an issuer of
common stock in underwriting agreements with respect to offerings of common
stock for the account of, or on behalf of, such issuers. Merchant Partners shall
also enter into and perform its obligations under such an agreement. In
connection with the sale of Registrable Securities hereunder, any holder of such
Registrable Securities may, at its option, require that any and all
representations and warranties by, and indemnities and agreements of, Tracker to
or for the benefit of such underwriter or underwriters (or which would be made
to or for the benefit of such an underwriter or underwriter if such sale of
Registrable Securities were pursuant to an underwritten offering) be made to and
for the benefit of the holders of the Registrable Securities. In connection with
any offering of Registrable Securities registered pursuant to this Agreement,
Tracker shall (i) furnish to the underwriter, if any, (or, if no underwriter,
the purchasers of such Registrable Securities) unlegended certificates
representing ownership of the Registrable Securities being sold, in such
denominations as requested and (ii) instruct any transfer agent and registrar of
the Registrable Securities to release any stop transfer order with respect
thereto.
Merchant Partners hereunder agrees that upon receipt of any notice from
Tracker of the happening of any event of the kind described in paragraph 5.8 of
this Section 5, Merchant
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Partners shall forthwith discontinue its disposition of Registrable Securities
pursuant to the applicable registration statement and prospectus relating
thereto until Merchant Partners' receipt of the copies of the supplemented or
amended prospectus contemplated by paragraph 5.8 of this Section 5 and, if so
directed by Tracker, deliver to Tracker (at Tracker's sole cost and expense) all
copies, other than permanent file copies, then in Merchant Partners' possession
of the prospectus current at the time of receipt of such notice relating to such
Registrable Securities. If Tracker shall give such notice, the ninety (90)-day
period during which such registration statement must remain effective pursuant
to this Agreement shall be extended by the number of days during the period from
the date of giving of a notice regarding the happening of an event of the kind
described in paragraph 5.8 of this Section to the date when all such sellers
shall receive such a supplemented or amended prospectus and such prospectus
shall have been filed with the Commission.
SECTION 6. REGISTRATION EXPENSES.
All expenses incident to Tracker's performance of, or compliance with,
its obligations under this Agreement (without implication that the contrary
would otherwise be true, whether or not a registration statement under the
Securities Act is filed with the Commission or becomes effective under the
Securities Act) including, without limitation, all registration and filing fees,
all fees and expenses of compliance with securities and "blue sky" laws
(including, without limitation, the "blue sky" fees and expenses of counsel for
underwriters or placement or sales agents in connection therewith), all printing
and copying expenses, all messenger and delivery expenses, all fees and expenses
of underwriters and sales and placement agents in connection therewith
(excluding discounts, commissions, non-accountable expense allowances and the
non- "blue sky" fees and expenses of counsel therefore), all fees and expenses
of Tracker's independent certified public accountants and counsel (including,
without limitation, with respect to "comfort" letters and opinions) and other
Persons retained by Tracker in connection therewith (collectively, the
"Registration Expenses") shall, subject to the last paragraph of this Section 6,
be borne by Tracker except that, in connection with Merchant Partners' two (2)
Demand Registrations, as set forth in Section 1.1, Tracker and Merchant Partners
shall share all such expenses on an equal basis (except that Merchant Partners
shall pay all discounts, commissions and non-accountable expense allowances).
In any event (and without implication that the contrary would otherwise
be true), Tracker shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties, the expense of any annual audit and the expense of
any liability insurance) (collectively, "Internal Expenses") and the expenses
and fees for listing the securities to be registered on each securities exchange
and included in each established over-the-counter market on which similar
securities issued by Tracker are then listed or, if not so listed, for listing
pursuant to paragraph 5.9 of Section 5 of this Agreement.
SECTION 7. INDEMNIFICATION.
7.1 By Tracker. Tracker agrees to indemnify and hold harmless, to the
fullest extent
12
<PAGE> 81
permitted by law, Merchant Partners and each Person who controls (within the
meaning of the Securities Act) Merchant Partners against all losses, claims,
damages, liabilities and expenses ("Claims") to which each such indemnified
party may become subject under the Securities Act insofar as such Claim arose
out of (i) any untrue or alleged untrue statement of material fact contained, on
the effective date thereof, in any registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, (ii) any
omission or alleged omission of a material fact required to be stated therein or
a fact necessary to make the statements therein not misleading, or (iii) any
violation by Tracker of any federal, state or common law rule or regulation
applicable to Tracker in connection with any such registration, except insofar
as the same are caused by and contained in any information furnished in writing
to Tracker by such holder expressly for use therein or by such holder's or its
agent's or representative's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after Tracker
has furnished such holder or agent or representative with a sufficient number of
copies of the same. In connection with an underwritten offering, Tracker shall
indemnify such underwriters, their officers, directors, employees and agents and
each Person who controls (within the meaning of the Securities Act) such
underwriters or such an other indemnified Person to the same extent as provided
above with respect to the indemnification of Merchant Partners.
