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Rule 424(b)(1)
File No. 33-99686
THE TRACKER CORPORATION OF AMERICA
13,799,479 SHARES OF COMMON STOCK
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 6 OF THIS PROSPECTUS. THESE ARE SPECULATIVE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS OCTOBER 21, 1996
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This Prospectus relates to the public offering from time to time by
certain holders thereof (the "Selling Securityholders") of up to (i) 4,709,181
issued and outstanding shares of the common stock, par value $0.001 (the "Common
Stock"), of The Tracker Corporation of America, a Delaware corporation ("Tracker
U.S."); (ii) 250,000 shares of Common Stock which are issuable to the holder
thereof upon the exercise of Tracker U.S.'s outstanding Common Stock Purchase
Warrants (the "Common Warrants"); (iii) 960,002 shares of Common Stock which are
issuable to the holders of Tracker U.S.'s Convertible Subordinated Debentures in
an aggregate principal amount of $1,000,000 (the "First Series Convertible
Debentures") upon the conversion of such warrants into Common Stock; (iv)
728,957 shares of Common Stock which are issuable to the holders of Tracker
U.S.'s Convertible Subordinated Debentures in an aggregate principal amount of
$1,189,529 (individually the "Second Series Convertible Debentures" and
collectively with the First Series Convertible Debentures, the "Convertible
Debentures") upon the conversion of such debentures into Common Stock; (v)
5,225,339 shares of Common Stock which are issuable to the holders of
Exchangeable Preference Shares (the "Exchangeable Preference Shares") issued by
Tracker U.S.'s subsidiary, The Tracker Corporation, an Ontario, Canada
corporation ("Tracker Canada"), and the holders of Tracker Canada's Exchangeable
Preference Share Warrants (the "Exchangeable Preference Share Warrants") upon
the exchange of Exchangeable Preference Shares for Common Stock; (vi) 900,000
shares of Common Stock which are issuable to the holder thereof upon the
exercise of an outstanding Common Stock Purchase Option (the "Merchant Partners
Option"); (vii) 326,000 shares of Common Stock which may, at the option of the
Company, be issued to the Company's investor relations firm (the "CRG Shares");
(viii) 500,000 shares of Common Stock which are issuable to the holder thereof
upon the exercise of outstanding options (the "CRG Options"); and (ix) 200,000
shares of Common Stock which are issuable to the holder thereof upon the
exercise of an outstanding Common Stock Purchase Warrant (the "TODA Warrant").
The Common Stock offered by the Selling Securityholders hereby may be
offered from time to time for the account of the Selling Securityholders. The
Selling Securityholders may sell the shares of Common Stock being offered by
them from time to time in transactions in the over-the-counter market, in
negotiated transactions, or by a combination of these methods at market prices
prevailing at the time of the sale, at prices related to such market prices or
at negotiated prices. There can be no assurance, however, that the Selling
Securityholders will sell any of the shares of Common Stock offered hereby. See
"PLAN OF DISTRIBUTION" and "SELLING SECURITYHOLDERS." Tracker U.S. will not
receive any of the proceeds from any sale of the shares of Common Stock. See
"USE OF PROCEEDS."
The Common Stock is traded on the over-the-counter market and is quoted
on the OTC Bulletin Board under the symbol "TRKR." On August 30, 1996, the high
bid price and the asked price of the Common Stock were $ 0.24 and $0.28
respectively. See "PRICE RANGE OF COMMON STOCK."
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AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information filed by
the Registrant with the Commission pursuant to the informational requirements of
the Exchange Act can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington D.C. 20549
and at the Commission's regional offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549 at prescribed rates. In addition, the Company is an
electronic filer and the Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding electronic filers.
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The Company will furnish its stockholders with annual reports
containing audited financial statements.
The Selling Securityholders directly, through agents designated from
time to time, or through dealers or underwriters also to be designated, may sell
shares of Common Stock from time to time on terms to be determined at the time
of sale. To the extent required, the specific shares to be sold, the names of
the Selling Securityholders, purchase price, public offering price, the names of
any such agent, dealer or underwriter, and any applicable commission or discount
with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement. The aggregate proceeds of the Selling Securityholders
from the shares will be the purchase price of shares sold less the aggregate
agents' commissions. See "SELLING SECURITYHOLDERS" and "PLAN OF DISTRIBUTION."
To the extent required, such Prospectus Supplement will also set forth
information regarding any indemnification by the Company of the Selling
Securityholders or any underwriter, dealer or agent against certain liabilities,
including liabilities under the Securities Act.
The Selling Securityholders and any broker-dealer, agent or underwriter
which participates with the Selling Securityholders in the distribution of the
shares of Common Stock may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the securities purchased by them may be deemed to be underwriting
discounts or commissions under the Securities Act. See "PLAN OF DISTRIBUTION."
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PROSPECTUS SUMMARY
The following summary of certain information contained in this
Prospectus is not complete. This summary is qualified in its entirety by the
more detailed information and financial statements appearing elsewhere in this
Prospectus. Prospective investors must read the entire Prospectus. The
securities offered hereby are speculative and involve a high degree of risk. See
"RISK FACTORS." As used in this Prospectus, the term "Company" includes The
Tracker Corporation of America, a Delaware corporation ("Tracker U.S."), and The
Tracker Corporation, an Ontario, Canada corporation ("Tracker Canada"), a
wholly-owned subsidiary of Tracker U.S., unless the context indicates otherwise;
provided, however, that with respect to all information provided herein relating
to Tracker U.S.'s Common Stock, options, warrants and other capital securities,
the term "Company" means Tracker U.S., unless the context otherwise requires.
All dollar amounts contained in this Prospectus are in U.S. dollars unless
otherwise noted. The assets and liabilities of the Company are translated at the
June 30, 1996 exchange rate while revenues, expenses and cashflows are
translated at the average rates in effect for the period.
THE COMPANY
The Tracker Corporation of America, a Delaware corporation ("Tracker
U.S."), is a development stage company which, through its wholly-owned Canadian
subsidiary, The Tracker Corporation, an Ontario, Canada corporation ("Tracker
Canada"), 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 and
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 through the use of diverse marketing channels. As of
September 30, 1996, the Company has installed only 17 scanners in the United
States. The Company's service has been endorsed by the International
Association of Chiefs of Police (the "IACP"). The Company has agreed to pay the
IACP a royalty fee for such endorsement. See "BUSINESS--The IACP Endorsement."
To date, the Company has received very limited revenues from sales of its
service.
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). After a member's lost item has been
found and then scanned, the labels are linked electronically to a central
computer base. 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 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 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. Currently,
however, the Company does not have a contract with any manufacturers to laser
etch the Company's coding or to directly apply the Company's coding at the
source of manufacture using any other method. The Company anticipates, that if
such contracts are procured, the manufacturers will absorb the cost of the laser
etching either directly or indirectly (i.e., through the unit price charged to
the manufacturer by the Company). There can be no assurance, however, that the
Company will be able to successfully expand its service in this fashion.
In addition to the Company's personal property identification and
recovery system, the Company has implemented and is currently offering a card
registration service. The Company offers members of this program the benefit and
convenience of card registration. With one phone call, a member can (a) cancel
all his lost or stolen cards (whether they be debit cards, gas cards, automated
bank teller cards, department
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store cards or credit cards), (b) request replacement cards, (c) request a
change of address for all his cards, (d) receive $15,000 in travel insurance on
common carrier, (e) receive $2,000 in AD&D insurance, (f) receive $500 in
airline discounts and (g) be covered on fraudulent charges up to $10,000. This
service includes 24 identification labels, a card registration form and an
indemnification certificate.
THE OFFERING
Selling Securityholders may sell up to (i) 4,709,181 already issued
shares of Common Stock, (ii) 250,000 shares of Common Stock which are issuable
to the holder of the Common Warrants upon the exercise thereof; (iii) 960,002
shares of Common Stock which are issuable to the holders of the First Series
Convertible Debentures upon the conversion of such debentures into Common Stock;
(iv) 728,957 shares of Common Stock which are issuable to the holders of the
Second Series Convertible Debentures upon the conversion of such debentures into
Common Stock; (v) 5,225,339 shares of Common Stock which are issuable to the
holders of the Exchangeable Preference Shares and Exchangeable Preference
Warrants upon the exchange of Exchangeable Preference Shares for Common Stock;
(vi) 900,000 shares of Common Stock which are issuable to the holder of the
Merchant Partners Option upon the exercise thereof; (vii) 326,000 CRG Shares;
(viii) 500,000 shares of Common Stock which are issuable to the holder of the
CRG Options upon the exercise thereof; and (ix) 200,000 shares of Common Stock
which are issuable to the holder of the TODA Warrant upon the exercise thereof.
The Selling Securityholders may sell such shares from time to time in
transactions in the over-the-counter market, in negotiated transactions, or by a
combination of these methods at market prices prevailing at the time of the
sale, at prices related to such market prices or at negotiated prices. There can
be no assurance, however, that the Selling Securityholders will sell any of the
shares of Common Stock offered hereby.
COMMON STOCK CURRENTLY
OUTSTANDING(1) (2) 15,921,647
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING(1) (2) (3) 19,578,482
USE OF PROCEEDS The Company will not receive any of the
proceeds of any sales. See "USE OF
PROCEEDS."
RISK FACTORS Investors should carefully consider the
factors listed under "RISK FACTORS."
- -----------------
(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 the Company 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 the Company'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 the Company's issued and outstanding voting equity, and 326,000
shares and options to purchase 500,000 shares that may be issued in the
future pursuant to an agreement with the Company's investor relations
firm. See "EXECUTIVE COMPENSATION - 1994 Stock Incentive Plan,"
"DESCRIPTION OF SECURITIES," and "CERTAIN
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RELATIONSHIPS AND RELATED TRANSACTIONS - Investment by Saturn
Investments, Inc." and "- Corporate Relations Group."
(3) Adjusted to give effect to the conversion of First Series Convertible
Debentures into 960,002 shares, the conversion of Second Series
Convertible Debentures into 728,957 shares, the conversion of
Convertible Preferred Stock into 867,876 shares (based on the
conversion price in effect as of June 25, 1996), the exercise of the
Merchant Partners Option into 900,000 shares, and the exercise of the
TODA Warrant into 200,000 shares. See "DESCRIPTION OF SECURITIES -
Convertible Debentures," "- Preferred Stock," "- Merchant Partners
Option" and "- TODA Warrant."
The following table summarizes certain selected consolidated financial
data of the Company and is qualified in its entirety by the more detailed
financial statements contained elsewhere in this Prospectus. The selected
consolidated financial data at March 31, 1995 and 1996 and for the fiscal 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. The selected consolidated financial data for the three
months ended June 30, 1996 have been derived from the unaudited consolidated
financial statements of the Company, which include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three months
ended June 30, 1996 are not necessarily indicative of results to be expected for
the year ending March 31, 1997.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Consolidated Statement of Inception (May 6, 1993) Fiscal Year Ended Fiscal Year Ended 3 Months Ended
Operations Data to March 31, 1994 March 31, 1995 March 31, 1996 June 30, 1996
- ------------------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenue $ -- $ 10,187 $ 106,522 $ 65,872
Net loss (2,043,425) (5,068,583) (6,090,730) (1,262,712)
Net loss per share (0.38) (0.71) (0.57) (0.10)
Consolidated Balance Sheet Data March 31, 1994 March 31, 1995 March 31, 1996
- ------------------------------- -------------- ---------------- ---------------
Total assets 2,675,527 1,669,452 1,193,742 1,419,161
Total current liabilities 275,660 1,446,543* 2,393,631* 2,055,784*
Long-term debt -- -- -- --
Total stockholder's equity 2,399,867 222,909 (1,378,772) (1,108,682)
Working capital 2,195,349 (445,686) (1,728,529) (1,321,725)
</TABLE>
- --------------
* Included in total current liabilities for June 30, 1996 are $1,150,000
of convertible subordinated debentures and $210,956 of current deferred
revenues (as compared with $1,460,000 of convertible subordinated
debentures and $115,241 of deferred revenues for March 31, 1996 and $0
of convertible subordinated debentures and $10,998 of deferred revenues
for March 31, 1995).
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RISK FACTORS
The securities offered by this Prospectus are speculative and involve a
high degree of risk. In addition to the other information in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating a purchase of securities offered by this Prospectus.
LACK OF PROFITABILITY; CONTINUING LOSSES EXPECTED; INDEPENDENT ACCOUNTANTS'
CONCERN ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
Prior to its acquisition of Tracker Canada in July 1994, Tracker U.S.
had been inactive for several years and had conducted no significant operations
or activities. Tracker Canada, which originated the Company's present line of
business, was founded in May 1993. During the three month period ended June 30,
1996, the Company incurred a net loss of $1,262,712 and, at the end of such
period, had an accumulated deficit of $14,465,450. During the fiscal year ended
March 31, 1996, the Company incurred a net loss of $6,090,730. The Company
expects to continue to incur losses through at least March 31, 1997. From the
date of inception (May 6, 1993) through June 30, 1996, the Company had realized
revenues of only $182,581. The report of independent accountants covering the
company's financial statements for the year ended March 31, 1996 expresses
substantial doubt about its ability to continue as a going concern because it is
a development stage company and has not yet been able to generate significant
revenues or attract outside financing. There can be no assurance that the
Company will be able to attract significant outside financing on terms
acceptable to the Company or that the Company will achieve profitable
operations. If the Company is unable to attract such financing or achieve
profitable operations, it may be forced to cease or significantly limit its
operations. See "RISK FACTORS - Additional Financing Requirements,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS - The Company's Personal Property Identification and
Recovery System," and "BUSINESS - The Company's Marketing Strategy."
EARLY STAGE OF COMPANY; FAILURE OF CERTAIN MARKETING CAMPAIGNS
The Company is a development stage company that has developed and has
begun to market, sell and operate its personal property identification and
recovery system and its card registration service. To date, the Company has
generated only modest sales. Further, two of the Company's television test
marketing efforts, both of which were through 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 for 2,500 personal property protection ("Tracker
Plus") kits. The Company's appearance on The Home Shopping Network in June 1996,
however, resulted in sales by The Home Shopping Network of only nine of the
kits. Accordingly, there can be no assurance that the Company will gain
acceptance of its system by the public.
The Company's operations and resulting cash flows are subject to all of
the risks inherent in an emerging business enterprise. The commercial
introduction of the Company's services will present marketing and financial
challenges for the Company. To achieve significant revenues and profitable
operations on a continuing basis, the Company must successfully market, sell and
operate its services. There can be no assurance that the Company will be able to
do so. In addition, although the Company has been generating ongoing revenues
since December 31, 1995, 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. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS - The Company's
Personal Property Identification and Recovery System," "BUSINESS - The Company's
Marketing Strategy" and "BUSINESS - The Company's Plan of Distribution."
LACK OF FORMAL AGREEMENTS WITH MANUFACTURERS TO APPLY THE COMPANY'S CODING AT
THE SOURCE OF MANUFACTURE
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. Currently, the Company does not have a contract with any
manufacturers to laser etch the Company's coding or to directly apply the
Company's coding at the source of manufacture using any other method. There can
be no assurance that the Company will be able to successfully expand its
service in this fashion.
REMOVAL OF THE IDENTIFICATION LABELS
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). Although 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, there
can be no assurance that the Company's labels will not be removed. See "BUSINESS
- -- The Company's Personal Property Identification and Recovery System - The
Identification Device." Any failure of the labels to adhere properly could
damage the credibility of the Company's personal property identification and
recovery service and could have a material adverse effect on the Company's
business, operating results and financial condition.
ABILITY OF THE COMPANY TO ESTABLISH AND LOCATE SCANNERS
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. The average cost to the Company to install the scanning
equipment is $2,500 per installation. As of September 30, 1996, the Company had
installed 40 scanners in Canada. Additionally, as of September 30, 1996, the
Company has letters of intent from more than 125 police, sheriff and other
locations throughout the United States to accept the Company's scanners but had
installed only 17 scanners in the United States pursuant to these letters of
intent. There can be no assurance, however, that these letters of intent will
result in additional placed scanners or that the Company will be able to
continue to establish strategic or centrally located scanners throughout a wide
geographic area. Any failure to place additional scanners could damage the
credibility of the Company's personal property identification and recovery
service and could have a material adverse effect on the Company's business,
operating results and financial condition.
ABILITY OF THE COMPANY TO OPERATE A LARGE INFORMATION SYSTEMS DATABASE;
NO EXPERIENCE OF EXISTING PERSONNEL CONCERNING OPERATING OR MAINTAINING A LARGE
DATABASE
After a member's lost item has been found and scanned, the labels are
linked electronically to a central computer database maintained and operated by
the Company, which contains membership information that permits the Company to
identify the member who owns a retrieved article. Although the Company does not
expect to encounter any difficulty in operating or maintaining a large
database, the Company's existing personnel have not previously operated or
maintained any other large database and therefore their experience is limited.
Although the Company does not expect to encounter any difficulty in operating
or maintaining a large database, the Company's existing personnel have not
previously operated or maintained any other large database and therefore their
experience is limited. 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. See "BUSINESS -- The Company's Personal
Property Identification and Recovery System -- The Computer Database." 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.
DEPENDENCE ON THIRD PARTY MARKETING COMPANIES
The Company is dependent to some extent on the marketing efforts of
third party marketing companies. For example, with respect to the Company's
personal property identification and recovery service, 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 agreement is for an initial term of five years and
automatically renews for an additional five years upon Tracker Referral's
attainment of the specific 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. With respect to the Company's card
registration service, the Company has entered into an independent contractor
agreement with Datatrack, Inc. ("Datatrack") pursuant to which Datatrack
conducts telemarketing efforts for the Company in the United States. 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. Although the Company believes that its relationships
with Tracker Referral and Datatrack are on good terms, there can be no
assurance that these relationships will continue on such terms. Any failure on
the part of the Company to continue marketing its products through Tracker
Referral and Datatrack could have a materially adverse effect on the Company's
business, financial condition and results of operations.
ADDITIONAL FINANCING REQUIREMENTS AND POTENTIAL DILUTION OF STOCKHOLDERS
The Company will require additional funds in order to successfully
market, sell and operate its services. The Company's inability to obtain
financing or to raise additional capital, when needed and in amounts and on
terms favorable to the Company, could prevent or delay the marketing, sale and
operation of the Company's services and could have a material adverse effect on
the Company's business, operating results and financial condition. Although the
Company intends to raise capital through additional debt or equity offerings, no
assurance can be given that the Company will be able to do so or that the terms
of any such offerings will be favorable to the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital Requirements," and
"BUSINESS Capital Requirements." Further, if the Company issues additional
equity securities or debt securities convertible into equity securities, the
ownership interest of the Company's stockholders would be diluted. This is
especially true if the Company sells equity securities at discounts or debt
securities with high interest rates or discounted conversion rates. For example
the Company has issued 350 shares of Convertible Preferred Stock with a
conversion price equal to 33% less than the average of the published OTC
Bulletin Board closing bid prices for the Company's Common Stock for the five
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
(however, the conversion price shall in no event be less than $0.15). The total
amount to be raised under the Convertible Preferred Stock has been set at
$1,375,000. See "DESCRIPTION OF SECURITIES -- Preferred Stock."
1996 STOCK WAGE AND FEE PAYMENT PLAN; ABILITY OF FULL-TIME EMPLOYEES AND
OUTSIDE DIRECTORS TO RECEIVE TRADABLE COMMON STOCK AT 50% OF MARKET VALUE
The Board of Directors recently approved a 1996 Stock Wage and Fee
Payment Plan for the period October 1, 1996 through January 31, 1997 (the "1996
Wage Plan"), under which stock may be granted to certain employees and outside
directors in lieu of all or part of their cash compensation. As an incentive for
employees or outside directors to accept stock as wages instead of cash, the
number of shares granted to some participants in lieu of cash is based on a
price per share of less than fair market value. For example, participants may
elect to receive stock at a rate equal to 50% of its fair market value in lieu
of cash compensation. The Company filed on October 16, 1996 a registration
statement on Form S-8 concerning the shares to be issued under the 1996 Wage
Plan. See "EXECUTIVE COMPENSATION -- 1996 Stock Wage Plan." The 1996 Wage Plan
may have the effect of depressing the market value of the Company's Common Stock
and making it more difficult for the Company to raise additional equity
financing under terms satisfactory to the Company.
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MANAGEMENT OF FUTURE GROWTH
One of the Company's principal objectives is to be the first to market,
sell and operate a personal property identification and recovery system. If the
Company achieves that objective, its growth will place a strain on the Company's
management, operational and financial resources. The Company's ability to be the
first to market, sell and operate a personal property identification and
recovery system, to achieve profitable operations and to manage future growth
will depend upon the Company's ability 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. There can be no assurance that the Company will be
successful in these respects.
SOURCES OF SUPPLY; LACK OF FORMAL AGREEMENTS WITH 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, courier services and scanning locations.
Although the Company has preliminary understandings or 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. For example, the Company has obtained an informal
agreement with Symbol, the manufacturer of the laser scanners, to maintain the
Company's exclusive right to use the laser scanners in connection with a
personal property recovery service if the Company purchases 830 scanners during
the 1996 calendar year. As of September 30, 1996, the Company had purchased 17
scanners during the 1996 calendar year. As a result, the Company is materially
behind in terms of reaching its goal of purchasing 830 scanners during that
period from Symbol. 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. Additionally, the Company's requirements to date
under these understandings or agreements have been low in volume. Although the
Company anticipates that its suppliers will be able to meet its future needs,
there can be no assurance that the Company's suppliers will be able to meet
such needs in periods, if any, of increased volume. 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. See "BUSINESS - Key Suppliers" and "BUSINESS - The
Company's Personal Property Identification and Recovery Network - The Scanning
Network," and "BUSINESS - The Company's Marketing Strategy."
LACK OF PUBLIC ACCEPTANCE OF THE COMPANY'S SERVICES
In light of the limited revenues received by the Company to date, the
reliance on services rendered by other providers, and more traditional methods
of personal property recovery or replacement, there can be no assurance that
the Company will gain a significant level of acceptance by the public of its
service.
COMPETITION
The Company is aware of one company that is planning to introduce
services 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 Company also may face competition from alternative personal
property identification methods such as tracking property by serial number or by
the property owner's imprinted name and address or from conventional forms of
insurance that reimburse consumers for lost items. Such insurance typically also
provides reimbursement for items that are destroyed by fire, flood or acts of
God. Further, conventional insurance has high market acceptance and conventional
insurance companies typically have substantial resources to market their
products effectively and aggressively. Although the Company's personal property
identification and recovery service differs from conventional insurance in that
its objective is to return its members' personal possessions, there can be no
assurance that the Company will be able to compete effectively with conventional
insurance providers.
The successful introduction of such services by this or any other
competitors, or the introduction by competitors of ineffective systems which
damage the credibility of the Company's industry as a whole, could have a
material 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, could
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 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 Group, CUC International, Safecard Services, 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
8
<PAGE> 9
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 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 of this Prospectus, 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.
See "BUSINESS - Competition."
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 applications 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. See "BUSINESS -
Intellectual Property Protection and Infringement."
LIMITED MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Tracker U.S.'s Common Stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board. The market for the 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. Additionally, stocks traded
on the OTC Bulletin Board generally have limited brokerage and news coverage.
Thus, the market price of the Common Stock may not reflect the value of the
Company. 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. See "PRICE RANGE
OF COMMON STOCK." Factors such as technological innovations, new product
developments, general trends in the Company's industry, quarterly variations in
the Company's results of operations, and market conditions in general may cause
the market price of the Common Stock to fluctuate significantly. The stock
markets have experienced extreme price and volume fluctuations. These broad
market fluctuations and other factors may adversely affect the market price of
the Common Stock.
PENNY STOCK RULES
The Common Stock is subject to the penny stock rules promulgated under
the Exchange Act (the "Penny Stock Rules"). The Penny Stock Rules regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system.) The Penny Stock
9
<PAGE> 10
Rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for the Common Stock.
Thus, investors may find it more difficult to sell the Common Stock.
CONCENTRATION OF OWNERSHIP; EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
By way of background, 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 of January 31,
1996, Stalia transferred its Tracker Canada Exchangeable Preference Shares to
Saturn Investments, Inc. ("Saturn"), an affiliate of Stalia. Stalia also
transferred to Saturn all of Stalia's rights under the Stalia Option Agreement
and the Stalia Agreement.
The Company's directors, officers, principal stockholders and their
affiliates will continue to beneficially own approximately 38.8% of the
Company's Common Stock immediately following this offering, assuming that the
Exchangeable Preference Shares and Exchangeable Preference Warrants will be
exchanged into 5,225,339 shares of Common Stock, that currently exercisable
options to purchase 9,999 shares of Common Stock will be exercised in full, that
the Convertible Debentures outstanding as of June 25, 1996 will be converted in
full into approximately 1,688,959 shares of Common Stock, that Saturn
Investments, Inc. ("Saturn") will exercise its option to purchase an additional
amount of shares of Common Stock (3,903,797) that would provide Saturn (when
combined with common shares held by Saturn at the time of exercise) with
ownership of 25% of the Company's issued and outstanding voting equity, that the
Convertible Preferred Stock outstanding as of June 25, 1996 will be converted
into 867,876 shares of Common Stock (based on the conversion price in effect as
of June 25, 1996), that the TODA Warrant will be exercised into 200,000 shares
of Common Stock, and that the Merchant Partners Option will be exercised into
900,000 shares of Common Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT." As a result of such ownership, the Company's directors,
officers, principal stockholders and their affiliates will effectively have the
ability to control the Company and direct its business and affairs. Such
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, the Company's
Certificate of Incorporation and Bylaws contain provisions that have the effect
of retaining the control of current management and that may discourage
acquisition bids for the Company. Such provisions could limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock and impede the ability of stockholders to replace management even
if factors warrant such a change. See "DESCRIPTION OF SECURITIES - Anti-Takeover
Effects of Provisions of the Certificate of Incorporation and Bylaws."
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. See "CERTAIN RELATIONSHIPS AND TRANSACTIONS - Investment
by Saturn Investments, Inc."
10
<PAGE> 11
RIGHTS TO ACQUIRE ADDITIONAL SHARES
Tracker U.S. has outstanding Common Warrants to purchase 750,000 shares
of its Common Stock at $5.00 per share during the period commencing on July 12,
1995 and ending on the first date after July 12, 1996 on which the Common Stock
can be purchased at a legally marginable price. See "DESCRIPTION OF SECURITIES
Common Warrants." In addition, Tracker U.S.'s wholly-owned subsidiary, Tracker
Canada, has outstanding Exchangeable Preference Warrants to purchase 15,577 of
Tracker Canada's Exchangeable Preference Shares at Canadian $14.00 per share
that expire on various dates, the last of which is September 23, 1996. If the
Exchangeable Preference Warrants are exercised into Exchangeable Preference
Shares, such Exchangeable Preference Shares may be exchanged on a one-for-one
basis for shares of Common Stock after July 12, 1995 and will automatically be
exchanged for shares of Common Stock on July 12, 2002. See "DESCRIPTION OF
SECURITIES - Exchangeable Preference Warrants." Further, Tracker U.S. has agreed
to grant its investor relations firm options to purchase up to 500,000 shares of
Common Stock at various exercise prices ranging from $2.00 to $3.00 per share
over the course of the next five years and may issue 326,000 shares of Common
Stock to that firm in lieu of cash payments for its services. See "DESCRIPTION
OF SECURITIES - CRG Shares and Options." Based on present market prices of the
Common Stock, it is unlikely that the Common Warrants, Exchangeable Preference
Warrants or CRG options will be exercised prior to their expiration dates.
The Company has granted its directors options to purchase 43,333 shares
of Common Stock pursuant to its stock incentive plan. An aggregate of 120,000
shares have been reserved for issuance pursuant to that plan. See "EXECUTIVE
COMPENSATION - 1994 Stock Incentive Plan." In addition, Tracker U.S. has issued
First Series Convertible Debentures in an aggregate principal amount of
$1,000,000. The First Series Convertible Debentures may be converted into shares
of Common Stock, in whole or in part, at a conversion rate of $0.4375 per share
of Common Stock from October 1, 1995 through July 31, 1996. The conversion of
all the remaining unconverted First Series Convertible Debentures would result
in the issuance of approximately 906,002 shares of Common Stock. Tracker U.S.
also has issued Second Series Convertible Debentures in an aggregate principal
amount of $1,189,529 as of June 25, 1996. The Second Series Convertible
Debentures may be converted into shares of Common Stock, in whole or in part, at
various conversion rates, the weighted average of which is $1.045972 per share
of Common Stock, from October 31, 1995 through July 31, 1996. The conversion of
all the remaining unconverted Second Series Convertible Debentures outstanding
as of June 25, 1996 would result in the issuance of approximately 728,957 shares
of Common Stock. In addition, the Company's Board of Directors has authorized
the issuance of up to an additional $810,471 aggregate principal amount of
Second Series Convertible Debentures with a conversion price of not less than
$0.9375 per share. If additional Second Series Convertible Subordinated
Debentures are issued, additional shares of Common Stock could be acquired by
the holders of any such additional debentures. See "DESCRIPTION OF SECURITIES -
Convertible Debentures." Further, Tracker U.S. has outstanding the Merchant
Partners Option to purchase 900,000 shares of Common Stock, subject to certain
contingencies in the case of 700,000 of the shares, at various exercise prices
ranging from $0.50 to $1.00. The option is exercisable for various periods
ending on July 10, 2001. See "DESCRIPTION OF SECURITIES Merchant Partners
Option." Tracker U.S. also has outstanding the TODA Warrant to purchase 200,000
shares of its Common Stock at an exercise price of $0.40 per share through May
30, 2001. See "DESCRIPTION OF SECURITIES - TODA Warrant."
Further, the Company has granted to Saturn the right 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 the Company's issued and outstanding voting equity. The
purchase price of such shares is their fair market value. The Company has also
granted to Saturn a right of first refusal to purchase its pro rata share of
certain new securities which the Company may from time to time propose to issue
and sell. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Investment by
Saturn Investments, Inc."
For the life of these options, warrants and debentures (except for the
Saturn options, which are exercisable at the fair market value of the shares
purchased), the holders thereof will have the opportunity to profit from any
difference between the exercise or conversion price of the options, warrants or
debentures and any higher market price of the Common Stock of the Company
without assuming the risks of ownership of the Common Stock. The presence of
such options, warrants and debentures may have the effect of depressing the
market value of the
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<PAGE> 12
Company's Common Stock and making it more difficult for the Company to raise
additional equity financing under terms satisfactory to the Company. In
addition, the holders of the options, warrants and debentures can be expected to
exercise or convert them only at times when the Company in all likelihood would
be able to obtain any needed capital by a new offering of its securities on
terms more favorable than those provided by the options and warrants. To the
extent any of the options, warrants or debentures are exercised or converted,
the ownership interest of the Company's stockholders would be diluted. Moreover,
Saturn's right of first refusal could have the effect of making it more
difficult for the Company to raise additional equity financing under terms
satisfactory to the Company.
SUMMARY TABLE OF OUTSTANDING OPTIONS,
WARRANTS AND CONVERTIBLE DEBENTURES*
<TABLE>
<CAPTION>
==================================================================================================================================
EXERCISE/CONVERSION PRICE EXERCISE/CONVERSION PERIOD NUMBER AND TYPE OF
SHARES EXERCISABLE/
CONVERTIBLE INTO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common $5.00 per share Commencing on July 12, 1995 and 750,000 shares of Common Stock
Warrants ending on the first date after July 12,
1996 on which the Common Stock can be
purchased at a legally marginable price
- ----------------------------------------------------------------------------------------------------------------------------------
Exchangeable CDN$14.00 per share Exercisable until various expiration dates, 15,577 Exchangeable Preference
Preference the last of which is September 23, 1996 Shares
Warrants
- ----------------------------------------------------------------------------------------------------------------------------------
CRG Option $2.00 per share Exercisable thru November 19, 1996 100,000 shares of Common Stock
$2.40 per share Exercisable thru November 19, 1997 100,000 shares of Common Stock
$2.60 per share Exercisable thru November 19, 1998 100,000 shares of Common Stock
$2.80 per share Exercisable thru November 19, 2000 100,000 shares of Common Stock
$3.00 per share Exercisable thru November 19, 2000 100,000 shares of Common Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Merchant Tranche I: $0.50 per share Exercisable in three tranches with certain Tranche I: 200,000 Shares of Common
Partners Option Tranche II: $0.75 per share preconditions and various expiration Stock
Tranche III: $1.00 per share dates, the last of which is July 10, 2001. Tranche II: 450,000 Shares of
(subject to adjustment) Common Stock
Tranche III: 250,000 Shares of
Common Stock
- ----------------------------------------------------------------------------------------------------------------------------------
TODA Warrant $0.40 per share (subject to May 30, 2001 200,000 shares of Common Stock
adjustment)
- ----------------------------------------------------------------------------------------------------------------------------------
First Series $0.4375/share October 1, 1995 through December 1, 1996 960,002 shares of Common Stock
Convertible
Debentures
- ----------------------------------------------------------------------------------------------------------------------------------
Second Series Various conversion rates, the October 1, 1995 through December 1, 1996 728,957 shares of Common Stock
Convertible weighted average of which is
Debentures $1.00143 per share
- ----------------------------------------------------------------------------------------------------------------------------------
Saturn Option Fair market value on the Terminates upon the closing date of the Number of shares, which, when
exercise date Company's first public offering, or on combined with currently held shares,
March 14, 1999, whichever occurs first would provide Saturn with 25%
ownership of the Company's issued
and outstanding voting equity
- ----------------------------------------------------------------------------------------------------------------------------------
1994 Stock $7.95 per share July 12, 1994 through July 12, 2004 33,333 shares of Common Stock
Incentive Plan (with certain exceptions)
Options
$1.81 per share July 12, 1994 through July 12, 2004 10,000 shares of Common Stock
(with certain expections)
==================================================================================================================================
</TABLE>
* This table is summary in nature and the information contained herein is
current as of June 30, 1996. See "DESCRIPTION OF SECURITIES" for a
detailed discussion of the outstanding options, warrants and
convertible debentures.
12
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION OF ADDITIONAL SHARES
Of the 10,711,885 shares of Common Stock that were outstanding as of
June 25, 1996, 1,509,048 are freely tradeable and an additional 4,709,181 shares
which are being registered by the Registration Statement of which this
Prospectus is a part will, upon their sale pursuant to this Prospectus, become
freely tradeable. All of the remaining 4,493,656 shares of Common Stock that
were outstanding as of June 25, 1996 will become eligible for resale in the
public market at subsequent dates after expiration of the applicable holding
periods.
In addition, the Registration Statement of which this Prospectus is
part registers for resale by the holders thereof an aggregate of 9,090,298
shares of Common Stock that may be issued to certain persons by the Company
pursuant to (i) the Common Warrants, (ii) the First Series Convertible
Debentures, (iii) the Second Series Convertible Debentures, (iv) Tracker
Canada's Exchangeable Preference Shares, (v) Tracker Canada's Exchangeable
Preference Warrants that are exercisable into Exchangeable Preference Shares,
which, in turn, are exchangeable on a one-for-one basis for shares of Common
Stock, (vi) the Merchant Partners Option, (vii) the CRG Options and an agreement
with CRG, and (viii) the TODA Warrant. See "DESCRIPTION OF SECURITIES." All such
Common Shares will, upon their sale pursuant to this Prospectus, be freely
tradeable. See "SHARES ELIGIBLE FOR FUTURE SALE" and "PLAN OF DISTRIBUTION."
Future sales of substantial amounts of shares in the public market could
adversely affect the market price of the Company's shares.
ABSENCE OF DIVIDENDS
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 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. Prospective investors who seek dividend income from their investments
should not purchase the securities offered by this Prospectus. See "DIVIDEND
POLICY," "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Acquisition
Transaction" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Investment by
Saturn Investments, Inc."
DILUTION
Purchasers of shares of Common Stock may experience immediate and
substantial dilution in the net tangible book value of the Common Stock from the
offering price. See "DILUTION."
INTERNATIONAL OPERATIONS
The Company has operations in Canada and recently began test marketing
in the United States. In addition, the Company has signed a letter agreement
with Amerasia International Holdings Limited ("Amerasia") pursuant
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<PAGE> 14
to which Amerasia will assist the Company in selling licenses for overseas
markets. 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. See "BUSINESS - International
Operations."
The Company does not engage in any hedging contracts because it
receives the majority of its cash flow in United States dollars.
PRIOR BANKRUPTCY OF COMPANY'S PRESIDENT, EXECUTIVE VICE PRESIDENT AND DIRECTORS
I. Bruce Lewis, the Company's Chief Executive Officer, President, and
Chairman of the Board of Directors, and Mark J. Gertzbein, the Company's
Executive Vice President, Chief Financial Officer, Secretary, Treasurer and
Deputy Chairman of the Board of Directors, were previously involved with Albert
Berg Limited, a company which was petitioned into bankruptcy by its creditors in
May 1990. Mr. Lewis was the President and a Director and Mr. Gertzbein was the
Vice President, Finance and Administration, of Albert Berg Limited. See
"MANAGEMENT - Directors and Executive Officers of the Company."
INDEMNIFICATION OF COMPANY'S OFFICERS AND DIRECTORS
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.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Transactions with
Management."
GOVERNMENTAL REGULATIONS
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. A telemarketer's failure to
comply with the regulations may result in civil and/or criminal liability.
Although the Company believes it is in substantial 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.
In addition, the Company, through Tracker Referral Network
International, Inc. ("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. 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. 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 marketing 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 such independent contractor 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. See "BUSINESS -
Governmental Regulations."
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<PAGE> 15
ECONOMIC AND GENERAL RISKS
As with any company, the success of the Company will depend in part
upon factors which are beyond the control of the Company and are impossible to
predict. Such factors include general economic conditions, both nationally and
internationally, currency exchange rates, changes in tax laws and other
governmental regulations, and the level of unemployment. There can be no
assurance that an unfavorable change in such factors would not have a material
adverse effect on the demand for the Company's personal property identification
and recovery service, the Company's operating results and financial condition,
or the market price of the Company's Common Stock.
THE COMPANY
BUSINESS
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 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. See "BUSINESS - Need
for the Company's Personal Property Identification and Recovery System." The
Company is a development stage company, which 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 and stolen personal possessions.
The Company introduced 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 has begun
to offer its service through diverse marketing channels, such as
joint-promotional partners, selected retailers, direct response, door-to-door
canvassing, telemarketers, and network referral marketers, supported by a
multi-media marketing campaign. To facilitate its identification and recovery
service, the Company is continuing to add to its 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. The Company's service has been endorsed by the
International Association of Chiefs of Police (the "IACP"). The Company has
agreed to pay the IACP a royalty fee for such endorsement. See "BUSINESS - The
IACP Endorsement." There can be no assurance, however, that the Company will be
able to establish such a network or successfully market its product through such
channels. In addition, there can be no assurance that competitors will not enter
the market with similar or superior products or services. See "BUSINESS -
Competition" and "RISK FACTORS - Competition." The planned launch 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 control. There can be no assurance that the Company will
be successful in its attempt to secure financing on terms acceptable to the
Company, or at all. See "BUSINESS - Capital Requirements."
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). After a member's lost item has been
found and then scanned, the labels are linked electronically to a central
computer base. 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. In addition to the coding, a North American 1-800 number, a toll free
worldwide
15
<PAGE> 16
number, and the "call to action" phrase "IF FOUND CALL" are printed on the
labels. The identified item may then be picked up by the member, or delivered to
the member safely and promptly by courier at the member's expense. The Company
also offers a supplemental service called the "Tracker Plus" service, which
covers the full cost of returning possessions to members.
The Company believes that its personal property identification and
recovery service:
* 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;
* 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 get their lost
or stolen possessions back.
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 return delivery service that will help get the
articles back to members when the articles are located. Another part of the
Company's strategy is to:
* make it easy for consumers to understand the concept and the
benefits of the service;
* make it easy for consumers to enroll in the service;
* provide the basic Tracker one-year service for the typical
retail price of $39.95;
* develop, maintain and operate a reliable service that improves
the likelihood of recovering lost or stolen possessions; and
* communicate the incidence of successful recoveries of
possessions in order to provide the credibility necessary to
stimulate consumer confidence in the service.
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. Currently,
however, the Company does not have a contract with any manufacturers to laser
etch the Company's coding or to directly apply the Company's coding at the
source of manufacture using any other method. The Company anticipates that if
such contracts are procured the manufacturers will absorb the cost of the laser
etching either directly or indirectly (i.e., in the unit price charged to the
manufacturers by the Company). There can be no assurance, however, that the
Company will be able to successfully expand its service in this fashion.
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. The Company offers members
of this program the benefit and convenience of card registration. With one phone
call, a member can (a) cancel all his lost or stolen cards (whether they be
debit cards, gas cards, automated bank teller cards, department store cards or
credit cards), (b) request replacement cards, (c) request a change of address
for all his cards, (d) receive $15,000 in travel insurance on common carrier,
(e) receive $2,000 in AD&D insurance, (f) receive $500 in airline discounts and
(g) be covered on fraudulent charges up to $10,000. There can be no assurance
16
<PAGE> 17
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" and "RISK FACTORS -
Competition."
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<PAGE> 18
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.
The Company's principal executive offices are located at 180 Dundas
Street West, Suite 1502, Toronto, Ontario, Canada, M5G 1Z8, and its telephone
number is (416) 595-6222.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
shares of Common Stock offered hereby. The Company estimates that it will incur
expenses of approximately $285,000 in connection with this offering.
DIVIDEND POLICY
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." Prospective investors who seek
dividend income from their investments should not purchase the securities
offered by this Prospectus.
18
<PAGE> 19
PRICE RANGE OF COMMON STOCK
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. Additonally, stocks
traded on the OTC Bulletin Board generally have limited brokerage and news
coverage. Thus, the market price of the common stock may not reflect the value
of the Company. 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.
<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
June 30, 1996 $ 0.8750 $ 0.3750
</TABLE>
- ----------
* Excludes January 8, 1996, for which the National Quotation Bureau, Inc.
was unable to provide information.
On August 30, 1996, the high and low bid quotations for the Company's
Common Stock on the OTC Bulletin Board were $ 0.24 and $0.13, 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.