7.2 By Merchant Partners. In connection with any registration statement
in which Merchant Partners is participating, Merchant Partners will furnish to
Tracker in writing information regarding its ownership of Registrable
Securities, its intended method of distribution thereof and such other
information as shall be reasonably requested by Tracker and required under
applicable law for inclusion in the registration statement and, to the fullest
extent permitted by law, shall indemnify and hold harmless Tracker, its
directors, officers, employees and agents and each Person who controls (within
the meaning of the Securities Act) Tracker or such other indemnified Person
against any Claims to which such indemnified party may become subject under the
Securities Act insofar as such Claim arose out of (i) any untrue or alleged
untrue statement of material fact contained, on the effective date thereof, in
the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or (ii) any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but, in either case set forth in clause
(i) or (ii) above, only to the extent that such untrue statement or omission is
caused by and contained in such information so furnished in writing by Merchant
Partners.
7.3 Notice. Any Person entitled to indemnification hereunder shall give
prompt written notice to the indemnifying party of any claim with respect to
which its seeks indemnification; provided, however, that the failure to give
such notice shall not release the indemnifying party from its obligation under
this Section 7, except to the extent that the indemnifying party has been
materially prejudiced by such failure to provide such notice, and then only to
the extent of such prejudice.
7.4 Survival. The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified
13
<PAGE> 82
Person and shall survive the transfer of the Registrable Securities and any
termination hereof.
SECTION 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
customary questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
SECTION 9. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
following meanings:
9.1 The term "Claim" shall have the meaning assigned thereto in Section
7.1 hereof.
9.2 The term "Common Stock" shall mean the common stock, par value
$0.001 per share, of Tracker.
9.3 The term "Commission" shall have the meaning assigned thereto in
Section 1.2 of this Agreement.
9.4 The term "Demand" shall have the meaning assigned thereto in
Section 1.1 of this Agreement.
9.5 The term "Demanding Sellers" shall have the meaning assigned
thereto in Section 1.5 of this Agreement.
9.6 The term "Internal Expenses" shall have the meaning assigned
thereto in Section 6 of this Agreement.
9.7 The term "Other Demand Rights" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.8 The term "Other Demanding Sellers" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.9 The term "Person" means any individual, firm, corporation,
partnership, or other entity, and shall include any successor (by merger or
otherwise) of such entity.
9.10 The term "Piggyback Maximum Number" shall have the meaning
assigned thereto in Section 2.2 of this Agreement.
9.11 The term "Piggyback Notice" shall have the meaning assigned
thereto in Section
14
<PAGE> 83
2.1 of this Agreement.
9.12 The term "Piggyback Registration" shall have the meaning assigned
thereto in Section 2.1 of this Agreement.
9.13 The term "Piggyback Seller" shall have the meaning assigned
thereto in Section 2.2 of this Agreement.
9.14 The term "Primary Offering" shall have the meaning assigned
thereto in Section 2.2.1 of this Agreement.
9.15 The term "Registrable Securities" means (i) Common Stock (and all
other securities, if any), issued or issuable pursuant to the Options Agreement
and (ii) securities issued or issuable with respect to the Common Stock or other
securities referred to in clause (i) above or securities referred to in this
clause (ii) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (A) a registration statement
registering such securities under the Securities Act has been declared effective
and such securities have been sold or otherwise transferred by the holder
thereof pursuant to such effective registration statement; (B) such securities
are eligible to be sold in accordance with Rule 145(d) (or any successor
provision) promulgated under the Securities Act under circumstances in which any
legend borne by the certificates for such securities relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is or will be
removed by Tracker; or (C) such securities are eligible to be sold in accordance
with Rule 144(k) (or any successor provision) promulgated under the Securities
Act, or otherwise, under circumstances in which any legend borne by the
certificates for such securities relating to restrictions on transferability
thereof, under the Securities Act or otherwise, is or will be removed by
Tracker. For purposes of this Agreement, a Person will be deemed to be a holder
of Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (by conversion, exercise or otherwise, but disregarding
any legal restrictions upon the exercise of such right) whether or not such
acquisition has actually been effected.