19
<PAGE> 20
DILUTION
The net tangible book value of the Company's outstanding Common Stock
as of June 30, 1996 was $(1,108,682) or $(0.07336) per share. Net tangible book
value per common share is equal to the Company's total tangible assets less its
total liabilities and Preferred Stock (350 shares of which were outstanding as
of June 30, 1996 (see "DESCRIPTION OF SECURITIES - Preferred Stock")), divided
by the total number of outstanding shares of Common Stock and Class B Voting
Common Stock as of such date. The above stated net tangible book value and net
tangible book value per common share does not give effect to (i) the issuance of
shares of Common Stock since June 30, 1996; (ii) the issuance, if any, of shares
of Common Stock in the future upon the conversion of the First Series
Convertible Debentures, the conversion of the Second Series Convertible
Debentures, the exercise of the Exchangeable Preference Share Warrants, or the
conversion of the Preferred Stock outstanding as of June 30, 1996; or (iii) the
issuance, if any, of shares of Common Stock in the future pursuant to the
exercise of outstanding options or options that may be granted in the future
under the Company's Stock Incentive Plan or otherwise.
It is impossible to predict the amount of dilution from the price paid
by purchasers who buy Common Stock that will be absorbed by such purchasers
because the sale price per common share is not known. There will be no increase
in the net tangible book value per share as a result of any payments made by
purchasers who buy Common Stock because such payments, if any, will be made to
the Selling Securityholders rather than to the Company.
Further, the Board of Directors recently approved a 1996 Stock Wage
and Fee Payment Plan for the period October 1, 1996 through January 31, 1997
(the "1996 Wage Plan"), under which stock may be granted to certain employees or
outside directors in lieu of all or part of their cash compensation. As an
incentive for employees or outside directors to accept stock as wages instead of
cash, the number of shares granted to some participants in lieu of cash is based
on a price per share of less than fair market value. The Company filed on
October 16, 1996 a registration statement on Form S-8 concerning the shares to
be issued under the 1996 Wage Plan. See "EXECUTIVE COMPENSATION -- 1996 Stock
Wage Plan." The 1996 Wage Plan may have the effect of depressing the market
value of the Company's Common Stock and making it more difficult for the
Company to raise additional equity financing under terms satisfactory to the
Company.
20
<PAGE> 21
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 Prospectus. The selected consolidated
financial data at March 31, 1994, 1995 and 1996 and for the fiscal 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. The selected consolidated financial data for the three
months ended June 30, 1996 have been derived from the unaudited consolidated
financial statements of the Company, which include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three months
ended June 30, 1996 are not necessarily indicative of results to be expected for
the year ending March 31, 1997.
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 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,
Consolidated Statement of 1993) to Fiscal Year Ended Fiscal Year Ended 3 Months Ended
Operations Data March 31, 1994 March 31, 1995 March 31, 1996 June 30, 1996
- --------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenue $ -- $ 10,187 $ 106,522 $ 65,872
Net income (loss) (2,043,425) (5,068,583) (6,090,730) (1,262,712)
Net income (loss) per share (0.38) (0.71) (0.57) (0.10)
<CAPTION>
Consolidated Balance Sheet Data March 31, 1994 March 31, 1995 March 31, 1996 June 30, 1996
- ------------------------------- -------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Total assets $2,675,527 $1,669,452 $1,193,742 1,419,161
Total current liabilities 275,660 1,446,543* 2,393,631* 2,055,784*
Long-term debt -- -- -- --
Total stockholder's equity 2,399,867 222,909 (1,378,772) (1,108,682)
Working capital 2,195,349 (445,686) (1,728,529) (1,321,725)
</TABLE>
- --------------
* Included in total current liabilities for June 30, 1996 are $1,150,000
of convertible subordinated debentures and $210,956 of current deferred
revenues (as compared with $1,460,000 of convertible subordinated
debentures and $115,241 of deferred revenues for March 31, 1996 and $0
of convertible subordinated debentures and $10,998 of deferred revenues
for March 31, 1995).
21
<PAGE> 22
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 Company believes that the information contained in this Prospectus
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 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 Prospectus and in the Company's other filings with the
Securities and Exchange Commission. See "RISK FACTORS."
There can be no assurance that the forward-looking information
contained in this Prospectus 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 the predicted results or plans. Actual results or
plans may be materially different than those indicated in the forward-looking
information contained in this Prospectus.
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. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Reorganization." 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 is a development stage company that 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 service) and network referral marketers (i.e., Tracker Referral
Network International, Inc. selling home-based business opportunities utilizing
the Company's products and services).
Although the Company has been generating cash sales of approximately
$150,000 per month from January 1996 through June 1996 and $300,000 per month
since June 30, 1996, which are all absorbed in their entirety by cash flows used
in operating activities as noted in the Consolidated Statement of
22
<PAGE> 23
Cash Flows, 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 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 for 2,500
personal property protection ("Tracker Plus") kits. The Company's appearance on
The Home Shopping Network in June 1996 resulted in sales by The Home Shopping
Network 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 three
months ended June 30, 1996, the Company incurred a net loss of $1,262,712 and,
at the end of such period, had an accumulated deficit of $14,465,450. During the
fiscal year ended March 31, 1996, the Company incurred a net loss of $6,090,730.
The Company expects to continue to incur losses through at least March 31, 1997.
From the date of inception (May 6, 1993) through June 30, 1996, the Company had
realized revenues of only $182,581. Although the Company has begun to achieve
ongoing significant cash sales (approximately $150,000 per month from January
1996 through June 1996 and approximately $300,000 per month since June 30, 1996,
which are all absorbed in their entirety by cash flows used in operating
activities as noted in the Consolidated Statement of Cash Flows), the Company
will require additional capital in order to implement its business plan in the
manner contemplated. See "Capital Requirements" below. The report of independent
accountants covering the Company's financial statements for the fiscal year
ended March 31, 1996 expresses substantial doubt about the Company's ability to
continue as a going concern because it is a development stage company and has
not been able to attract significant outside financing or generate significant
revenues. There can be no assurance that the Company will be able to obtain such
financing on terms acceptable to the Company, or at all, or that the Company
will be able to achieve profitable operations. If the Company is unable to
obtain such financing or achieve profitable operations, it may be forced to
cease or significantly limit its operations. See "RISK FACTORS - Lack of
Profitability; Continuing Losses Expected; Ability to Continue as a Going
Concern" and "RISK FACTORS - Additional Financing Requirements."
Historical financial information prior to the Reorganization effective
July 12, 1994 is that of Tracker Canada. See "SELECTED CONSOLIDATED FINANCIAL
DATA." Revenue for Company services is recognized on a straight-line basis over
the term of service offered (presently 12 to 60 months). Amounts received for
which service has not yet been provided are recorded as deferred revenue. As of
June 30, 1996, the amount of deferred revenue (current and long term) was
$683,015 compared with $294,124 as of March 31, 1996. See Note 3 of Notes to
Consolidated Financial Statements.
23
<PAGE> 24
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE
30, 1996. During the three months ended June 30, 1996, the Company had net
revenues of $65,872 as compared to $15,905 net revenues for the three months
ended June 30, 1995. Cost of goods sold for the three months ended June 30, 1996
was $13,545 as compared to $8,460 for the three months ended June 30, 1995. This
resulted in a gross profit of $52,327 for the three months ended June 30, 1996
as compared to $7,445 gross profit for the three months ended June 30, 1995.
During the three months ended June 30, 1996, the Company incurred a net
loss of $1,262,712 as compared to a net loss of $1,880,977 for the three months
ended June 30, 1995. These losses included total development costs in the amount
of $1,315,039 for the three months ended June 30, 1996 as compared to $1,888,422
for the three months ended June 30, 1995. These development costs consisted of
operational costs of $144,083 for the three months ended June 30, 1996 as
compared to $181,152 for the three months ended June 30, 1995, information
systems costs of $60,545 for the three months ended June 30, 1996 as compared to
$68,744 for the three months ended June 30, 1995, sales and marketing costs of
$563,683 for the three months ended June 30, 1996 as compared to $(195,516) for
the three months ended June 30, 1995 (these sales and marketing costs increased
substantially as the Company expended resources for new promotional marketing
materials and to develop new packaging and kits for its card registration
service), and general and administrative costs of $546,728 for the three months
ended June 30, 1996 as compared to $1,834,042 for the three months ended June
30, 1995 (these general and administrative costs were reduced substantially as
the Company decreased expenditures on staff, consulting, traveling expenses and
mergers and acquisition costs).
Included in the deficit for the three months ended June 30, 1996 are
non-operating expenditures in the amount of (1) $88,739 in interest expense
incurred as a result of raising capital through Convertible Debentures (this
interest expense will be recurring until all the Convertible Debentures have
been converted into common shares; however, as Convertible Debentures are
converted, the monthly interest expense will be reduced proportionately), (2)
$45,000 relating to finders fees for raising capital through placement of
convertible preferred stock; (3) $351,868 of ongoing costs reflecting non-cash
outlays and monthly adjustments for prepaid expenditures being utilized and
expensed, which include (a) $340,744 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 (the balance of these recurring outlays will be
amortized for 13 months at $83,333.33 per month for The L.L. Knickerbocker
Company contract and for 1 month of $21,915 per month for the Angie Dickinson
contract costs, and (b) $11,124 associated with the services provided under the
Amerasia contract (the balance of this recurring outlay will be amortized for
two months at $3,708 per month); (4) $15,500 associated with the non-cash outlay
relating to the issuance of 34,445 shares of Common Stock, restricted as to
transferability, to certain outside directors of the Company; and (5) $170,469
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 as an advance of their salaries and fees through
September 30, 1996 (the balance of the recurring salary and fee outlay will be
amortized for the remaining three months at $56,823 per month). Although the
specific expenditures for finders fees and for stock grants to employees and
directors are non-recurring, the Company anticipates that it will incur similar
expenditures in the future. See "EXECUTIVE COMPENSATION -- Proposed 1996 Stock
Wage Plan."
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 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
24
<PAGE> 25
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; and
(3) $181,311 in interest expense incurred as a result of raising capital through
convertible debentures, which will be recurring until all the convertible
debentures have converted into common shares (however, as Convertible Debentures
are converted, the monthly interest expense will be reduced proportionately);
(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
(the balance of these recurring outlays will be amortized for 16 months at
$83,333.33 per month for The L.L. Knickerbocker Company contract and for 4
months at $21,915 per month for the Angie Dickinson contract costs), (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. The balance of the recurring
salary and fee outlay will be amortized for the remaining six months at $56,823
per month. 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.
Although the actual expenditures for sales and marketing were lower
than the expenditures for investor, media and public relations services during
this period, the discrepancy was due in part to the Company's ability to
negotiate large discounts and settlements with a few suppliers for work done in
prior years. The discounts were booked in the first quarter of 1996 and were
reflected as a negative figure in the sales and marketing line item of the
Company financials for the period ended June 30, 1995. Additionally, the Company
incurred a substantial amount of media relations costs because the Company was
advertised in the media heavily during this period. The investor relations
expense was high because the Company was continuing to amortize the remaining
seven months of prepaid expense the Company had set up in the previous years.
Current year expenditures for investor and media relations have been reduced
substantially and are currently running at approximately $6,000 to $7,000 per
month.
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 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 development costs consisted of
(a) 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 (these operational
costs increased substantially as the Company added a vice president of
operations, increased the number of field and operational staff to handle
increased volume in the member services and production areas and increased the
number of scanning locations, (b) 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 (these information systems costs rose substantially as the
Company continued to develop and test its software and many computer
installations, resulting in an increase in depreciation costs), (c) 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 (these sales and
marketing costs increased substantially as the Company launched in the third
quarter of fiscal 1995 and thus substantially increased use of resources in all
marketing areas including collateral and media materials as well as public
relations expenditures), (d) 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 (these general administrative costs increased
substantially as the Company used more resources in the following: number of
staff, patent application of its software and systems and trademarks,
consulting, travelling expenses and merger and patent application acquisition
costs).
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<PAGE> 26
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 June 30, 1996, the Company has
received approximately $10,335,491 in net cash from financing activities, some
of which activities are noted below.
During the three months ended June 30, 1996, the Company's net cash
used in operations was $524,434 as compared to $1,354,743 for the three months
ended June 30, 1995. During the year ended March 31, 1996, the Company's net
cash used in operations was $3,501,557 as compared $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, a
card registration service, 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 launch into the United States.
As of June 30, 1996, the Company had total current assets of $734,059
as compared to $665,102 at March 31, 1996. Current assets consisted of cash in
the amount of $214,543 as of June 30, 1996 as compared to $78,844 at March 31,
1996, short-term investments in the amount of $220,100 as of June 30, 1996 as
compared to $221,190 at March 31, 1996, accounts receivable in the amount of
$24,209 as of June 30, 1996 as compared to $7,361 at March 31, 1996, prepaid
expenses and deposits in the amount of $108,405 as of June 30, 1996 as compared
to $168,345 at March 31, 1996, inventories in the amount of $99,693 as of June
30, 1996 as compared to $115,612 at March 31, 1996, and current deferred charges
in the amount of $67,099 as of June 30, 1996 as compared to $73,750 at March 31,
1996. The increase in the cash and cash equivalents position of the Company was
the result of $850,000 raised through the placement of convertible preferred
shares and increased sales activity in the amount of $455,447. As of June 30,
1996, the Company had amount due from stockholders in the amount of $58,669 as
of March 31, 1996 as compared to $58,226 at June 30, 1996, long-term deferred
charges totaling $243,750 as compared to $66,234 at March 31, 1996, net fixed
assets totaling $332,232 as compared to $353,729 at June 30, 1996, and long-term
investments in the amount of $50,451 as compared to $50,451 at March 31, 1996.
The increase in long-term deferred charges was the result of increased sales
activity. As of June 30, 1996, the Company had liabilities of $2,055,784 as
compared to $2,393,631 at March 31, 1996. Such liabilities consisted of accounts
payable in the amount of $572,804 as of June 30, 1996 as compared to $551,553 at
March 31, 1996, accrued liabilities in the amount of $122,024 as of June 30,
1996 as compared to $266,837 at March 31, 1996, deferred revenues in the amount
of $210,956 as of June 30, 1996 as compared to $115,241 at March 31, 1996, and
convertible subordinated debentures in the amount of $1,150,000 as of June 30,
1996 as compared to $1,460,000 at March 31, 1996. The decrease in convertible
subordinated debentures was the result of the conversion of $310,000 of
subordinated debentures during this period. The Company had long-term deferred
revenues in the amount of $472,059 as of June 30, 1996 as compared to $178,883
at March 31, 1996. The increase in long-term deferred revenues was the result of
increased sales activity.
The increased sales activity of the Company and the continued sale of
the Company's Convertible Preferred Stock, as noted in the above
paragraph, has caused material changes to the Company's cash and cash
equivalents position, long-term deferred charges and long-term deferred
revenues. During the three months ended June 30, 1996, the Company has
experienced the fastest rate of growth in terms of sales activity with respect
to sales of its card registration service. For the three month period ended
June 30, 1996, the Company had experienced sales activity at approximately the
following amounts: card registration service ($398,000) and all other personal
property identification and recovering services $57,000. The Company
anticipates, however, that sales of its personal property identification and
recovery services will continue to increase and ultimately will surpass the
card registration service as the Company's largest source of revenues. Although
management believes that sales activity will continue to grow at least at its
current pace, there can be no assurance that the Company's sales will increase
or that these trends will continue.
The increased sales activity of the Company and the continued sale of
the Company's Convertible Preferred Stock, as noted in the above paragraph, has
caused material changes to the Company's cash and cash equivalents position,
long-term deferred charges and long-term deferred revenues. During the three
months ended June 30, 1996, the Company has experienced the fastest rate of
growth in terms of sales activity with respect to sales of its card
registration service. For the three month period ended June 30, 1996, the
Company had experienced sales activity at approximately the following amounts:
card registration service-$398,000 and all other personal property
identification and recovery services-$57,000. The Company anticipates, however,
that sale of its personal property identification and recovery services will
continue to increase and ultimately will surpass the card registration service
as the Company's largest source of revenues. Although management believes that
sales activity will continue to grow at least its current pace, there can be no
assurance that the Company's sales will increase or that these trends will
continue.
As of June 30, 1996 and March 31, 1996, respectively, the Company had
accumulated deficits of $14,465,450 and $13,202,738. 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 1050 shares of Preferred
Stock for $1,050,000 during April through July, 1996.
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<PAGE> 27
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
"DIVIDEND POLICY"), the Company believes it is extremely unlikely that there
will ever be any prohibition on distributions by Tracker Canada to Tracker U.S.
The Company has a short-term investment, recorded at the Company's
original cost of $221,730 (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. Although the Company is no longer contractually
restricted in its ability to sell the Stratcom shares, the shares are no longer
trading on any exchange or in the United States over-the-counter market. Until
such time as the Stratcomm shares are trading on an exchange or begin trading in
the over-the-counter market, it may be difficult for the Company to dispose of
the shares. 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's cash flows too significantly. Management is now
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.
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<PAGE> 28
CAPITAL REQUIREMENTS
Although the Company has been generating cash sales of
approximately $150,000 per month from January 1996 through June 1996 and
approximately $300,000 per month since June 30, 1996, which are all absorbed in
their entirety by cash flows used in operating activities as noted in the
Consolidated Statement of Cash Flows, 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's current cash projections indicate that its short term
annual funding requirements will be approximately $2.5 million for year ended
March 31, 1997. Projections also indicate that the Company will begin meeting
its funding requirements through ongoing cash sales by the end of the fourth
fiscal quarter of 1997. Longer term cash needs are anticipated to be covered by
future cash sales. There can be no assurance, however, that the Company's actual
short and long term liquidity requirements will be consistent with management's
projections.
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 $1,050,000 in April through July
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 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 cancelled.
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<PAGE> 29
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.
Subsequently, the Company entered into agreements with Centry which
released the Company from its obligation to fund 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. 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.
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.
BUSINESS
BUSINESS OVERVIEW
The Company is a development stage company which 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, and network referral marketers. 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
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<PAGE> 30
"BUSINESS - Competition" and "RISK FACTORS - 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 control.
There can be no assurance that the Company will be successful in its attempt to
secure financing on terms acceptable to the Company, or at all. See "BUSINESS -
Capital Requirements."
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.
The following diagram illustrates the corporate structure of Tracker
U.S. and its subsidiary:
-----------------------------------------
The Tracker Corporation
of America
("Tracker U.S.")
-----------------------------------------
-----------------------------------------
-----------------------------------------
The Tracker Corporation
("Tracker Canada")
(wholly-owned subsidiary
of Tracker U.S.)
-----------------------------------------
-----------------------------------------
-----------------------------------------
614593 Alberta Limited
("614593 Alberta")
(wholly-owned subsidiary
of Tracker Canada)
-----------------------------------------
Tracker U.S. is the parent company of Tracker Canada and generally
provides management, accounting, tax and capital raising functions. Sales and
contractual relationships are made through both Tracker U.S. and Tracker Canada.
Tracker Canada is a wholly-owned subsidiary of Tracker U.S. and generally
provides all support services and operational functions to support sales
activities, including staffing and facilities. 614593 Alberta is a wholly-owned
subsidiary of Tracker Canada which has no material assets and conducts no
activities.
NEED FOR THE COMPANY'S PERSONAL PROPERTY IDENTIFICATION AND RECOVERY SYSTEM
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 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.
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<PAGE> 31
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;
* 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. Currently,
however, the Company does not have a contract with any manufacturers to laser
etch the Company's coding or to directly apply the Company's coding at the
source of manufacture using any other method. The Company anticipates that if
such contracts are procured the manufacturers will absorb the cost of laser
etching either directly or indirectly (i.e., in the unit price charged to the
manufacturers by the Company). There can be no assurance, however, that the
Company will be able to successfully expand its service in this fashion.
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. Currently, 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. There can be no assurance, however, that the
Company's labels will not be removed. Any failure of the labels to adhere
properly could damage the credibility of the Company's property identification
and recovery service and could have a material adverse effect on the Company's
business, operating results and financial condition.
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<PAGE> 32
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. The average cost to the Company to
install the scanning equipment is $2,500 per installation. 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. See "BUSINESS - Key Suppliers" and "RISK FACTORS -
Sources of Supply." As of September 30, 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
September 30, 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 17 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 or that the Company will be able to
continue to establish strategic or centrally located scanners throughout a wide
geographic area. Any failure to place additional scanners could damage the
credibility 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 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 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 damage the credibility of the Company's personal property
identification and recovery service and 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
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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 cards (whether they be debit cards, gas cards, automated bank
teller cards, department store cards or credit cards); (ii) request replacement
cards; (iii) request a change of address for all cards; (iv) receive $15,000 in
travel insurance on common carrier; (v) receive $2,000 in AD&D insurance; (vi)
receive $500 in airline discounts; and (vii) be covered on fraudulent charges up
to $10,000. 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" and "RISK FACTORS - Competition."
PRODUCT DEFINITIONS
The following describes many of the products offered by the Company.
The typical retail pricing for the basic Tracker service is $39.95. The consumer
usually pays for the Company's services unless the consumer receives the service
in connection with a promotional deal with a manufacturer or retailer. The
product configurations offered vary and are subject to change.
BASIC TRACKER SERVICE. This is a service to aid in the identification
and recovery of members' lost or stolen possessions. The initial purchase is
packaged as a membership service term, typically between one to three years,
and a supply of Tracker identification products. Subsequent purchases of
Tracker products or membership term renewals and upgrades are sold separately.
The package includes 24 possession labels, 8 clothing labels and an assortment
of 10 shoe, key, luggage, and pet tags.
TRACKER CARD REGISTRATION SERVICE. The Company offers members of this
program the benefit and convenience of card registration. With one phone call, a
member can (a) cancel all his lost or stolen cards (whether they be debit cards,
gas cards, automated bank teller cards, department store cards or credit cards),
(b) request replacement cards, (c) request a change of address for all his
cards, (d) receive $15,000 in travel insurance on common carrier, (e) receive
$2,000 in AD&D insurance, (f) receive $500 in airline discounts and (g) be
covered on fraudulent charges up to $10,000. This service includes 24
identification labels, a card registration form and an indemnification
certificate.
RENEWALS. Membership may be renewed for a specified period of time for
which there is a renewal fee. The renewal terms offered by the Company vary but
are typically between one to three years. To induce members to renew their
service, the Company may offer, from time to time, extra items or incentive
renewal bonuses.
UPGRADES. All members, regardless of the program they originally sign
up for, have the opportunity to purchase upgrade products or services offered by
the Company such as increasing the number of years of service, adding "Tracker
Plus" to their membership, which covers the full cost of returning possessions
to members, purchasing the card registration service, or purchasing extra cloth
or adhesive labels or shoe, pet, key, or luggage tags.
CHILD IDENTIFICATION. The Company is offering a special "Tracker Basic
Service" package to parents for added protection for their children. The package
includes 8 possession labels, 24 clothing labels, an assortment of 10 shoe, key,
and luggage tags, a photo and fingerprint kit and special safety tips for
parents and kids.
SAMPLE LABEL PROMOTIONS. Tracker offers businesses an opportunity to
provide their clients or customers a special value added incentive in the form
of Tracker labels.
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OP-ID-IACP REGISTRATION SERVICE. Tracker is offering its basic service
to the former members of Operation ID, previously managed by the International
Association of Chiefs of Police, in a special two year program at an
introductory discounted price.
ASSET MANAGEMENT. Tracker offers businesses a simpler method to
inventory and keep track of their fixed assets by providing on-site service for
data collection and off-site service for inventory management and recovery. The
Company provides confidential identification, recovery and asset management
services by linking the label on a corporation's physical assets to the
Company's worldwide 24 hour recovery network, dispatching mobile scanning
technicians on-site, and providing reporting "on-demand." This reduces the
in-house inventory control burden and provides a simpler method of tracking
changes in a company's physical assets inventory.
LASER ETCHING THE TRACKER RECOVERY INSIGNIA. In order to push demand
through to retail level consumer purchase and registration of marked products,
the Company is encouraging the volume purchase by manufacturers of licenses for
"Recovery Insignia" laser etching on consumer products at point of manufacture
with PDF 417 capable laser drivers. Currently, the Company does not have a
contract with any manufacturers to laser etch the Company's coding or to
directly apply the coding at the source of manufacture using any other method.
There can be no assuance that the Company will be able to expand successfully
its service in this fashion.
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THE IACP ENDORSEMENT
The IACP, a nonprofit organization of approximately 14,000 members from
the world's law enforcement community founded in 1893, has endorsed the
Company's personal property identification and recovery system. 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:
<TABLE>
<CAPTION>
Number of
Subscribers 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>
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 August 30, 1996, the
Company had made 85 successful recoveries of its members' personal possessions.
In addition, although the Company's service is not predicated on reports of
losses, the Company encourages its members to notify the Company of any such
losses. As of August 30, 1996, 20 of the losses reported by members remained
unrecovered.
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 will attempt 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.
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.
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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 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"). For the consideration paid to Merchant Partners for such services,
see "DESCRIPTION OF SECURITIES - Merchant Partners Option." 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 Prospectus, however, the
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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
"RISK FACTORS - COMPETITION" and "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.
GENERAL. Although the Company has been generating cash sales of
approximately $150,000 per month from January 1996 through June 1996 and
$300,000 per month since June 30, 1996, which are all absorbed in their entirety
by cash flows used in operating activities as noted in the Consolidated
Statement of Cash Flows, 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 has 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.
The Company does not engage in any hedging contracts because it
receives the majority of its cash flows in United States dollars.
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
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<PAGE> 38
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 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. As of September 30, 1996, the Company has
purchased 17 scanners during the 1996 calendar year. 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 addition, although the Company believes that it will be
able to continue its relationship with Symbol after the current understanding
expires at the end of 1996. If the Company is unable to do so, the Company
believes that comparable scanning equipment will be available from other
sources. However, there can be no assurance that the Company will be able to
procure scanning equipment from Symbol or another manufacturer after such time.
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 Company also may face competition from alternative personal
property identification methods, such as tracking by serial number or by the
personal property owner's imprinted name and address or from conventional forms
of insurance that reimburse consumers for lost items. Such insurance typically
also provides reimbursement for items that are destroyed by fire, flood or acts
of God. Further, conventional insurance has high market acceptance and
conventional insurance companies typically have substantial resources to market
their products effectively and aggressively. Although the Company's personal
property identification and recovery service differs from conventional insurance
in that its objective is to return its members' personal possessions, there can
be no assurance that the Company will be able to compete effectively with
conventional insurance providers.
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 a material
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, could 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 personal property
identification and recovery business.
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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
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 of this Prospectus, 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 cash
sales (approximately $150,000 per month from January 1996 through June 1996 and
$300,000 per month since June 30, 1996, which are all absorbed in their entirety
by cash flows used in operating activities as noted in the Consolidated
Statement of Cash Flows), 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 cash flows from
revenues will not be sufficient to fund the business plan until March 1997. In
addition, there can be no assurance that cash flows 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, or at all, management believes it is likely that the Company
will be able to obtain sufficient funding for its operations. Any failure to
receive sufficient funding when needed, in sufficient amounts, and on acceptable
terms could prevent or delay the marketing, sale and operation of the Company's
personal property identification and recovery system and its card
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registration service and could have a material adverse effect on the Company's
business, operating results and financial condition. Moreover, the report of
independent accountants covering the Company's financial statements expressed
substantial doubt about its ability to continue as a going concern because it is
a development stage company and has not yet been able to attract significant
outside financing or generate significant revenues. Failure to obtain sufficient
funding on acceptable terms could affect the Company's ability to continue as a
going concern.
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.
LITIGATION
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.
GOVERNMENTAL REGULATIONS
Except as described in the next two paragraphs, the Company is not
subject to any governmental regulations other than those applicable to
businesses generally. Although the Company believes it is in substantial
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 marketing 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
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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 an 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.
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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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 39 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 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
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<PAGE> 42
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.
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.
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<PAGE> 43
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 1997 annual meeting of stockholders,
approximately one-third will continue to serve until the 1998 annual meeting of
stockholders, and approximately one-third will continue to serve until the 1999
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. Messrs. McKean and Coronella have been
elected to serve until the 1999 annual meeting of stockholders.
The classification of the Board of Directors will 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. See "DESCRIPTION OF SECURITIES - Anti-takeover Effects of Provisions of the
Certificate of Incorporation and Bylaws - Classified Board of Directors."
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
(Chairman), 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").
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 for his service as a director. On October 17, 1995, the
Company issued 10,000 shares of Common Stock to Mr. Yakobovits in lieu of
$10,000 compensation owed to him 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 $4,000 for his service as a director. In
addition, non-employee directors are eligible to receive options to purchase
shares of the Company's Common Stock. See "EXECUTIVE COMPENSATION - 1994 Stock
Incentive Plan - Stock Options for Non-employee Directors."
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<PAGE> 44
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth the compensation paid to the Chief
Executive Officer and to the three other executive officers (the "Named
Executive Officers") for services rendered in all capacities to the Company
during the fiscal years ended March 31, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------- ------------
Restricted Stock
Name and Principal Position Year Salary($) Awards ($)
- -------------------------------------------------- -------- ---------- ----------------
<S> <C> <C> <C>
I. Bruce Lewis, Chief Executive Officer(1)........ 1996 $175,000 --
1995 178,350 --
Mark J. Gertzbein, Executive Vice President, 1996 175,000 413,437
Chief Financial Officer(2)........................ 1995 178,350 --
Gregg C. Johnson, President(3).................... 1996 194,000 413,437
1995 178,350 --
Ed J. Korhonen, President (Tracker Canada)(4)..... 1996 139,000 --
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 has 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. Effective September 24, 1996, Mr. Lewis entered a new
employment agreement with the Company that provides for an annual
base salary of $175,000 which shall be increased on each of April 1,
1997 and April 1, 1998 by $37,500 if the Company generates positive
cash flow, as defined therein, for the previous fiscal year.
(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 has 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, subsequent to fiscal year end, the
Compensation Committee granted Mr. Gertzbein 315,000 shares of
restricted stock under the 1994 Plan. Effective September 24, 1996,
Mr. Gertzbein entered a new employment agreement with the Company
that provides for an annual base salary of $175,000.
(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
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
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<PAGE> 45
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. On April 11, 1995,
subsequent to fiscal year end, 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 through 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. He continues to serve as a non-employee director of
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. Mr. Johnson has subsequently resigned from all positions
with the Company and the employment agreement with Mr. Johnson, therefore, has
terminated.
Effective September 24, 1996, Messrs. Lewis and Gertzbein entered new
three year employment agreements with the Company. Pursuant to his employment
agreement, Mr. Gertzbein is entitled to an annual base salary of $175,000 and is
eligible for discretionary bonuses. Pursuant to his employment agreement, Mr.
Lewis is entitled to an annual base salary of $175,000, which shall be increased
on each of April 1, 1997 and April 1, 1998 by $37,500 if the Company generates
positive cash flow, as defined therein, for the previous fiscal year, and is
eligible to receive discretionary bonuses. 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 the
lesser of the actual relocation expenses or $25,000 per each occurrence. 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.
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
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<PAGE> 46
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 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
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<PAGE> 47
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. 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.
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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 cancelled. Effective 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:
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<PAGE> 49
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
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.
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RESTRICTIONS ON GRANTS OF OPTIONS. The Company will not grant options
in excess of 20% of the outstanding shares to directors, officers or employees
unless ratified or approved by a majority of the shareholders, excluding
directors, officers, employees and their spouses. Further, the Company will not
grant options to directors, officers or employees with an exercise price less
than 85% of fair market value on the date of grant unless ratified or approved
by a majority of the shareholders, excluding directors, officers, employees and
their spouses.
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 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 Wage Plan. Under the Wage 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
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<PAGE> 51
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.
1996 STOCK WAGE AND FEE PAYMENT PLAN
The Board of Directors recently approved a 1996 Stock Wage and Fee
Payment Plan (the "1996 Wage Plan") for the period October 1, 1996 through
January 31, 1997. The purpose of the 1996 Wage Plan is to reduce the Company's
need for cash and to retain and motivate participants and provide them with
incentives and rewards more directly linked to the profitability of the
Company's business and increases in stockholder value. The Company filed on
October 16, 1996 a registration statement on Form S-8 concerning the shares to
be issued under the 1996 Wage Plan. Under the 1996 Wage Plan, the Company may
designate certain months during the period October 1, 1996 through January 31,
1997 as months in which it may compensate certain full-time employees and
non-employee (outside) directors in the form of stock, in lieu of cash, in whole
or in part (the "Designated Months"). Each full-time employee of the Company and
Tracker Canada and non-employee (outside) director of the Company may elect,
after a registration statement on form S-8 relating to the 1996 Wage Plan is
filed, to receive his or her compensation for the Designated Months in any
combination of the following three Options: (a) cash ("Option (a)"), (b) 50%
discounted Common Stock ("Option (b)"), or (c) Common Stock at market value,
with a guaranteed three times future value ("Option (c)").
Before the beginning of each calendar month in the period October 1996
through January 1997, the Company will notify each full-time employee or
non-employee (outside) director who has elected Option (b) or Option (c)
whether the month will be a Designated Month. If it is, then the affected
employee or director will receive his or her compensation for the Designated
Month in the previously elected form.
An employee or director who elects Option (b) will receive on the first
business day of each Designated Month (or shortly thereafter) a number of shares
equal to his or her compensation for the month, divided by one-half of the
"Month's Original Price." The "Month's Original Price" means the average quoted
closing bid price for the last five business days of the previous month. The
employee or director must agree that if he terminates service before the end of
the Designated Month, he will return to the Company the portion of shares (or
their then-cash value) that corresponds to the remainder of the Designated
Month. However, in the case of an employee who is laid off or otherwise
terminated by the Company (other than for cause) before the end of the
Designated Month, he will not be obligated to return any such shares or cash
value.
An employee or director who elects Option (c), will receive on the
first business day of each Designated Month (or shortly thereafter) the number
of shares equal to his or her compensation for the month, divided by the Month's
Original Price. The employee or director must agree that if he terminates
service before the end of the Designated Month, he will return to the Company
the proportion of shares (or their cash value) that correspond to the remainder
of the Four Months. However, in the case of an employee who is laid off or
otherwise terminated by the Company (other than for cause) before the end of the
Designated Month, he will not be obligated to return any such shares or cash
value.
If an employee or director does not dispose of any Option (c) shares
for 30 months after the shares are allocated and remains an employee or director
of Tracker for such period, then the Company will make a payment to the employee
or director equal to the excess, if any, of (1) three-times the amount of cash
compensation that the employee or director elected to receive in the form of
Option (c) shares for all the Designated Months (the "Guaranty Price") minus
(2) the product of (A) the average quoted bid price for the five business days
before the conclusion of the 30-month period (the "30 Month Price") and (B) the
number of Option (c) shares. In the case of an employee, the condition that he
still be an employee at the end of the 30-month period does not apply if the
employee is laid off or otherwise terminated by Tracker (other than for cause)
before the end of the period. The Company has the option to pay the excess in
the form of cash, additional stock, or both, or to purchase Option (c) shares
for the Guaranty Price.
The Company will register 1,200,000 shares for the 1996 Wage Plan. In
the event that for any reason the number of remaining authorized, but unissued,
shares under the 1996 Wage Plan is less than the number of shares that eligible
employees and directors would otherwise be entitled to receive, then each
eligible employee or director who elected to receive shares under Option (b) or
Option (c) (an "electing participant") shall receive the following number of
Option (b) or Option (c) shares:
(A/B) x C,
where A in the number of remaining authorized but unissued shares under the 1996
Wage Plan; Be is the total number of shares (Option (b) and Option (c)) which
the electing participants would otherwise be entitled to receive, and C is the
number of Option (b) or Option (c) shares that the electing participant would be
otherwise entitled to receive.
No fees, commissions or other charges will be paid by participants in
connection with the grants of shares to such persons under the 1996 Wage Plan.
The 1996 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
1996 Wage Plan is a contract among the participants, Tracker U.S. and Tracker
Canada relating to a designated issuance of shares in lieu of compensation 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 1996
Wage Plan.
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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. Further, the Company has
agreed with certain state regulatory authorities that so long as the Company's
securities are registered in such states, or one year from the date of this
Prospectus, whichever is longer, the Company will not make loans to its
officers, directors, employees, or principal shareholders, except for loans
made in the ordinary course of business, such as travel advances, expense
account advances, relocation advances, or reasonable salary advances.
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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
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.
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 cancelled and a corresponding number of
shares of the Voting Stock will be returned to Tracker U.S.
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<PAGE> 54
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."
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. This Prospectus
is part of a registration statement filed by Tracker U.S. under the Securities
Act pursuant to the Reorganization Agreement. See "DESCRIPTION OF SECURITIES -
Registration Rights."
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
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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 Stalia 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 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. Because the registration statement of which
this Prospectus is a part was filed with the Commission and relates to a public
offering of the Company's equity securities, the Company believes that the
Stalia Option Agreement terminates as of the date such registration statement is
declared effective by the Commission.
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 certain rights of
co-sale. Specifically, if any Controlling Shareholder, as defined in the Stalia
Agreement, receives an offer to purchase any of the shares owned by the
Controlling Shareholder, the Controlling Shareholder must promptly notify Saturn
in writing of the terms and conditions of the purchase offer. Within thirty days
after receiving notice of the purchase offer, Saturn then has the right to
participate in the sale pursuant to the terms and conditions of the offer. As a
result, if Saturn exercise its right, the number of shares that the Controlling
Shareholder is entitled to sell is reduced by up to an amount equal to Saturn's
pro rata share (i.e., the percentage of the total shares owned by the
Controlling Shareholder and Saturn that are owned by Saturn). Saturn does not
have co-sale rights in connection with sales to relatives (or trusts) of the
Controlling Shareholders or sales in a registered public offering. The Stalia
Agreement further provides that in the case of permitted transfers, the
Controlling Shareholder must inform the Company and Saturn of the transfer prior
to effecting it and, in the case of a transfer to a relative or trust, the
transferee must furnish to Saturn a written agreement to be bound by the
provisions of the Stalia Agreement. The Stalia Agreement further provides that
any transfers in violation of the Agreement are void.
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
55
<PAGE> 56
agrees to (a) allow Stalia or a nominee to attend Board meetings; (b) provide
Stalia with copies of all communications regularly made to the 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 authority in each of the Provinces of Canada where the shares are
offered or sold or (b) March 14, 1999. Because the registration statement of
which this Prospectus is a part was filed with the Commission and relates to a
public offering of the Company's equity securities, the Company believes that
the Stalia Agreement terminates as of the date such registration statement is
declared effective by the Commission. The Company understands that Saturn does
not share this belief, and the parties are in discussions to resolve their
differences. There can be no assurance that such differences will be resolved or
that the Company's position will prevail if challenged.
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.
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 25,
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
56
<PAGE> 57
at $3.00 per share five years from the date of the agreement. As of the date of
this Prospectus, CRG had not provided any services under the agreement and the
Company had not made any payment to CRG.
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 Percentage
Shares of Shares of Class Total of Total
Common B Voting Number of Number of
Beneficial Owner Stock Common Stock Shares 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%
180 Dundas Street West,
Suite 1502
Toronto, Ontario, Canada
M5G 1Z8
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
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Number of Number of Percentage
Shares of Shares of Class Total of Total
Common B Voting Number of Number of
Beneficial Owner Stock Common Stock Shares Shares(1)
- ---------------- -------- --------------- --------- ----------
<S> <C> <C> <C> <C>
Gregg C. Johnson(2)(5) .... 585,844 28,572 614,416 2.5%
13470 North 85th Place
Scottsdale, Arizona 85260
Saturn Investments, ....... 3,903,797 1,052,564 4,956,361 20.4%
Inc.(2)(6)
c/o Anthony Bonanno, Esq.
Gibson, Dunn & Crutcher
1050 Connecticut Ave., NW
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 Warrant and 900,000
shares reserved for issuance under the Merchant Partners Options. The
Company believes that the option to
58
<PAGE> 59
purchase the 3,903,797 shares terminates as of the date the
registration statement of which this Prospectus is a part is declared
effective. See "CERTAIN RELATIONS AND RELATED TRANSACTIONS --
Investment by Saturn Investments, Inc."
(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 and
shares issuable pursuant to the option agreement described below.
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 shares 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 of which this
Prospectus is a part is declared effective. See "CERTAIN RELATIONS 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 of which this Prospectus is a part is declared
effective. See "CERTAIN RELATIONS AND RELATED TRANSACTIONS --
Investment by Saturn Investments, Inc."
(8) Includes currently exercisable options to acquire 9,999 shares of
Company Common Stock, 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 Company Common Stock 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.
59
<PAGE> 60
SELLING SECURITYHOLDERS
The following table lists the Selling Securityholders and provides
certain information with respect to the shares of Common Stock owned by each
Selling Securityholder as of June 25, 1996 (or later if the Company has actual
knowledge of transfers after such date), which may be offered from time to time
pursuant to this Prospectus. The information contained in the table has been
taken from Selling Securityholder questionnaires and from the Company's records
with respect to Tracker Canada Exchangeable Preference Shares and Exchangeable
Preference Share Warrants and from a shareholder report from the Company's
transfer agent dated June 25, 1996 with respect to shares of Common Stock.
There can be no assurance that the Selling Securityholders will actually sell
any of the shares that may be sold pursuant to this Prospectus. This table
assumes the exchange of any and all of each Selling Securityholder's Tracker
Canada Exchangeable Preference Shares and Exchangeable Preference Share
Warrants for shares of Tracker U.S. Common Stock, the conversion of any and all
of each Selling Securityholder's Convertible Debentures for shares of Common
Stock, the issuance of the CRG Shares and the exercise of the CRG Option for
shares of Tracker U.S. Common Stock, the exercise of the TODA Warrant for
shares of Tracker U.S. Common Stock, and the exercise of the Merchant Partners
Option for shares of Tracker U.S. Common Stock. Unless otherwise indicated by
footnote to the table below, none of the Selling Securityholders has had any
position, office or other material relationship with Tracker U.S. or its
affiliates or predecessors within the past three years other than as a result
of ownership of the Common Stock or other securities of Tracker U.S. or any of
its affiliates.