9.16 The term "Registration Expenses" shall have the meaning assigned
thereto in Section 6 of this Agreement.
9.17 The term "Secondary Maximum Number" shall have the meaning
assigned thereto in Section 1.5 of this Agreement.
9.18 The term "Securities Act" shall have the meaning assigned thereto
in Section 1.1 of this Agreement.
9.19 The term "Services Agreement" shall have the meaning assigned
thereto in the heading of this Agreement.
15
<PAGE> 84
9.20 The term "Short-Form Registration" shall mean Form S-3 or any
similar short form under the Securities Act.
SECTION 10. MISCELLANEOUS.
10.1 Existing Registration Rights; No Inconsistent Agreements. Tracker
represents and warrants that the only existing rights to require or request
Tracker to register any equity securities of Tracker, or any securities
convertible or exchangeable into or exercisable for such securities are those
described on Exhibit A hereto, that Merchant Partners has been provided copies
of all agreements with respect to such rights. Tracker 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.
10.2 Remedies. Subject to Section 10.9 of this Agreement, any Person
having rights under any provision of this Agreement will be entitled to enforce
such rights specifically, to recover damages caused by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
10.3 Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived and Tracker may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if Tracker has obtained the written consent of Merchant
Partners.
10.4 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not, with the exception that all registration rights
pursuant to Sections 1 and 2 hereof shall inure to the benefit of Merchant
Partners or any one or more of the partners in Merchant Partners only and shall
lapse as to shares transferred by Merchant Partners to any Person other than a
partner in Merchant Partners upon any such transfer.
10.5 Severability. Whenever possible, each provision of this Agreement
will 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 will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
10.6 Certain Representations, Warranties and Covenants. Tracker's and
Merchant Partner's representations, warranties and covenants contained in
Sections 4 and 5 of the Services Agreement are hereby incorporated in this
Agreement by reference.
10.7 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
16
<PAGE> 85
10.8 Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement and the exhibits and schedules hereto will
be governed by the internal law, and not the law of conflicts of the State of
Illinois.
10.9 Arbitration. If the parties cannot settle any dispute or
controversy arising out of this Agreement, the parties shall submit such
controversy or dispute to binding arbitration before a panel of three
arbitrators (with one arbitrator to be selected by each party and with the third
arbitrator to be selected by the two arbitrators selected by the parties) in
Maricopa County, Arizona or Cook County, Illinois. For this purpose both parties
hereby expressly consent to such arbitration in such place. In such case, the
arbitrators shall receive, hear, and maintain all documents, testimony and
records in secrecy, available for inspection only by either party and its
attorneys and experts who shall agree, in advance and in writing, to receive all
such information in secrecy. In all other respects, the parties and arbitrators
shall conduct the arbitration under the then-existing rules and regulations of
the American Arbitration Association governing commercial transactions, and any
award entered shall be subject to confirmation, opposition, modification, and
enforcement in accordance with the Uniform Arbitration Act as then in effect in
the State of Arizona or the State of Illinois. The parties shall equally bear
fees and related costs of the arbitrators. Notwithstanding anything herein to
the contrary, nothing in this Section shall preclude either party from seeking
interim or provisional relief, including without limitation, a temporary
restraining order or preliminary injunction, concerning the dispute or
controversy, if necessary to protect the interests of such party.
10.10 Attorneys' Fees. If either party to this Agreement brings a suit
(or institutes an arbitration) to collect money damages for breach hereof, the
parties agree that the prevailing party shall recover, in addition to any other
remedy, reimbursement for all reasonable attorneys' fees, court costs, costs of
investigation, and related expenses (such as fees of experts, trial exhibits,
and document and communication services) that the prevailing party has incurred
in connection therewith.
10.11 Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands and other communications will
be sent to Merchant Partners at the address set forth in the Services Agreement
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
17
<PAGE> 86
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE TRACKER CORPORATION OF MERCHANT PARTNERS L.P.
AMERICA By: MERCHANT ADVISORS, L.P.,
its General Partner
By:____________________________
By: MERCHANT DEVELOPMENT
Its:___________________________ CORP., its General Partner
By:____________________________
Its:___________________________
18
<PAGE> 87
EXHIBIT A
EXISTING REGISTRATION RIGHTS
Unless the context otherwise requires, capitalized terms used in this
Exhibit A shall have the meanings ascribed to them in the Company's Registration
Statement on Form S-1 (No. 33-99686).