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF COMMON NUMBER OF SHARES
STOCK OWNED PRIOR TO STOCK OUTSTANDING THAT MAY BE SOLD
THE OFFERING PRIOR TO THE OFFERING PURSUANT TO THIS
NAME (1) PROSPECTUS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
999600 Ontario Inc. 70,654 * 70,654
Aaron Greenberg 14,286 * 14,286
Abdul Najimudeen (2) 100 * 100
Amerasia International 30,000 * 30,000
Holdings Ltd. (2)
Anas I. Abudawood 14,700 * 14,700
Andrew Ascenzi (3) 15 * 15
Andrew Gregory 1,429 * 1,429
Anton Voronoff 1,360 * 1,360
Avron Shore 5,142 * 5,142
Ayman I. Abudawood 20,700 * 20,700
Baby Shoes, Inc. 228,572 1.4% 228,572
Barbara and Jackson 25,000 * 25,000
Edwards
Barry Greenberg 1,786 * 1,786
Bina Gregory 14,286 * 14,286
Bob Faulkner (2) 1,100 * 1,100
Bob Pence (3) 500 * 500
Boys Town Jerusalem 100,000 * 100,000
Foundation of America
Brian Rosenbloom 137,143 * 137,143
Bruce Knox 228,572 1.4% 228,572
Bruce Lewis (4) 2,329,596 14.6% 2,329,596
Bryan King 104,202 * 104,202
Business Centurions 2,000 * 2,000
Centres Inc. (2)
Cam Brame 25,000 * 25,000
C.A. Oportunidad, S.A. 346,667 2.2% 346,667
Carla Collins 25 * 25
Charlanne Callahan 25,000 * 25,000
Charles E. Andrews (2) 400 * 400
Charles J. Coronella (5) 51,143 * 51,143
Charles L. Hall (3) 2,400 * 2,400
Christine Rogers (3) 5,720 * 5,720
Christopher Creed (6) 35,814 * 35,814
Corporate Relations Group 826,000 5.2% 826,000
Credit Mountain Land 23,000 * 23,000
Co. Limited
D. Dave Consulting 28,572 * 28,572
David Gellman 40,000 * 40,000
David Sullivan 10,000 * 10,000
Dennis Obert (3) 500 * 500
Dora Aletto (3) 1,000 * 1,000
Douglas Stewart 21,426 * 21,426
Dr. H. Joe Greenberg 200,000 1.3% 200,000
Ed Herbert (2) 970 * 970
Ed Leinster 228,572 1.4% 228,572
Edward Shkolnlkov 20,000 * 20,000
Edward S. McRobbie 3,571 * 3,571
Edwin J. Korhonen (7) 142,864 * 142,864
Elizabeth M. McRobbie 3,571 * 3,571
Ellen Greenberg 1,786 * 1,786
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF COMMON NUMBER OF SHARES
STOCK OWNED PRIOR TO STOCK OUTSTANDING THAT MAY BE SOLD
THE OFFERING PRIOR TO THE OFFERING PURSUANT TO THIS
NAME (1) PROSPECTUS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Marathon Securities 500 * 500
(for Eitan Schibi) (3)
Fondo De Acquisiciones 245,000 1.5% 245,000
E Inversiones
Internacionales
Frances L. Stewart 45,428 * 45,428
Franklin & Catherine Hough 16,000 * 16,000
Fred Cesare (3) 1,970 * 1,970
Frederick A. Lenz 171,429 1.1% 171,429
Gigi Lipton (8) 19,147 * 19,147
Gordon Cormie (4) 8,906 * 8,906
Gregg C. Johnson (9) 585,844 3.7% 585,844
Guy H. Johnson 3,571 * 3,571
Henri Schkud 213,333 1.3% 213,333
Henry Malat (2) 100 * 100
Herman Henin 27,273 * 27,273
Revocable Living Trust
Hussain H. Abudawood 44,100 * 44,100
Ian Penman (3) 500 * 500
Jack Gertzbein (3) 19,001 * 19,000
Jack Stricharuk (3) 25,000 * 25,000
Jacob and Wanda Dorsey 41,666 * 41,666
James Tanner 7,144 * 7,144
Jan Neundorf (3) 500 * 500
Jay C. Gagne 25,000 * 25,000
Johanna J. Wolf (10) 500 * 500
John Andrews (11) 10,000 * 10,000
John Nestor (2) 2,000 * 2,000
John R. Harper 26,667 * 26,667
Retirement Trust
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF COMMON NUMBER OF SHARES
STOCK OWNED PRIOR TO STOCK OUTSTANDING THAT MAY BE SOLD
THE OFFERING PRIOR TO THE OFFERING PURSUANT TO THIS
NAME (1) PROSPECTUS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jonathan Lewis (12) 25,000 * 25,000
Joseph Brown 715 * 1,430
Ken Brown (3) 500 * 500
Kim Martin (3) 500 * 500
Klaus Stahl (3) 2,969 * 2,969
Kyser Investment Corporation 2,858 * 2,858
Leonard Yakobovits (13) 8,989 * 8,989
Leon Schkud 80,000 * 80,000
Leon Willis, Jr. 26,667 * 26,667
Lisa Fahringer (3) 600 * 600
Majestic Global 121,200 * 121,200
Investments
Malcolm Newton (2) 100 * 100
Mark Greenberg 1,786 * 1,786
Mark J. Gertzbein (14) 786,078 4.9% 786,078
Matthew Ascenzi (3) 15 * 15
Mei Na Leung (3) 100 * 100
Melanie Casselman (3) 500 * 500
Merchant Partners, L.P. 900,000 5.7% 900,000
Mercy International 93,086 * 93,086
Michael J. Dyrnaes (15) 7,143 * 7,143
Michael Joseph 69,700 * 69,700
Michael Lee (3) 7,243 * 7,243
Miriam Henin 18,824 * 18,824
Revocable Living Trust
Mohammad H. Abudawood 14,700 * 14,700
Morris Starkman 30,000 * 30,000
Morton Greenberg 7,142 * 7,142
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF COMMON NUMBER OF SHARES
STOCK OWNED PRIOR TO STOCK OUTSTANDING THAT MAY BE SOLD
THE OFFERING PRIOR TO THE OFFERING PURSUANT TO THIS
NAME (1) PROSPECTUS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nancy Hutchins (3) 600 * 600
Omar H. Abudawood 14,700 * 14,700
Osama I. Abudawood 63,000 * 63,000
Paul Greenberg 1,786 * 1,786
Pearl Gertzbein (3) 19,001 * 19,000
Phil Harding (3) 1,200 * 1,200
Quincy A.S. McKean III (16) 42,749 * 41,429
Renee C. Johnson 3,571 * 3,571
Reynold Kern 253,300 1.6% 250,000
Richard and Paula Gagne 114,286 * 114,286
Richard G. Kahn 71,428 * 71,428
Richard Maus 112,500 * 112,500
Richard Scott Revocable 28,302 * 28,302
Trust Part B
Robin Ward 25 * 25
Rudy Morelli and 7,143 * 7,143
Patricia Ray Morelli
Ruth Cappel (3) 50 * 50
Ryckman Financial Corporation 60,000 * 60,000
Salwa I. Abudawood 14,700 * 14,700
Samih I. Abudawood 14,700 * 14,700
Sana I. Abudawood 14,700 * 14,700
Sara Zagdanski 3,571 * 7,142
Saturn Investments, Inc. 1,052,564 6.6% 1,052,564
Scotia McLeod Inc, in 5,714 * 5,714
Trust for Dr. H. Joe Greenberg
Sky Corporation Ltd. 57,144 * 57,144
Spire Consulting Group, Inc. 28,572 * 28,572
</TABLE>
63
<PAGE> 64
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF COMMON NUMBER OF SHARES
STOCK OWNED PRIOR TO STOCK OUTSTANDING THAT MAY BE SOLD
THE OFFERING PRIOR TO THE OFFERING PURSUANT TO THIS
NAME (1) PROSPECTUS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stanley L. Alpert 3,040 * 3,040
Stephen Dorsey 20,833 * 20,833
Steve Heard (2) 25,000 * 25,000
Susan Love 58,485 * 58,485
Susan A. Vint (17) 18,366 * 18,366
Terry Penman (3) 50 * 50
The Dundas Edward Centre 50,000 * 50,000
The Tolton Buildings 12,500 * 12,500
Limited
Tim Shannon 114,286 * 114,286
Toda Corporation 200,000 1.3% 200,000
Limited
Tom and Judy Callahan 25,000 * 25,000
Toni M. Mesi (3) 600 * 600
Vee Ltd. 243,630 1.5% 243,630
Victoria Boyce 1,540 * 1,540
WAFR Holdings, N.V. 228,572 1.4% 228,572
Wheel of Fortune 413,893 2.6% 413,893
Wing Fat Kwok (3) 500 * 500
Wolfgang H. Kyser (25) 31,842 * 31,842
</TABLE>
- --------------------
* Less than 1%.
(1) Percentage of ownership is based upon 15,921,647 shares of Common Stock
outstanding on June 25, 1996, including 10,711,885 shares of Common
Stock and 5,209,762 shares of Class B Voting Stock.
(2) The Selling Securityholder is or was a consultant to Tracker Canada.
(3) The Selling Securityholder is or was an employee of Tracker Canada.
(4) Mr. Lewis is the Chief Executive Officer, President and Chairman of the
Board of Directors of Tracker U.S. and the Chief Executive Officer,
President and Chairman of the Board of Directors of Tracker Canada.
64
<PAGE> 65
(5) Mr. Coronella is a Director of Tracker U.S.
(6) Mr. Creed is Tracker Canada's Vice President of Operations.
(7) Mr. Korhonen is a Director of Tracker U.S. and the former President,
Chief Operating Officer and Director of Tracker Canada.
(8) Ms. Lipton is Tracker Canada's Director of Information Systems and Vice
President of Information Systems.
(9) Mr. Johnson formerly was the President, General Counsel and Director of
Tracker U.S.
(10) Ms. Wolf is Tracker Canada's Coordinator - Marketing/Administration.
(11) Mr. Andrews is the Company's Manager of Field Operation for Canada and
the Chief of Security/Director of Field Operations for North America.
(12) Mr. Lewis works in Investor Relations for Tracker Canada.
(13) Mr. Yakobovits is a Director of Tracker U.S and a consultant for
Tracker Canada.
(14) Mr. Gertzbein is the Deputy Chairman of the Board of Directors,
Executive Vice President, Chief Financial Officer, Secretary and
Treasurer of Tracker U.S. He is also a Director and the Senior Vice
President of Finance, Chief Financial Officer and Secretary of Tracker
Canada.
(15) Mr. Dyrnaes was Tracker Canada's Assistant Director of Information
Systems.
(16) Mr. McKean is a Director of Tracker U.S. He was a Director of Ultra
Capital Corp., the predecessor of Tracker U.S., from February 1992 to
June 1994.
(17) Ms. Vint was Tracker Canada's Director of Operations and Director of
Sales.
(18) Mr. Kyser is a Director of Tracker U.S.
Because the Selling Securityholders may offer all, some part or none of
the shares of Common Stock which they hold pursuant to the offering contemplated
by this Prospectus, and because this offering is not being underwritten, it is
not possible to predict the number of shares of Common Stock that will be sold
hereby. Accordingly, it is not possible to predict the number of shares or
percentage of shares that will be owned by Selling Securityholders upon
completion of this offering. See "PLAN OF DISTRIBUTION."
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Securityholders.
The shares offered by this Prospectus may not be sold in any state of
the United States unless such shares are registered under the applicable state's
securities laws or there is an applicable exemption from the registration
requirements. In addition, the shares offered by this Prospectus may not be
distributed in Canada unless distributed pursuant to prospectus and registration
exemptions contained in applicable provincial or territorial securities
legislation. Accordingly, Selling Securityholders are advised to consult with
counsel as to their ability to sell the shares in accordance with applicable
state and provincial or territorial laws.
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The Selling Securityholders directly, through agents designated from
time to time, or through dealers or underwriters also to be designated, may sell
all or a portion of the shares of Common Stock held by them from time to time
while the Registration Statement of which this Prospectus is a part remains
effective on terms to be determined at the time of sale. The shares of Common
Stock held by the Selling Securityholders may be sold by them in transactions in
the over-the-counter market, in negotiated transactions or by a combination of
these methods, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. To the extent required,
the specific shares to be sold, the names of the Selling Securityholders,
purchase price, public offering price, the names of any such agent, dealer or
underwriter, and any applicable commission or discount with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement.
Such Prospectus Supplement will also set forth information regarding any
indemnification by the Company of the Selling Securityholders or any
underwriter, dealer or agent against certain liabilities, including liabilities
under the Securities Act. Pursuant to the terms of the Reorganization Agreement,
the Company must exercise its best efforts to maintain the effectiveness of such
registration statement for one year. See "DESCRIPTION OF SECURITIES -
Registration Rights."
The aggregate proceeds to the Selling Securityholders from the sale of
shares of Common Stock offered by the Selling Securityholders hereby will be the
prices at which such shares are sold, less any commissions. There can be no
assurance that the Selling Securityholders will sell any or all of the shares of
Common Stock offered hereby. The Company will pay all expenses incident to the
offering and sale of the Common Stock to the public by the Selling
Securityholders other than selling commissions and fees.
The Selling Securityholders and any broker-dealers or agents that
participate with the Selling Securityholders in sales of the shares of Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act in connection with such shares. In such event, any commission received by
such broker-dealers or agents and any profit on the resale of the shares of
Common Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Pursuant to certain contractual arrangements entered into with certain
Selling Securityholders, the Company and the Selling Securityholders have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.
DESCRIPTION OF SECURITIES
The authorized capitalization of Tracker U.S. consists of 30,000,000
shares of Common Stock, $0.001 par value per share, 20,000,000 shares of Class B
Voting Common Stock, $.00000007 par value per share, and 500,000 shares of
Preferred Stock, $0.001 par value per share.
COMMON STOCK
As of June 25, 1996, there were 10,711,885 shares of Common Stock
outstanding, held of record by approximately 320 stockholders. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of all common stock outstanding, including
the Common Stock and the Class B Voting Stock (described below), entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
Preferred Stock outstanding from time to time. Upon the liquidation, dissolution
or winding up of Tracker U.S., the holders of all common stock, including the
Common Stock and the Class B Voting Stock (described below), are entitled to
receive ratably the net assets of Tracker U.S. available after the payment of
all debts and other liabilities and subject to the prior rights of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of Common Stock are subject
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to, and may be adversely
affected by, the rights of the holders of the Convertible Preferred Stock and
the holders of shares of any other class or series of Preferred Stock that
Tracker U.S. may designate and issue in the future.
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. See "CERTAIN RELATIONSHIPS AND TRANSACTIONS - Investment
by Saturn Investments, Inc."
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CLASS B VOTING COMMON STOCK
As of June 25, 1996, there were 5,209,762 shares of Class B Voting
Common Stock, par value $.00000007 (the "Voting Stock"), outstanding, held by
Montreal Trust, as Trustee, pursuant to an Exchange Agreement for the benefit of
approximately 100 holders. The Class B Voting Common Stock is redeemable by
Tracker U.S. at par value at any time, has no right to cash dividends, has
liquidation rights of $0.0001 per share (junior to the rights of the holders of
the Common Stock), and has voting rights equivalent to those of the Common
Stock. The beneficial owners of the Voting Stock (i.e., the holders of the
Exchangeable Preference Shares of Tracker Canada) have the right to vote the
Voting Stock under procedures set forth in the Exchange Agreement. Although the
Voting Stock is redeemable by Tracker U.S., Tracker U.S. has agreed not to
redeem the Voting Stock until such times, from time to time, as holders of
Exchangeable Preference Shares of Tracker Canada elect to exchange such shares
into Common Stock of Tracker U.S. Upon the exchange of a holder's Tracker Canada
Exchangeable Preference Shares for Common Stock of Tracker U.S., a corresponding
number of the shares of the Voting Stock will be returned to Tracker U.S. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reorganization." The rights,
preferences and privileges of holders of Voting Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any class or
series of Preferred Stock that Tracker U.S. may designate and issue in the
future.
EXCHANGEABLE PREFERENCE SHARES
As of June 25, 1996, Tracker Canada had outstanding 5,209,762
Exchangeable Preference Shares. As a result of certain agreements and the Plan
of Arrangement entered into in connection with the Reorganization, holders of
the Exchangeable Preference Shares have voting, dividend and liquidation rights
that are in parity with those of holders of the shares of the Tracker U.S.
Common Stock. In addition, holders of Exchangeable Preference Shares are
entitled to exchange such shares with Tracker U.S. for shares of the Tracker
U.S. Common Stock on a one-to-one basis, subject to adjustment from time to time
to take into account certain events. Accordingly, there are no material
differences between the rights of the holders of the Exchangeable Preference
Shares and the rights of the holders of the Tracker U.S. Common Stock. The
exchange of Exchangeable Preference Shares for Common Stock is a taxable event.
Tracker U.S. has deposited shares of Voting Stock in trust with
Montreal Trust under an arrangement that entitles each holder of Exchangeable
Preference Shares (other than Tracker U.S. and Tracker Canada) to vote at
meetings of stockholders of Tracker U.S. on the basis of one vote in Tracker
U.S. for each whole share of Common Stock into which the Exchangeable Preference
Shares held of record by such holder are then exchangeable.
Dividends on the Exchangeable Preference Shares are cumulative and have
priority over dividend payments on the common shares of Tracker Canada.
Dividends payable on each Exchangeable Preference Share shall be an amount equal
to the product obtained by multiplying the applicable exchange rate (i.e., the
rate at which Exchangeable Preference Shares may be exchanged into shares of
Common Stock) by the Canadian dollar equivalent of dividends declared by Tracker
U.S. on each share of the Common Stock of Tracker U.S. Tracker Canada must,
within five business days following the declaration of a dividend by Tracker
U.S., declare a dividend on the Exchangeable Preference Shares in such amount.
Tracker U.S. has agreed, for the benefit of the holders of the Tracker Canada
Exchangeable Preference Shares, 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. In addition,
Tracker U.S. has agreed to provide Tracker Canada with such funds as may be
necessary to pay any such dividends to holders of the Exchangeable Preference
Shares. 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
"DIVIDEND POLICY." Accordingly, it is unlikely that any dividends will be paid
on the Exchangeable Preference Shares.
The Exchangeable Preference Shares are nonredeemable and, except under
circumstances involving the nonpayment of dividends comparable to those paid on
shares of the Tracker U.S. Common Stock as described above, generally are not
entitled to vote on matters put before the shareholders of Tracker Canada. If,
however, within the 12 months immediately following payment of any dividend upon
the Tracker U.S. Common Stock, Tracker Canada does not declare and pay an
equivalent dividend on the Exchangeable Preference Shares, then the
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holders of the Exchangeable Preference Shares will be entitled to exercise 51%
of the voting rights in Tracker Canada until such equivalent dividend has been
paid.
Holders of the Tracker Canada Exchangeable Preference Shares are
entitled upon any liquidation, dissolution or winding-up of Tracker Canada,
before any distribution is made to the holders of the common shares of Tracker
Canada or any other shares junior to the Exchangeable Preference Shares, to an
amount equal to the Basic Liquidation Amount, together with an amount equal to
all dividends accrued and unpaid on such Exchangeable Preference Shares. The
"Basic Liquidation Amount" per Exchangeable Preference Share is on any date the
Canadian dollar equivalent of an amount equal to (a) the aggregate value on such
date of the property and assets of Tracker U.S. available for distribution to
the holders of Tracker U.S. Common Stock on such date divided by (b) the sum of
(i) the number of shares of Tracker U.S. Common Stock issued and outstanding on
such date plus (ii) the product of the number of Exchangeable Preference Shares
issued and outstanding on such date multiplied by the applicable exchange rate.
The Basic Liquidation Amount (excluding unpaid dividends) may be satisfied at
Tracker Canada's option in cash or by causing the distribution to each holder of
Exchangeable Preference Shares of the number of shares of the Common Stock of
Tracker U.S. equal to the product of the number of Exchangeable Preference
Shares registered in the name of such holder by the applicable exchange rate.
Tracker U.S. has agreed to provide Tracker Canada such funds as may be necessary
to satisfy the liquidation value to which the holders of the Exchangeable
Preference Shares are entitled. In lieu of providing such funds to Tracker
Canada, Tracker U.S. may satisfy its obligation with respect to the payment of
the liquidation value of the Exchangeable Preference shares by issuing to each
holder of Exchangeable Preference Shares the number of shares of the Common
Stock of Tracker U.S. for which such holder is then entitled to exchange such
shares.
EXCHANGEABLE PREFERENCE WARRANTS
As of June 25, 1996, Tracker Canada had outstanding warrants to
purchase 15,577 Exchangeable Preference Shares at CDN $14 per share (the
"Exchangeable Preference Warrants") exercisable until various expiration dates,
the last of which is September 23, 1996.
PREFERRED STOCK
Tracker U.S. has an authorized class of 500,000 shares of undesignated
Preferred Stock, par value $0.001 per share. The Board of Directors is
authorized, subject to any limitations prescribed by law, without further action
of the stockholders of Tracker U.S., to issue from time to time such shares of
Preferred Stock in one or more classes or series. The Board is also authorized
to fix or alter the designations, preferences and rights and any qualifications,
limitations or restrictions of the shares of each such class or series of
Preferred Stock, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any class or series or the designations of such class or series. It
is possible that the Board could issue, without stockholder approval, Preferred
Stock with voting or dividend rights that could adversely affect the voting
power and dividend rights of the holders of the Common Stock and the Voting
Stock. In addition, under certain circumstances such Preferred Stock could be
used as a means of discouraging, delaying or preventing a change in control of
Tracker U.S.
As of June 25, 1996, the only Preferred Stock outstanding was 100
shares of the Company's $1,000.00 6% Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock") and 250 shares of the Company's Series B
$1,000.00 6% Cumulative Convertible Preferred Stock (the "Series B 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 $60.00 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.