In the Reorganization Agreement, Tracker covenanted to the Trustee, the
Montreal Trust Company of Canada, for the express benefit of the holders of the
Exchangeable Preference Shares, that Tracker will, (i) file a registration
statement under the Securities Act, covering the exchange of the Exchangeable
Preference Shares for the Reserved Common Shares (the "Share Exchange Offer")
and the resale of the Reserved Common Shares received pursuant to the Share
Exchange Offer, (ii) use its best efforts to cause such registration statement
to become effective, and (iii) use its best efforts to keep the registration
statement current, at its expense, for a one year period. In addition, if during
the two year period commencing with July 12, 1997 and ending July 12, 1999,
Tracker proposes to register any of its equity securities under the Act for sale
for cash (otherwise than in connection with the registration of securities
issuable pursuant to an employee stock option, stock purchase or similar plan or
pursuant to a merger, exchange offer or a transaction of a type specified in
Rule 145(a) under the Act), Tracker shall (a) give the holders of the then
outstanding Exchangeable Preference Shares notice of the proposed registration,
(b) upon request of a holder, use its best efforts to register the Share
Exchange Offer and the resale of the Reserved Common Shares received pursuant to
the Share Exchange Offer, and (c) use its best efforts to cause such
registration to become and remain effective. No assurance can be given, however,
that any such registration statement referred to in the immediately preceding
sentence will be filed between July 12, 1997 and July 12, 1999, and Tracker has
no legal duty to file a registration statement during such period.
The holder of 250,000 shares of Common Stock and Common Warrants to
purchase 250,000 shares of Common Stock has contractual rights to demand that
such shares and the shares underlying such Common Warrants be registered under
the Securities Act during the one year period between July 12, 1995 and July 12,
1996, if no current registration statement by Tracker is on file covering the
shares of Common Stock. All expenses in connection with such registration shall
be borne by Tracker with respect to the first demand registration, except that
the holder shall pay all underwriting discounts and selling commissions and all
fees and disbursements of any special counsel to any seller of the securities
being registered. The costs of any subsequent demand registrations shall be
borne by the holder.
The holder of common warrants to purchase 500,000 shares of Common
Stock has contractual rights to demand that the shares underlying such common
warrants be registered under the Securities Act during the one year period
between July 12, 1995 and July 12, 1996, if no current registration statement by
Tracker is on file covering the securities comprising or underlying the shares
and warrants. The holder shall have such rights, however, only if such holder
exercises his common warrants to purchase 500,000 shares of Common Stock in full
prior
1
<PAGE> 88
to making any such demand. No such exercise has yet occurred. Tracker may
postpone or delay such demand registration under certain circumstances. All
expenses in connection with such registration shall be borne by Tracker with
respect to the first demand registration, except that the holder shall pay all
underwriting discounts and selling commissions and all fees and disbursements of
any special counsel to any seller of the securities being registered. The costs
of any subsequent demand registrations shall be borne by the holder.
The holder of 800,000 shares of Common Stock has the right to demand
that such shares be registered under the Securities Act during the five year
period ending on March 15, 2000. Such holder's shares are registrable at its own
expense.
Holders of the First Series Convertible Debentures have the right to
demand that the shares of Common Stock underlying such Convertible Debentures be
registered under the Securities Act. Tracker must file a registration statement
within 30 business days after it receives notices of conversion that represent,
in the aggregate, 50% or more of the then unpaid principal balance of all
outstanding First Series Convertible Debentures and in any event evidencing
First Series Convertible Debentures with an outstanding principal balance of at
least $300,000. Tracker shall use its best efforts to cause such registration
statement to become effective. All expenses of such registration, other than
underwriting discounts and commissions, shall be paid by Tracker.
Holders of the Second Series Convertible Debentures have the right to
demand that the shares of Common Stock underlying such Convertible Debentures be
registered under the Securities Act. Tracker must file a registration statement
within 30 business days after it receives notices of conversion that represent,
in the aggregate, 50% or more of the then unpaid principal balance of all
outstanding Second Series Convertible Debentures and in any event evidencing
Second Series Convertible Debentures with an outstanding principal balance of at
least $300,000. Tracker shall use its best efforts to cause such registration
statement to become effective. All expenses of such registration, other than
underwriting discounts and commissions, shall be paid by Tracker.
The holder of 25,000 shares of Common Stock has the right to have such
shares included in the first registration statement filed by Tracker following
the issuance of such shares.
The holder of a warrant to purchase 200,000 shares has the right to
have the shares underlying such warrant included in any registration statement
filed by the Tracker (subject to certain exceptions) at Tracker's expense.
Certain shares which may be issued to CRG are required to be freely
tradeable shares.
2
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