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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 $1,000.00 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
$1,000.00 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.
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.
COMMON WARRANTS
As of June 25, 1996, there were warrants ("Common Warrants") to
purchase 750,000 shares of Common Stock, subject to adjustment, outstanding held
by two holders. The Common Warrants entitle the holders thereof to purchase one
share of Common Stock for the period commencing on July 12, 1995 and ending on
the first date after July 12, 1996 on which the Common Stock can be purchased at
a legally marginable price under applicable laws, rules and regulations. The per
share exercise price of the Common Warrants, subject to adjustments, is $5 per
share.
MERCHANT PARTNERS OPTION
As of July 10, 1996, there was outstanding an option (the "Merchant
Partners Option") to purchase 900,000 shares of Common Stock, subject to
adjustment, held by one holder. The Merchant Partners Option is divided into
three tranches. Tranche I entitles the holder to purchase 200,000 shares through
July 10, 1998 at an exercise price of $0.50 per share, subject to adjustment.
Tranche II entitles the holder to purchase 450,000 shares through July 10, 1999
at an exercise price of $0.75 per share, subject to adjustment; provided,
however, that Tranche II is not exercisable unless and until the Company enters
into one or more Sales Contracts (as defined in the agreement) with a Prospect
(as defined below) before April 10, 1997. Tranche III entitles the holder to
purchase 250,000 shares through July 10, 2001 at an exercise price of $1.00 per
share, subject to adjustment; provided, however, that Tranche III is not
exercisable unless and until the Company enters into one or more Sales Contracts
with a term of three years or more with a Prospect before July 10, 1999. A
Prospect means Signature Financial/Marketing Inc., and all of its subsidiaries,
Montogomery Ward & Co. Incorporated, Montgomery Ward Direct, L.P., ValueVision
International, Inc., and all other subsidiaries of Montgomery Ward & Co.
Incorporated. Merchant Partners, L.P. is an affiliate of each Prospect.
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TODA WARRANT
As of June 25, 1996, there was outstanding a warrant (the "TODA
Warrant") to purchase 200,000 shares of Common Stock at an exercise price of
$0.40 per share, subject to adjustment, through May 30, 2001.
CRG SHARES AND OPTIONS
As of June 25, 1996, the Company had agreed to issue to its investor
relations firm ("CRG") options to purchase 100,000 shares at an exercise price
of $2.00 per share through November 19, 1996, 100,000 shares at an exercise
price of $2.40 per share through November 19, 1997, 100,000 shares at an
exercise price of $2.60 per share through November 19, 1998, 100,000 shares at
an exercise price of $2.80 per share through November 19, 2000, and 100,000
shares at an exercise price of $3.00 per share through November 19, 2000. In
addition, the Company may issue to CRG 326,000 shares of Common Stock in lieu of
cash compensation.
CONVERTIBLE DEBENTURES
As of June 25, 1996, Tracker U.S. had outstanding an aggregate
principal amount of $420,000 of its 15% one-year convertible subordinated
debentures (the "First Series Convertible Debentures"). The interest payments
are payable monthly in advance commencing on August 1, 1995. The principal
balance together with any accrued but unpaid interest shall be paid on August 1,
1996. The First Series Convertible Debentures may be converted into shares of
Common Stock, in whole or in part, from October 1, 1995 through December 1, 1996
at a conversion rate of $0.4375 per share of Common Stock. The First Series
Convertible Debentures are subordinated to all other indebtedness incurred by
Tracker U.S.
In addition, as of June 25, 1996, Tracker U.S. had outstanding an
aggregate principal amount of $730,000 of its 15% convertible subordinated
debentures (the "Second Series Convertible Debentures"). The interest payments
are payable monthly in advance commencing on October 1, 1995. The principal
balance together with any accrued but unpaid interest shall be paid on October
1, 1996. The Second Series Convertible Debentures outstanding as of June 25,
1996 may be converted into shares of Common Stock, in whole or in part, from
October 1, 1995 through December 1, 1996 at various conversion rates, the
weighted average of which is $1.00143 per share of Common Stock. The Second
Series Convertible Debentures are subordinated to all other indebtedness
incurred by Tracker U.S. The Board of Directors has authorized the issuance of
up to an additional $810,471 aggregate principal amount of Second Series
Convertible Debentures with a conversion price to be not less than $0.9375 per
share.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under Tracker U.S.'s Certificate of Incorporation, assuming, as of June
25, 1996, (i) the conversion of all the Convertible Debentures into shares of
Common Stock, (ii) the exchange of all Exchangeable Preference Shares, (iii) the
conversion of all the Convertible Preferred Stock, (iv) the exercise of the
Merchant Partners Option, and (v) the exercise of the TODA Warrant, there will
be 10,421,518 shares of Common Stock and 500,000 shares of Preferred Stock
available for future issuance generally without stockholder approval. The Board
of Directors is authorized, subject to any limitations prescribed by law,
without further action of the stockholders of the Company, to issue from time to
time additional shares of Common Stock and Preferred Stock. These additional
shares may be utilized for a variety of corporate purposes, including for
example a future public offering or private placement to raise additional
capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management or to issue Preferred Stock
with terms that could render more difficult or discourage an attempt to obtain
control of Tracker U.S. by means of a merger, tender offer, proxy contest or
otherwise, and thereby to protect the continuity of Tracker U.S.'s management.
Such additional shares could also be used to dilute the stock ownership of
persons seeking to obtain control of Tracker U.S.
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REGISTRATION RIGHTS
In the Reorganization Agreement, Tracker U.S. covenanted to the
Trustee, the Montreal Trust Company of Canada, for the express benefit of the
holders of the Exchangeable Preference Shares, that Tracker U.S. will, (i) on or
before July 12, 1995 (subject to postponement or delay for up to 120 days under
certain circumstances), 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 following July 12, 1995. This Prospectus is part of a registration
statement filed by Tracker U.S. under the Securities Act pursuant to the
Reorganization Agreement. In addition, if during the two year period commencing
with July 12, 1997 and ending July 12, 1999, Tracker U.S. 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 U.S. 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 U.S. 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 U.S. is on file covering
the shares of Common Stock. All expenses in connection with such registration
shall be borne by Tracker U.S. 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. This Prospectus is part of a
registration statement filed to register these shares and the shares underlying
such Common Warrants under the Securities Act.
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 U.S. 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 to making any such demand. No such exercise has yet occurred.
Tracker U.S. may postpone or delay such demand registration under certain
circumstances. All expenses in connection with such registration shall be borne
by Tracker U.S. 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 U.S. 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 U.S. shall use its best efforts to cause such
registration statement to become effective by December 1, 1996. All expenses of
such registration, other than underwriting discounts and commissions, shall be
paid by Tracker U.S. This Prospectus is part of a registration statement filed
to register the shares underlying such First Series Convertible Debentures under
the Securities Act.
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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 U.S. 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 U.S. shall use its best efforts to cause such
registration statement to become effective by December 1, 1996. All expenses of
such registration, other than underwriting discounts and commissions, shall be
paid by Tracker U.S. This Prospectus is part of a registration statement filed
to register the shares underlying such Second Series Convertible Debentures
under the Securities Act.
The holder of 25,000 shares of Common Stock has the right to have such
shares included in the first registration statement filed by the Company
following the issuance of such shares. This Prospectus is part of a registration
statement filed to register such shares under the Securities Act.
The holder of the Merchant Partners Option has (i) two demand
registration rights pursuant to which it can require the Company to register the
Common Stock owned by the holder and maintain the effectiveness of such
registration for at least 90 days, in each case at the holder's and the
Company's expense on an equal basis; (ii) the right to include its shares in any
registration statement filed by the Company (subject to certain exceptions) at
the Company's expense; and (iii) the right to include its shares in the
registration statement of which this Prospectus is a part. This Prospectus is
part of a registration statement filed to register the 900,000 shares underlying
the Merchant Partners Option under the Securities Act.
The holder of the TODA Warrant has the right to have the shares
underlying such warrant included in any registration statement filed by the
Company (subject to certain exceptions) at the Company's expense. This
Prospectus is part of a registration statement filed to register the 200,000
shares underlying the TODA Warrant under the Securities Act.
The shares which may be issued to CRG are required to be freely
tradeable shares. This Prospectus is a part of a registration statement filed to
register the 326,000 CRG Shares and the 500,000 shares underlying the CRG
Options under the Securities Act.
The holder of 112,500 shares of Common Stock has the right to have such
shares registered. This Prospectus is a part of a registration statement filed
to register such shares under the Securities Act.
DIRECTORS' LIABILITY
As authorized by the Delaware General Corporation Law (the "DGCL"), the
Certificate of Incorporation of Tracker U.S. provides that no director of
Tracker U.S. shall be personally liable to Tracker U.S. or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tracker U.S.
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock purchases, or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of this provision is to eliminate the rights of Tracker U.S. and its
stockholders (through stockholders' derivative suits on behalf of Tracker U.S.)
to recover monetary damages from a director for breach of the fiduciary duty of
care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. In addition, the Certificate of Incorporation provides that any
repeal or modification of this provision by stockholders of Tracker U.S. will
not adversely affect any right or protection of a director existing at the time
of such repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification. This provision does not limit or eliminate the
rights of Tracker U.S. or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
The Certificate of Incorporation of Tracker U.S. requires Tracker U.S.
to indemnify its directors and officers against expenses and certain other
liabilities arising out of their conduct on behalf of Tracker U.S. to the
maximum extent and under all circumstances provided by law. In addition, the
Bylaws of Tracker U.S. provide
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more particularly that directors and officers of Tracker U.S. shall be
indemnified against expenses and certain other liabilities arising out of legal
actions brought or threatened against them for their conduct on behalf of
Tracker U.S., provided that each such person acted in good faith and in a manner
he reasonably believed was in or not opposed to the best interest of Tracker
U.S. Indemnification by Tracker U.S. is available in a criminal action only if
such person also had no reasonable cause to believe that his conduct was
unlawful. In the case of an action by or in the right of Tracker U.S.,
indemnification is available if such person acted in good faith and in a manner
that he reasonably believed was in or not opposed to the best interests of
Tracker U.S., except as regards a person adjudged to be liable to Tracker U.S.,
unless a court shall determine that such person is fairly and reasonably
entitled to indemnity for certain expenses. The provisions of the Certificate of
Incorporation and Bylaws relating to indemnification cannot be amended absent
the approval of two-thirds of the combined voting power of the voting stock of
Tracker U.S.
Tracker U.S. has entered into substantially identical indemnification
agreements with each of its directors. Tracker U.S. has agreed, to the full
extent permitted by the DGCL, as amended from time to time, to indemnify each
indemnitee against all loss and expense incurred by, or as a result of any
threat of, his being named a party to any completed, pending or threatened
action, suit or proceeding whether civil, criminal, administrative or
investigative by reason that he was a director, officer, employee or agent of
Tracker U.S. or any of its affiliates, or because Tracker U.S. has a right to
judgment in its favor because of his position with Tracker U.S. The indemnitee
will be indemnified so long as he acted in good faith and in a manner reasonably
believed by him to be in or not opposed to the best interest of Tracker U.S. The
agreements provide that the indemnification thereunder is not exclusive of any
other rights the indemnitees may have under the Certificate of Incorporation,
Bylaws or any agreement or vote of stockholders, nor may the Certificate of
Incorporation or Bylaws be amended to affect adversely the rights of any
indemnitee.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Tracker U.S.
pursuant to the foregoing provisions, Tracker U.S. has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of Tracker U.S. for which
indemnification is being sought, nor is Tracker U.S. aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Tracker U.S. is subject to Section 203 of the DGCL ("Section 203"),
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in a "Business Combination" (defined as a variety of transactions,
including mergers, as set forth below) with an "Interested Stockholder" (defined
as a person with 15% or more of a corporation's outstanding voting stock) for
three years following the date such person became an Interested Stockholder
unless: (i) before such person became an Interested Stockholder, the board of
directors of the corporation approved either the Business Combination or the
transaction in which the Interested Stockholder became an Interested
Stockholder; (ii) upon consummation of the transaction that resulted in the
Interested Stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
shares subject to the plan will be tendered in a tender or exchange offer); or
(iii) on or following the date on which such person became an Interested
Stockholder, the Business Combination is (x) approved by the board of directors
of the corporation and (y) authorized at a meeting of stockholders by the
affirmative vote of the holders of at least 66-2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Section 203 defines a Business Combination to include: (i) any merger
or consolidation with an Interested Stockholder or any affiliate or associate
thereof; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10% or more of
the aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding
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stock of a corporation; (iii) any transaction which results in the issuance or
transfer by the corporation or by certain subsidiaries thereof of any stock of
the corporation or such subsidiaries to the Interested Stockholder, except (x)
pursuant to the exercise, exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of the corporation or any subsidiary
which were outstanding prior to the time the stockholder became an Interested
Stockholder or (y) pursuant to a transaction which effects a pro rata
distribution to all stockholders of the corporation; (iv) any transaction
involving the corporation or certain subsidiaries thereof that has the effect of
increasing the proportionate share of the stock of any class or series, or
securities convertible into the stock of any class or series, of the corporation
or any such subsidiary which is owned directly or indirectly by the Interested
Stockholder (except as a result of immaterial changes due to fractional share
adjustments or as a result of the purchase or redemption of shares not caused by
the Interested Stockholder); or (v) any receipt by the Interested Stockholder of
the benefit (except proportionately as a stockholder of such corporation) of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS
Certain provisions of the Certificate of Incorporation and the Bylaws
of Tracker U.S. could have an anti-takeover effect. The Certificate of
Incorporation and Bylaws contain provisions that will increase the probability
that, if an unsolicited attempt is made to acquire Tracker U.S., the public
stockholders will be treated fairly by virtue of the provisions which: (i)
provide that directors may only be removed by a two-thirds (2/3) vote of the
stockholders; (ii) limit the rights of stockholders to amend certain provisions
of the Certificate of Incorporation and Bylaws; (iii) eliminate the rights of
stockholders to take action by written consent (except by unanimous written
consent) and limit the rights of stockholders to call special meetings of the
stockholders; (iv) limit the rights of stockholders to bring new business before
special meetings; and (v) impose certain restrictions, including approval by the
holders of two-thirds (2/3) of the outstanding stock, on certain business
combinations. The provisions will also encourage any person intending to attempt
such acquisitions to negotiate with the Board of Directors and curtail such
person's use of his dominant interest to control both sides of the negotiations.
Under such circumstances, the Board of Directors may be better able to make and
implement reasoned business decisions and protect the interests of stockholders.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. The Certificate of
Incorporation and Bylaws provide that the Board of Directors will consist of not
less than three nor more than eleven members, the exact number to be determined
from time to time by the affirmative vote of a majority of directors then in
office. Moreover, the Certificate of Incorporation and Bylaws provide that
directors may be removed, with or without cause, by a vote of the holders of
two-thirds (2/3) of the then outstanding shares of Common Stock. This provision,
when coupled with the provision authorizing only the Board of Directors to fill
vacant directorships, may make it more difficult for a stockholder to remove
incumbent directors and simultaneously gain control of the Board of Directors by
filling the vacancies created by such removal with its own nominees. Moreover,
this provision will also make it more difficult to remove a director when the
only reason for such removal may be dissatisfaction with the performance of such
director.
These removal provisions could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
Tracker U.S., even though such an attempt might be beneficial to Tracker U.S.
and its stockholders. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
CLASSIFIED BOARD OF DIRECTORS. The Bylaws provide that the Board of
Directors is divided into three classes of directors, with the classes to be as
nearly equal in size as possible. The Certificate of Incorporation and Bylaws
provide that approximately one-third (1/3) of the directors will continue to
serve until the 1997 annual meeting of stockholders, approximately one-third
(1/3) will continue to serve until the 1998 annual meeting of stockholders, and
approximately one-third (1/3) will continue to serve until the 1999 annual
meeting of stockholders.
The classification of directors may have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors.
At least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Such a
delay may help ensure that
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the directors, if confronted by a holder attempting to force a proxy contest, a
tender or exchange offer, or an extraordinary corporate transaction, would have
sufficient time to review the proposal as well as any available alternatives to
the proposal and to act in what they believe to be the best interest of Tracker
U.S. The classification provisions will apply to every election of directors,
however, regardless of whether a change in the composition of the Board of
Directors would be beneficial to Tracker U.S. and its stockholders and
regardless of whether or not a majority of the stockholders believe that such a
change would be desirable.
The classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of Tracker U.S., even though
such an attempt might be beneficial to Tracker U.S. and its stockholders. The
classification of the Board of Directors could thus increase the likelihood that
incumbent directors will retain their positions. In addition, because the
classification provisions may discourage accumulations of large blocks of stock
by purchasers whose objective is to take control of Tracker U.S. and remove a
majority of the Board of Directors, the classification of the Board of Directors
could tend to reduce the likelihood of fluctuations in the market price of the
Common Stock that might result from accumulations of large blocks. Accordingly,
stockholders could be deprived of certain opportunities to sell their shares of
Common Stock at a higher market price than might otherwise be the case.
SPECIAL MEETINGS OF STOCKHOLDERS. The Certificate of Incorporation
provides that special meetings of stockholders may be called only by (i) the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board), or (ii) the Chairman or the Deputy Chairman of the Board of
Directors or the President, or (iii) a stockholder who owns 20% or more of the
issued and outstanding Common Stock (a "20% Stockholder"). Special meetings may
not be called by stockholders other than 20% Stockholders. This provision will
make it more difficult for stockholders other than 20% Stockholders to take
action opposed by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation
provides that any action required to be taken or which may be taken by holders
of Common Stock must be effected at a duly called annual or special meeting of
such holders, or by the unanimous written consent of such stockholders. These
provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by the
persons set forth above. The provisions of the Certificate of Incorporation
prohibiting stockholder action by written consent unless the same is unanimous
would prevent the holders of a majority of the voting power of Tracker U.S. from
using the written consent procedure available under the DGCL to take stockholder
action without giving all the stockholders of Tracker U.S. entitled to a vote on
a proposed action the opportunity to participate in determining such proposed
action.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS. The Bylaws
provide that stockholders seeking to bring business before an annual or special
meeting of stockholders must provide timely notice thereof in writing to the
Secretary of Tracker U.S. To be timely, this notice must be received at the
principal executive offices of Tracker U.S. not less than 90 days nor more than
120 days prior to the meeting. If less than 100 days' notice of the meeting is
given to stockholders, then the notice of a stockholder's proposal must be
received not later than the tenth day following the date the notice of the
meeting was mailed. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the meeting: (i) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, and, in the event that such
business includes a proposal to amend either the Certificate of Incorporation or
the Bylaws, the language of the proposed amendment; (ii) the name and record
address of the stockholder proposing such business; (iii) the class and number
of shares of capital stock of Tracker U.S. that are beneficially owned by such
stockholder; and (iv) any material interest of such stockholder in such
business. The provision requiring timely notice of stockholder business ensures
both orderly meetings and an adequate opportunity for the Board of Directors to
review business to be decided at such meetings. This provision, however, may
also preclude some stockholders from bringing matters before the stockholders
and directors at an annual or special meeting.
SPECIAL VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS; FAIR PRICE
PROVISION. The Certificate of Incorporation provides that any Business
Combination (as defined therein), including any merger, consolidation,
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<PAGE> 77
sale, joint venture, plan of liquidation or recapitalization, with an Interested
Stockholder (as hereinafter defined for purposes of this provision only) shall
require the affirmative vote of not less than two-thirds (2/3) of the votes
entitled to be cast by the holders of all the then outstanding shares of voting
stock in the election of directors, voting together as a single class, excluding
any voting stock beneficially owned by such Interested Stockholder. Such
affirmative vote is required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be required, by
law or otherwise.
The two-thirds (2/3) vote requirement shall not apply to a particular
Business Combination, and such Business Combination shall require only such
affirmative vote, if any, as is required by law or otherwise, if such Business
Combination is approved by a majority of the Continuing Directors (as
hereinafter defined) or certain conditions shall have been met regarding the
amount and form of the consideration (the "fair price") to be received by the
stockholders of Tracker U.S. in such Business Combination. Generally, the "fair
price provision" will have been satisfied if the price received by the holders
of shares of Common Stock or other class of voting stock is not less than the
higher of (i) the highest price paid by the Interested Stockholder when
acquiring any of its shares of Common Stock or other class of stock, as
applicable, during the two-year period preceding the first public announcement
of the Business Combination or the transaction in which it became an Interested
Stockholder, or (ii) the fair market value of such stock on the date of such
public announcement or the date on which the Interested Stockholder became such.
The fair price provision is intended to provide some protection against
certain forms of takeover techniques including two-tiered offers in which the
acquirer seeks as a first step to acquire a controlling equity interest in a
company and then as a second step to acquire the remaining equity interest with
cash or securities that have a value substantially below the consideration paid
to acquire control. Tracker U.S. believes that the fair price provision will
help assure that all of the stockholders will be treated fairly if certain kinds
of Business Combinations are effected. However, the fair price provision may
make it more difficult to accomplish certain transactions that are opposed by
the incumbent Board of Directors and that could be beneficial to stockholders.
The term "Interested Stockholder" for purposes of the fair price
provision means any person (other than, among others, Tracker U.S. or any
employee stock ownership plan of Tracker U.S. or any subsidiary), who is, or has
announced an intention to become, the beneficial holder of voting stock
representing 10% or more of the votes entitled to be cast by the holders of all
the then outstanding shares of voting stock. The term "Continuing Director"
means any member of the Board of Directors on the date the Certificate of
Incorporation was filed and any member of the Board of Directors who thereafter
becomes a member while such person is a member of the Board who is not an
affiliate or associate of the Interested Stockholder and who was a member before
the Interested Stockholder became an Interested Stockholder. All current
directors of Tracker U.S. would be Continuing Directors.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION.
Subject to the DGCL, the Certificate of Incorporation may generally be amended
by the affirmative vote of a majority of the outstanding shares entitled to vote
thereon, together with the affirmative vote of a majority of the outstanding
shares of each class or series entitled to vote thereon as a class or series in
accordance with the DGCL and the Certificate of Incorporation. Notwithstanding
the foregoing, the amendment, modification or repeal of certain provisions of
the Certificate of Incorporation regarding (i) the shares which Tracker U.S.
shall have authority to issue, (ii) the management of the business and the
conduct of the affairs of Tracker U.S., (iii) any proposed compromise or
arrangement between Tracker U.S. and its creditors, (iv) the authority of
stockholders to act by written consent or to call special meetings, (v) the
indemnification of directors and officers, or (vi) the amendment of any of
certain provisions of the Certificate of Incorporation and the Bylaws, requires
the affirmative vote of the holders of at least two-thirds (2/3) of the combined
voting power of all of the securities entitled to vote generally in the election
of directors. In addition, the amendment, modification or repeal of the fair
price provision and the other anti-takeover provisions of the Certificate of
Incorporation requires the affirmative vote of at least two-thirds (2/3) of the
combined voting power of all the securities entitled to vote generally in the
election of directors. These voting requirements will make it more difficult for
stockholders to make changes in the Certificate of Incorporation that would be
designed to facilitate the exercise of control over Tracker U.S.
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AMENDMENT TO CERTAIN BYLAW PROVISIONS. The Bylaws may be altered,
amended or repealed at any meeting of the Board of Directors or the
stockholders; provided, however, that the notice of the proposed change was
given in the notice of such meeting of the Board of Directors or of the
stockholders, as the case may be. Notwithstanding the foregoing, the amendment,
modification or repeal of certain provisions of the Bylaws regarding (i) the
authority of stockholders to call special meetings, (ii) procedures by which
stockholders may bring business before any meeting of stockholders, (iii) the
number and election of directors; or (iv) the indemnification of officers and
directors, requires the affirmative vote of the holders of at least two-thirds
(2/3) of the combined voting power of the then outstanding shares entitled to
vote generally in the election of directors voting together as a single class.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Tracker U.S.'s Common Stock is
Atlas Stock Transfer located in Salt Lake City, Utah.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares in the public market
could adversely affect the market price of the Company's shares. Of the
10,711,885 shares of Common Stock that are currently outstanding, 1,509,048 are
freely tradeable and an additional 4,709,181 shares which are being registered
by the Registration Statement of which this Prospectus is a part will, upon
their sale pursuant to this Prospectus, become freely tradeable. All of the
remaining 4,493,656 shares of Common Stock that are currently outstanding are
"restricted securities" that will become eligible for resale in the public
market after expiration of the applicable holding periods. An additional
9,090,298 shares which are being registered by the registration statement of
which this Prospectus is a part will, upon their issuance and sale pursuant to
this Prospectus, if any, become freely tradeable in the public market without
restriction or further registration under the Act, except that any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144(a)
adopted under the Act, may generally only be sold in compliance with the
applicable provisions of Rule 144.
"Restricted securities" under Rule 144 are securities that were
originally issued and sold by Tracker U.S. in private transactions in reliance
upon exemptions from the registration requirements under the Act. The holders of
these restricted shares will be eligible to sell such shares pursuant to Rule
144 upon the expiration of the applicable two-year holding periods from the
dates such restricted shares were acquired.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held at least two years from
the later of the date of issuance by Tracker U.S. or acquisition from an
affiliate, may sell such securities in brokers' transactions or directly to
market makers, provided that the number of shares sold within any three-month
period does not exceed the greater of 1% of the then outstanding shares of
Tracker U.S.'s Common Stock (approximately 195,785 shares as of June 25, 1996
assuming all Exchangeable Preference Shares are exchanged for Common Stock, all
Convertible Debentures outstanding are converted into Common Stock, shares of
Convertible Preferred Stock outstanding are converted into Common Stock (based
on the conversion price in effect as of June 25, 1996), and the TODA Warrant and
the Merchant Partners Option are exercised in full) or the average weekly
trading volume in Tracker U.S.'s Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144. The Securities and Exchange Commission (the
"Commission") has proposed reducing this two-year holding period to one year.
Sales under Rule 144 are also subject to certain provisions relating to notice
of sale and availability of current public information about the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period.
Further, under Rule 144(k) as currently in effect, after three years
have elapsed from the later of the issuance of the restricted securities by the
Company or their acquisition from an affiliate, a holder of such restricted
securities who is not an affiliate of the Company at the time of the sale and
has not been an affiliate of the Company for at least three months prior to the
sale would be entitled to sell the shares immediately without regard to the
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volume limitations and other conditions described above. The Commission has
proposed reducing this three-year holding period to two years.
Tracker U.S. intends to file a registration statement on Form S-8 under
the Act to register the shares of Common Stock reserved for issuance under
Tracker U.S.'s 1994 Stock Incentive Plan. See "EXECUTIVE COMPENSATION - 1994
Stock Incentive Plan." Shares issued upon exercise of outstanding stock options
and sold pursuant to the option plans after the effective date of such
registration statements generally will be available for resale in the public
market. In addition, the Company has granted registration rights to certain of
its stockholders (including the Selling Securityholders.) See "DESCRIPTION OF
SECURITIES - Registration Rights."
To date, there has been only a limited public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect prevailing
market prices and could impair the Company's future ability to raise capital
through the sale of its equity securities.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock being
offered hereby will be passed upon for the Company by Fennemore Craig, a
Professional Corporation, Phoenix, Arizona.
EXPERTS
The consolidated financial statements as of March 31, 1996 and 1995 and
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 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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THE TRACKER CORPORATION OF AMERICA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Audited Consolidated Financial Statements
Report of Independent Accountants........................................................... F-2
Consolidated Balance Sheet as of March 31, 1996 and 1995.................................... F-3
Consolidated Statement of Operations for the years ended March 31, 1996 and 1995
and for the periods from inception (May 6, 1993) through March 31, 1996, 1995 and 1994...... F-4
Consolidated Statement of Cash Flows for the years ended March 31, 1996
and 1995 and for the periods from inception (May 6, 1993) through March
31, 1996, 1995 and 1994..................................................................... F-5
Consolidated Statement of Shareholders' Equity (Deficit) for the years
ended March 31, 1996 and 1995............................................................... F-6
Notes to Consolidated Financial Statements.................................................. F-8
Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of June 30, 1996 and March 31, 1996........................... F-21
Consolidated Statement of Operations for the three months ended June 30, 1996
and 1995 and for the period from inception (May 6, 1993) through June 30, 1996.............. F-22
Consolidated Statement of Cash Flows for the three months ended June 30, 1996
and 1995 and for the period from inception (May 6, 1993) through June 30, 1996.............. F-23
Consolidated Statement of Shareholders' Equity (Deficit) for the period from
inception (May 6, 1993) through June 30, 1996.............................................. F-24
Notes to Consolidated Financial Statements.................................................. F-27
</TABLE>
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THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
F-1
<PAGE> 82
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 accompanying
index 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 our audits. 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's plans in regard to these 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
F-2
<PAGE> 83
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
--------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 78,844 $ 107,091
Short-term investment 221,190 -
Accounts receivable 7,361 4,981
Prepaid expenses and deposits 168,345 544,432
Inventory 115,612 166,003
Note receivable - 178,350
Deferred charges 73,750 -
-------------- --------------
Total current assets 665,102 1,000,857
Due from shareholders 58,226 191,926
Deferred charges 66,234 -
Fixed assets (net) 353,729 437,147
Long-term investment 50,451 39,522
-------------- --------------
Total assets $ 1,193,742 $ 1,669,452
============== ==============
LIABILITIES AND 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 -
-------------- --------------
Total current liabilities 2,393,631 1,446,543
Deferred revenue 178,883 -
Commitments (Note 13)
Shareholders' equity (deficit):
Preferred stock, $.001 par value, 500,000 shares
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 - -
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.
F-3
<PAGE> 84
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period From Inception (May 6, 1993)
Year Ended 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 $ --
Cost of goods sold 40,230 4,029 44,259 4,029 --
------------ ----------- ------------ ----------- -----------
Gross profit 66,292 6,158 72,450 6,158 --
------------ ----------- ------------ ----------- -----------
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
============ =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 85
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From Inception (May 6, 1993)
Year Ended 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 2,749,208 799,249 3,872,801 1,123,593 324,344
company shares
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) --
Short-term investment (221,190) -- (221,190) -- --
Inventory 50,391 (166,003) (115,612) (166,003) --
Deferred charges (139,984) -- (139,984) -- --
Deferred revenue 283,126 10,998 294,124 10,998 --
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 -- (200,317) (200,317) (200,317) --
Repayment of note receivable 178,350 21,967 200,317 21,967 --
Long-term investment (10,929) (2,290,443) (2,301,372) (2,290,443) --
Unwind of long-term investment -- 2,250,921 2,250,921 2,250,921 --
----------- ----------- ------------ ----------- -----------
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 2,189,529 -- 2,189,529 -- --
debentures
Due to shareholder -- 108,390 108,390 108,390 --
Repayment to shareholder -- (108,390) (108,390) (108,390) --
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 (28,247) (1,905,893) 78,844 107,091 2,012,984
equivalents during the period
Cash and cash equivalents, beginning of period 107,091 2,012,984 -- -- --
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period $ 78,844 $ 107,091 $ 78,844 $ 107,091 $ 2,012,984
=========== =========== ============ =========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
The Company issued certain shares of its Class B Common Stock for services and
for nominal values. See Consolidated Statement of Shareholders' Equity
(Deficit).
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 86
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Shares
============================= ==================================
Class B Paid-in
Common Common Common Capital in
Stock Stock Stock Excess 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
Shares issued in lieu of rent (Note 12-xi)(cash - $Nil) 60,871 4,714,188
Share issue costs 324,344
Translation adjustment
Net loss (466,142)
------------- -------------
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)
Shares issued from Regulation S offering (including
79,658 shares at $7 per share for consulting 739,219 $ 739 (639)
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
Shares issued for consulting and marketing services
(Note 13) (cash - $Nil) 825,000 78,005
Less: consulting and marketing services not yet received (814,583) (819,459)
Share proceeds received from private placement
on March 15, 1995 (cash - $350,000) 500,000 825 2,204,153
Shares issued to employees for employment services
(Note 12-xi)(cash - $Nil) 25,063 (815)
Share issue costs
Translation adjustment 500 349,500
Net loss 74,409
Balances at March 31, 1995 (779,495)
-------------- ------------- ------------ -------------
2,109,636 6,378,248 $ 2,109 $ 9,707,617
============== ============= ============ =============
Amounts
=================================================================
Deficit
============ Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
============ ============ ============= ==============
<S> <C> <C> <C> <C>
Shares issued to officers at inception (cash - $Nil) 4,714,188
Shares issued for cash (cash - $4,714,188) 324,344
Shares issued in lieu of rent (Note 12-xi)(cash - $Nil)
Share issue costs (466,142)
Translation adjustment $ (129,098) (129,098)
Net loss $ (2,043,425) (2,043,425)
------------ ------------- ------------- --------------
$ 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 2,901,700
services and 3,571 shares at $5.50 per share for the
purchase of fixed assets) (cash - $1,505,000)
Share proceeds to be received subsequent to March 31, 1995
Shares issued for consulting and marketing services
(Note 13) (cash - $Nil) (819,459)
Less: consulting and marketing services not yet received
Share proceeds received from private placement 2,204,978
on March 15, 1995 (cash - $350,000)
Shares issued to employees for employment services (2,087,500)
(Note 12-xi)(cash - $Nil)
Share issue costs (2,086,685) 359,000
Translation adjustment 74,409
Net loss (779,495)
Balances at March 31, 1995 (159,026) (159,026)
(5,068,583) (5,068,583)
------------ ------------ ------------- --------------
(2,086,685) $ (288,124) $ (7,112,008) $ 222,909
============ ============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 87
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONT'D)
<TABLE>
<CAPTION>
Shares Amounts
--------------------------- ------------------------------
Class B Paid-in
Common Common Common Capital in
Stock Stock Stock Excess of Par
----------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering
made before March 31, 1995 (cash - $225,280) $ - $ 819,459
Consulting services received re shares issued
before March 31, 1995 (Note 12-xi) (cash - $Nil) 14,582* 14
Marketing services received re shares issued
to LL Knickerbocker Co. (Note 13) (cash - $Nil) 266,664* 265
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 for cash (cash $83,000) 200,000 200 199,800
Less: share proceeds to be received (117,000)
Share proceeds received from private placement 250,000 250 249,750
(cash - $250,000)
Shares issued upon exercise of warrants at 849,803 619,166
Canadian $1 per share (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)(cash - $Nil) 14,176 22,716
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 - $Nil) 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 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
----------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Share proceeds received re Regulation S offering
made before March 31, 1995 (cash - $225,280) $ - $ - $ - $ 819,459
Consulting services received re shares issued
before March 31, 1995 (Note 12-xi) (cash - $Nil) 87,486 87,500
Marketing services received re shares issued
to LL Knickerbocker Co. (Note 13) (cash - $Nil) 666,400 666,665
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)
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 250,000
(cash - $250,000)
Shares issued upon exercise of warrants at 619,166
Canadian $1 per share ($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)(cash - $Nil) 22,716
Shares exchanged as per exchange agreement (cash - $Nil)
Shares issued for conversion from debenture holders (cash - $Nil) 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 at March 31, 1996 $(1,954,327) $ (240,900) $(13,202,738) $(1,378,772)
=========== ============= ================ ==========
</TABLE>
* 1,074,276 common shares and 12,500 Class B 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.
F-7
<PAGE> 88
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 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 canceled 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 and Recovery Service is endorsed by the International
Association of Chiefs of Police.
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.
F-8
<PAGE> 89
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation and
amortization are 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.
F-9
<PAGE> 90
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried in the accompanying consolidated balance sheet
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.
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 the 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 was a publicly traded company on the Vancouver Stock
Exchange, and represents less than a 4% interest in that company. The shares
owned by the Company were restricted from trading for a period of 12 months
starting May 30, 1995. Although the Company is no longer contractually
restricted in its ability to sell its shares of Stratcomm, because the twelve
month period has expired, the Stratcomm shares are no longer trading on any
exchange or in the United States over-the-counter market. Until such time as the
Stratcomm shares are listed on an exchange or begin trading in the
over-the-counter market, it may be difficult for the Company to dispose of the
shares. The investment, which is carried as available for sale, is carried at
cost which approximates fair value.
F-10
<PAGE> 91
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Investor relations $ -- $325,267
Marketing and celebrity 120,992 --
Rent 450 115,147
Other 46,903 104,018
-------- -------
$168,345 $544,432
======== ========
</TABLE>
At March 31, 1996, $120,992 of marketing and celebrity costs were reported as
prepaid assets. Marketing and celebrity costs were $241,983 for fiscal year
ended March 31, 1996, which is included in sales and marketing expenses in the
Consolidated Statement of Operations. The capitalized costs of the marketing
and celebrity costs are amortized over a twelve month period.
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 Ltd. 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. in exchange
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 had
recorded the exercise of the reversionary option by the owner of Page Direct
Ltd. as if it had occured as of March 31, 1995.
NOTE 7 - DUE FROM SHAREHOLDERS:
Promissory notes reflecting loans to shareholders bear interest at 5% per annum
and are due on demand.
F-11
<PAGE> 92
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
------- -------
<S> <C> <C>
Current:
Deferred sales commission $47,222 $ --
Other 26,528 --
------- -------
$73,750 $ --
======= =======
Long term:
Deferred sales commission $61,680 $ --
Other 4,554 --
------- -------
$66,234 $ --
======= =======
</TABLE>
NOTE 9 - FIXED ASSETS:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
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.
NOTE 10 - LONG-TERM INVESTMENT:
By agreement dated January 31, 1995, the Company, through Tracker Canada,
committed to purchase up to 35.9% of the voting common shares of C.E.M. Centry
Electronic Monitoring Corporation ("Centry"), a publicly listed Canadian company
trading on the Vancouver Stock Exchange, 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
F-12
<PAGE> 93
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM INVESTMENT: (CONTINUED)
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.
Subsequently, the Company entered into agreements with Centry which released the
Company from its obligation to fund 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. The Company has satisfied all of
its administrative services obligations to Centry.
The amount of $50,451 represents the original cost to acquire 633,002 common
shares of Centry currently held by the Company, which approximates fair value.
This investment represents approximately 11.96% of Centry's total common shares
issued.
NOTE 11 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Payroll and employee benefits $ -- $178,980
Director fees 11,000 44,500
Finder fees for convertible debentures 52,906 --
Other 202,931 110,641
-------- --------
$266,837 $334,121
======== ========
</TABLE>
NOTE 12 - CAPITAL STOCK:
(i) The Company's 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 Preference Shares to direct the voting of
the Class B common shares and provides a mechanism for the exchange of the
Exchangeable Preference Shares for a like number of shares of Common Stock. As
of June 25, 1996, Tracker Canada had outstanding 5,209,762 Exchangeable
Preference Shares. As a result of certain agreements and the Plan of Arrangement
entered into in connection with the Reorganization, holders of the Exchangeable
Preference Shares have voting, dividend and liquidation rights that are in
parity with those of holders of the shares of Tracker U.S. Common Stock. Holders
of Exchangeable Preference Shares are entitled to exchange such shares with
Tracker U.S. for shares of the Tracker U.S. Common Stock on a one-to-one basis,
subject to adjustment from time to time to take into account certain events.
Dividends on the Exchangeable Preference Shares are cumulative and have priority
over dividend payments on the common shares of Tracker Canada. Holders of
Exchangeable Preference Shares are entitled upon any liquidation, dissolution or
winding-up of Tracker Canada, before any distribution is made to the holders of
the common shares of Tracker Canada or any other shares junior to the
Exchangeable Preference Shares, to a certain liquidation amount, together with
an amount equal to all dividends accrued and unpaid on such Exchangeable
Preference Shares. The Exchangeable Preference Shares are nonredeemable and,
except under
F-13
<PAGE> 94
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CAPITAL STOCK: (CONTINUED)
circumstances involving the nonpayment of dividends comparable to those paid on
shares of the Tracker U.S. Common Stock, generally are not entitled to vote on
matters put before the shareholders of Tracker Canada.
(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.
(b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
March 31, Exercise March 31, Exercise
1996 Price 1995 Price
---------------------------------------------------
OPTIONS:
<S> <C> <C> <C> <C>
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/canceled during year (10,000) $7.95 0 n/a
-------- ---------
Closing 40,000 40,000
========= =========
WARRANTS (COMMON STOCK AND 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>
* 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.
F-14
<PAGE> 95
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CAPITAL STOCK: (CONTINUED)
(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. 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 the 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.
(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 common shares
have been subscribed for but remain unissued as the services for which these
shares were subscribed for have yet to be received.
<TABLE>
<CAPTION>
From inception
(May 6, 1993)
Year ended March 31, through March
1995 1994 31, 1996
---------- ---------- ----------
Opening,
<S> <C> <C> <C>
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 are 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>
F-15
<PAGE> 96
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CAPITAL STOCK: (CONTINUED)
(x) 991,434 shares were issued due to the conversion of subordinated debentures
totalling $729,529 and $1,460,000 in subordinated debentures remain outstanding
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.
NOTE 13 - COMMITMENTS:
LEASES
The Company has a lease agreement for its current office premises. The term of
the lease is ten 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:
F-16
<PAGE> 97
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS: (CONTINUED)
<TABLE>
<CAPTION>
Number of Subscribers Per Capita Amount
<S> <C> <C>
0 - 1,000,000 $0.20
1,000,001 - 5,000,000 $0.10
More than 5,000,000 $0.075
</TABLE>
INVESTOR MEDIA & PUBLIC RELATIONS
The Company entered into an agreement dated November 20, 1995 with Corporate
Relations Group, Inc. ("CRG"), of Winter Park, Florida 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 Company's issuance of convertible subordinated debentures.
See also Note 12(iv) and (vii).
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
F-17
<PAGE> 98
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES: (CONTINUED)
operating losses aggregating $10,561,000 expire starting in 2001. The benefit of
these losses has not been reflected in these consolidated financial statements.
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ -- $ --
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.
F-18
<PAGE> 99
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
$60.00 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.
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 shares of Convertible Preferred Stock noted above.
F-19
<PAGE> 100
THE TRACKER
CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
F-20
<PAGE> 101
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 214,543 $ 78,844
Short-term investment 220,110 221,190
Accounts receivable 24,209 7,361
Prepaid expenses and deposits 108,405 168,345
Inventory 99,693 115,612
Deferred charges 67,099 73,750
------------ ------------
Total current assets 734,059 665,102
Due from shareholders 58,669 58,226
Deferred charges 243,750 66,234
Fixed assets (net) 332,232 353,729
Long-term investment 50,451 50,451
------------ ------------
Total assets $ 1,419,161 $ 1,193,742
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 572,804 $ 551,553
Accrued liabilities 122,024 266,837
Deferred revenue 210,956 115,241
Convertible subordinated debentures 1,150,000 1,460,000
------------ ------------
Total current liabilities 2,055,784 2,393,631
Deferred revenue 472,059 178,883
Commitments (Note 12)
Shareholders' equity (deficit):
$1000 6% Convertible preferred stock, $.001
par value, 500,000 shares authorized,
350 (Nil - March 31, 1996) shares issued
and outstanding -- --
Common stock, $.001 par value, 30,000,000
shares authorized, 9,908,078 (6,130,929 -
March 31, 1996) shares issued and outstanding 9,908 6,131
Class B voting common stock, $0.00000007 par value,
20,000,000 shares authorized, 5,204,762 (6,126,362 -
March 31, 1996) issued and outstanding -- --
Paid-in capital 15,128,387 14,013,062
Other capital (1,523,004) (1,954,327)
Accumulated deficit (14,465,450) (13,202,738)
Cumulative translation adjustment (258,523) (240,900)
------------ ------------
Total shareholders' equity (deficit) (1,108,682) (1,378,772)
------------ ------------
Total liabilities and shareholders'
equity (deficit) $ 1,419,161 $ 1,193,742
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-21
<PAGE> 102
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
From Inception
(May 6, 1993)
For 3 months ended June 30, through
1996 1995 June 30, 1996
-------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 65,872 $ 15,905 $ 182,581
Cost of goods sold 13,545 8,460 57,804
------------ ------------- -------------
Gross profit 52,327 7,445 124,777
------------ ------------- -------------
Development Costs
Operational 144,083 181,152 1,573,904
Information systems 60,545 68,744 946,591
Sales and Marketing 563,683 (195,516) 3,938,433
General and administrative 546,728 1,834,042 8,131,299
------------ ------------- -------------
Total development costs 1,315,039 1,888,422 14,590,227
------------ ------------- -------------
Net loss applicable to common stock $ (1,262,712) $ (1,880,977) $ (14,465,450)
============ ============= =============
Loss per share of common stock $ (0.10) $ (0.21) $ (1.77)
============ ============= =============
Weighted average number of shares
outstanding 12,874,322 9,100,593 8,159,695
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-22
<PAGE> 103
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
From inception
(May 6, 1993)
For 3 months ended through
June 30, June 30,
---------------------- -------------
1996 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ (1,262,712) $ (1,880,977) $ (14,465,450)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation 27,218 29,649 262,564
Rent, consulting and marketing services,
employee compensation settled via the 556,505 1,468,392 4,429,306
issuance of company shares
Changes in assets and liabilities:
Prepaid expenses and deposits 59,940 (201,606) (125,678)
Accounts receivable (16,848) (20,247) (24,209)
Short-term investment 1,080 (218,580) (220,110)
Inventory 15,919 21,130 (99,693)
Deferred charges (170,865) - (310,849)
Deferred revenue 388,891 38,247 683,015
Accounts payable and accrued liabilities (123,562) (590,751) 709,473
------------- ----------- ------------
Net cash used in operating activities (524,434) (1,354,743) (9,161,631)
------------- ----------- ------------
Cash Flows from (used in) investing activities:
Acquisition of fixed assets (8,617) 4,668 (598,562)
Loan to shareholders (443) (2,470) (415,081)
Repayment of loans to shareholders - 138,956 356,412
Note receivable - - (200,317)
Repayment of note receivable - 178,350 200,317
Long-term investment - (10,929) (2,301,372)
Unwind of long-term investment - - (2,250,921)
------------- ---------- ------------
Net cash from (used in) investing activities (9,060) 308,575 (707,682)
------------- ---------- ------------
Cash flows from (used in) financing activities:
Issuance of common shares - 1,094,445 8,922,530
Issuance of preferred shares 850,000 - 850,000
Issuance of convertible subordinated debentures - - 2,189,529
Due to shareholder - - 108,390
Repayment to shareholder - - (108,390)
Share Issue Costs (166,574) (100,989) (1,626,568)
------------- ----------- ------------
Net cash from financing activities 683,426 993,456 10,335,491
------------- ----------- ------------
Effect of exchange rate changes (14,233) (10,466) (251,635)
------------- ----------- ------------
Increase (decrease) in cash and cash 135,699 (63,178) 214,543
equivalents during the period
Cash and cash equivalents, beginning of period 78,844 107,091 -
------------- ----------- ------------
Cash and cash equivalents, end of period $ 214,543 $ 43,913 $ 214,543
============= =========== ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES.
The Company issued certain shares of its Class B Common Stock for services and
for nominal values. See Consolidated Statement of Shareholders' Equity
(Deficit).
The accompanying notes are an integral part of these consolidated
financial statements.
F-23
<PAGE> 104
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------------------------------------ ------------
Class B Paid-in
Preferred Common Common Capital In
Stock Stock Stock Preferred Stock Common Stock Excess of Par
--------- ------ ------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to officers at inception (Cash- 5,089,286 $ - $ - $ -
$Nil)
Shares issued for cash (Cash-$4,714,188) 884,729 4,714,188
Shares issued in lieu of rent (note 11-xi) 60,871 324,344
(Cash-$Nil)
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-$1,175,797) 234,517 1,175,797
Shares issued in lieu of rent (note 11-xi) 5,777 30,121
(Cash-$Nil)
Revenue merger with The Tracker 739,219 739 (639)
Corporation on July 12, 1994 (Cash-$100)
Shares issued from Regulation S offering 860,000 860 2,900,840
(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 $1,505,000)
Share proceeds to be received subsequent to (819,459)
March 31, 1995
Shares issued for consulting and marketing 825,000 78,005 825 2,204,153
services (note 12) (Cash-$Nil)
Less: consulting and marketing services not (814,583)* (815)
yet received
Share proceeds received from private 500,000 500 349,500
placement on March 15, 1995 (Cash-
$350,000)
Shares issued to employees for employment 25,063 74,409
services (note 11-xi)(Cash-$Nil)
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
========== ========= ========= ============== =========== ==========
<CAPTION>
AMOUNTS
-----------------------------------------------------------
Deficit Accumulated
Cumulative During
Translation Development
Other Capital Adjustment Stage Total
------------- ----------- ---------------- -----
<S> <C> <C> <C> <C>
Shares issued to officers at inception (Cash- $ - $ - $ - $ -
$Nil)
Shares issued for cash (Cash-$4,714,188) 4,714,188
Shares issued in lieu of rent (note 11-xi) 324,344
(Cash-$Nil)
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
----------- --------- -------------
Balance at March 31, 1994 - (129,098) (2,043,425) 2,399,867
--- ---- ----------- --------- ------------- ---------
Shares issued for cash (Cash-$1,175,797) 1,175,797
Shares issued in lieu of rent (note 11-xi) 30,121
(Cash-$Nil)
Revenue merger with The Tracker 100
Corporation on July 12, 1994 (Cash-$100)
Shares issued from Regulation S offering 2,901,700
(including 79,658 shares at $7 per share for
consulting services and 3,571 shares at $3.50
per share for (the purchase of fixed assets)
(Cash $1,305,000)
Share proceeds to be received subsequent in (819,459)
March 31, 1995
Shares issued for consulting and marketing 2,204,978
services (note 12) (Cash-$Nil)
Less: consulting and marketing services not (2,086,685) (2,087,500)
yet received
Share proceeds received from private 350,000
placement on March 15, 1995 (Cash-
$350,000)
Shares issued to employees for employment 74,409
services (note 11-xi)(Cash-$Nil)
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
=========== ========= ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
F-24
<PAGE> 105
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONT'D)
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
------------------------------------------------------------------------
Class B
Preferred Common Common
Stock Stock Stock Preferred Stock Common Stock
----- ----- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Share proceeds received re Regulation S offering $ -
made before March 31, 1995 (Cash-$225,280) $ -
Consulting services received re shares issued 14
before March 31, 1995 (note 11-xi) (Cash-$Nil) 14,582*
Marketing services received re shares issued
to L.L. Knickerbocker Co. (note 12) (Cash-$Nil) 266,664* 265
Shares issued to Directors as compensation
(note 11-xi) (Cash-$Nil) 98,858 99
Shares issued to Amerasia for marketing
services (note 11-xi) (Cash-$Nil) 30,000
Less: services not yet received (12,500)*
Shares cancelled (Cash-$Nil) (171) 1
Shares issued pursuant to S-8 for employees, 770
consultants and a director (note 11-vii) (Cash-$Nil) 770,000
Less: employment and consulting services (341)
not yet received (340,939)* 200
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less share proceeds to be received 250
Share proceeds received from private
placement (Cash-$250,000) 250,000
Shares issued upon exercise of warrants at
Canadian $1 per share (Cash-$619,166) 849,803
Shares issued to officers (note 11-iv)(Cash-$Nil) 630,000 630
Shares issued to a consultant (note 11-xi) (Cash-$Nil) 7,500 8
Shares insured for investor relation services 200
(note 11-vi)(Cash-$Nil) 200,000 (200)
Less: services not yet received (200,000)*
Shares issued to employees for employment
services (note 11-xi) (Cash-$Nil) 14,176
Shares exchanged as per exchange agreement (Cash-$Nil) 1,133,365 (1,133,365) 1,134
Shares issued for conversion from debenture 992
holders (Cash-$Nil) 991,434
Share issue cost from April 1, 1995 to March 31, 1996
Translation adjustment
Net loss from April 1, 1995 to March 31, 1996
--------- --------- --------- ----------- -----------
Balance as of March 31, 1996 - 6,130,929 6,126,362 - $ 6,131
========= ========= ========= =========== ===========
AMOUNTS
-------------------------------------------------------------------------
Deficit
Accumulated
Share proceeds received re Regulation S offering Paid-in Cumulative During
made before March 31, 1995 (Cash-$225,280) Capital In Translation Development
Consulting services received re shares issued Excess of Par Other Capital Adjustment Stage Total
before March 31, 1995 (note 11-xi) (Cash-$Nil) ------------- ------------- ---------- ----- -----
Marketing services received re shares issued <C> <C> <C> <C> <C>
to L.L. Knickerbocker Co. (note 12) (Cash-$Nil) $ 819,459 $ - $ - $ - $ 819,459
Shares issued to Directors as compensation
(note 11-xi) (Cash-$Nil) 87,486 87,500
Shares issued to Amerasia for marketing
services (note 11-xi) (Cash-$Nil) 666,400 666,665
Less: services not yet received
Shares cancelled (Cash-$Nil) 86,402 86,501
Shares issued pursuant to S-8 for employees, 44,496 44,496
consultants and a director (note 11-vii) (Cash-$Nil)
Less: employment and consulting services (18,630) (18,630)
not yet received (1) -
Shares issued to R. Zuk (Cash - $83,000) 769,230 770,000
Less share proceeds to be received
Share proceeds received from private (340,598) (340,939)
placement (Cash-$250,000) 199,800 200,000
Shares issued upon exercise of warrants at (117,000) (117,000)
Canadian $1 per share (Cash-$619,166) 249,750 250,000
Shares issued to officers (note 11-iv)(Cash-$Nil) 619,166 619,166
Shares issued to a consultant (note 11-xi) (Cash-$Nil)
Shares insured for investor relation services 826,245 826,875
(note 11-vi)(Cash-$Nil) 9,836 9,844
Less: services not yet received 262,300 262,500
Shares issued to employees for employment (262,300) (262,500)
services (note 11-xi) (Cash-$Nil) 22,716 22,716
Shares exchanged as per exchange agreement (Cash-$Nil)
Shares issued for conversion from debenture (1,134) -
holders (Cash-$Nil) 728,537 729,529
Share issue cost from April 1, 1995 to March 31, 1996 (214,357) (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 of March 31, 1996 $ 14,013,06 $(1,954,327) $(240,900) $(13,202,738) $(1,378,772)
=========== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-25
<PAGE> 106
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONT'D)
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
---------------------------------------------------------------------
Class B
Preferred Common Common
Stock Stock Stock Preferred Stock Common Stock
----- ----- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Marketing services received re shares issued to 100,000* $ - $ 100
L.L. Knickerbocker Co. (note 12) (Cash - $
Nil)
Shares issued to Directors as compensation 34,445 34
(note 11-xi) (Cash - $Nil)
Marketing services received from Amerasia 7,500*
((note 11-xi) (Cash-$Nil)
Employment and consulting services received 170,469* 170
re S-8 (note 11-vii) (Cash-$Nil)
Shares issued for conversion from debenture 742,573 743
holders (note 11-x) (Cash - $Nil)
Preferred shares issued from private placement 850 1
(note 11-xii) (Cash -$850,000)
Common shares issued for conversion from (500) 1,611,156 (1) 1,611
preferred stockholder (note 11-xiii) (Cash-$Nil)
Shares exchanged as per exchange agreement 929,100 (929,100) 929
(Cash-$Nil)
Shares issued to employees for employment 24,000 24
services (note 11-xi) (Cash-$Nil)
Shares issued in lieu of finder fee for 52,906 53
debentureholders (note 11-xi) (Cash-$Nil)
Shares issued in lieu of finder fee for 112,500 113
preferred stockholders (note-xi) (Cash-$Nil)
Share issue cost from April 1, 1996 to June
30, 1996
Translation adjustment
Net loss from April 1, 1996 to June 30, 1996
------- --------- --------- ------------ -------
Balance as of June 30, 1996 350 9,908,078 5,204,762 $ - $ 9,908
======= ========= ========= ============ =======
<CAPTION>
AMOUNTS
-------------------------------------------------------------------------
Deficit Accumulated
Paid-in Cumulative During
Capital In Translation Development
Excess of Par Other Capital Adjustment Stage Total
------------- ------------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Marketing services received re shares issued to $ - $ 249,900 $ - $ - $ 250,000
L.L. Knickerbocker Co. (note 12) (Cash - $
Nil)
Shares issued to Directors as compensation 15,466 15,500
(note 11-xi) (Cash - $Nil)
Marketing services received from Amerasia 11,124 11,124
((note 11-xi) (Cash-$Nil)
Employment and consulting services received 170,299 170,469
re S-8 (note 11-vii) (Cash-$Nil)
Shares issued for conversion from debenture 309,257 310,000
holders (note 11-x) (Cash - $Nil)
Preferred shares issued from private placement 849,999 850,000
(note 11-xii) (Cash -$850,000)
Common shares issued for conversion from (1,610) -
preferred stockholder (note 11-xiii) (Cash-$Nil)
Shares exchanged as per exchange agreement (929) -
(Cash-$Nil)
Shares issued to employees for employment 11,976 12,000
services (note 11-xi) (Cash-$Nil)
Shares issued in lieu of finder fee for 52,853 52,906
debentureholders (note 11-xi) (Cash-$Nil)
Shares issued in lieu of finder fee for 44,887 45,000
preferred stockholders (note-xi) (Cash-$Nil)
Share issue cost from April 1, 1996 to June (166,574) (166,574)
30, 1996
Translation adjustment (17,623) (17,623)
Net loss from April 1, 1996 to June 30, 1996 (1,262,712) (1,262,712)
----------- ------------ --------- ------------ -----------
Balance as of June 30, 1996 $15,128,387 $ (1,523,004) $(258,523) $(14,465,450) $(1,108,682)
=========== ============ ========= ============ ==========
</TABLE>
*803,807 common shares and $5,000 Class B voting common shares have been
subscribed for but remain unissued as of June 30, 1996
The accompanying notes are an integral part of the consolidated
financial statements.
F-26
<PAGE> 107
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 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 and Recovery Service is endorsed by the International
Association of Chiefs of Police.
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.
F-27
<PAGE> 108
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 to unamortized commission 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.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation and
amortization are determined using the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
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
</TABLE>
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's wholly-owned Canadian subsidiary are
translated at the fiscal year or period 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.
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 the 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
F-28
<PAGE> 109
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 $220,110 represents a short-term investment in 288,462 shares of
Stratcomm Media Ltd., which was a publicly traded company on the Vancouver Stock
Exchange, and represents less than a 4% interest in that company. The shares
owned by the Company were restricted from trading for a period of 12 months
starting May 30, 1995. Although the Company is no longer contractually
restricted in its ability to sell its shares of Stratcomm, because the twelve
month period has expired, the Stratcomm shares are no longer trading on any
exchange or in the United States over-the-counter market. Until such time as the
Stratcomm shares are listed on an exchange or begin trading in the
over-the-counter market, it may be difficult for the Company to dispose of the
shares. 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>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Marketing and celebrity 30,248 120,992
Other 78,157 47,353
-------- --------
$108,405 $168,345
======== ========
</TABLE>
At June 30, 1996, $30,248 of marketing and celebrity costs were reported as
prepaid assets. Marketing and celebrity costs were $90,744 for the three months
ended June 30, 1996, and were $241,983 for fiscal year ended March 31, 1996,
which is included in sales and marketing expenses in the Consolidated Statement
of Operations. The capitalized costs of the marketing and celebrity costs are
amortized over a twelve month period.
NOTE 6 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
F-29
<PAGE> 110
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- -------
<S> <C> <C>
Current:
Deferred sales commission $ 43,106 $47,222
Other 23,993 26,528
-------- -------
$ 67,099 $73,750
======== =======
Long term:
Deferred sales commission $210,150 $61,680
Other 33,600 4,554
-------- -------
$243,750 $66,234
======== =======
</TABLE>
NOTE 8 - FIXED ASSETS:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Scanning equipment $111,470 $106,471
Computer equipment 259,031 257,189
Computer software 31,832 31,988
Office furniture and equipment 66,926 67,254
Leasehold improvements 66,514 66,840
Kiosk equipment 63,186 63,496
-------- --------
Total original cost 598,959 593,238
Less: Accumulated depreciation 266,727 239,509
-------- --------
$332,232 $353,729
======== ========
</TABLE>
Depreciation expense for the three months ended June 30, 1996 was $27,218 and
was $111,070 for the year ended March 31, 1996.
NOTE 9 - LONG-TERM INVESTMENT:
By agreement dated January 31, 1995, the Company, through Tracker Canada,
committed to purchase up to 35.9% of the voting common shares of C.E.M. Centry
Electronic Monitoring Corporation ("Centry"), a publicly listed Canadian company
trading on the Vancouver Stock Exchange, 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
F-30
<PAGE> 111
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM INVESTMENT: (CONTINUED)
shares in Centry such that upon payment of the entire convertible debenture,
Tracker Canada would have voting control of 53.1% of Centry.
Subsequently, the Company entered into agreements with Centry which released the
Company from its obligation to fund 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. The Company has satisfied all of
its administrative services obligations to Centry.
The amount of $50,451 represents the original cost to acquire 633,002 common
shares of Centry currently held by the Company, which approximates fair value.
This investment represents approximately 11.96% of Centry's total common shares
issued.
NOTE 10 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Director fees $ 0 $ 11,000
Finder fees for convertible debentures 0 52,906
Others 122,024 202,931
-------- --------
$122,024 $266,837
======== ========
</TABLE>
NOTE 11 - CAPITAL STOCK:
(i) The Company's 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 Preference Shares to direct the voting of
the Class B common shares and provides a mechanism for the exchange of the
Exchangeable Preference Shares for a like number of shares of Common Stock. As
of June 30, 1996, Tracker Canada had outstanding 5,204,762 Exchangeable
Preference Shares. As a result of certain agreements and the Plan of Arrangement
entered into in connection with the Reorganization, holders of the Exchangeable
Preference Shares have voting, dividend and liquidation rights that are in
parity with those of holders of the shares of Tracker U.S. Common Stock. Holders
of Exchangeable Preference Shares are entitled to exchange such shares with
Tracker U.S. for shares of the Tracker U.S. Common Stock on a one-to-one basis,
subject to adjustment from time to time to take into account certain events.
Dividends on the Exchangeable Preference Shares are cumulative and have priority
over dividend payments on the common shares of Tracker Canada. Holders of
Exchangeable Preference Shares are entitled upon any liquidation, dissolution or
winding-up of Tracker Canada, before any distribution is made to the holders of
the common shares of Tracker Canada or any other shares junior to the
Exchangeable Preference Shares, to a certain liquidation amount, together with
an amount equal to all dividends accrued and unpaid on such Exchangeable
Preference Shares. The Exchangeable Preference Shares are nonredeemable and,
except under circumstances involving the nonpayment of dividends comparable to
those paid on shares of the Tracker U.S. Common Stock, generally are not
entitled to vote on matters put before the shareholders of Tracker Canada.
F-31
<PAGE> 112
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK: (CONTINUED)
(ii) At June 30, 1996, outstanding warrants had been issued and were
outstanding to acquire 15,577 exchangeable preference shares (17,348 at March
31, 1996) of the Canadian subsidiary at Canadian $14 per share. These warrants
expire two years after the date of issuance.
(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.
(b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
For 3
months For year
ended ended
June 30, Exercise March 31, Exercise
1996 Price 1996 Price
---------- ---------- ---------- --------
OPTIONS:
<S> <C> <C> <C> <C>
Opening 40,000 n/a 40,000 $7.95
Granted during the period (*) 0 10,000 1.81
Exercised during the period 0 0 n/a
Expired/cancelled during period (10,000) 7.95
------ -------
Closing 40,000 40,000
====== =======
* 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.
For 3
months For year
ended ended
June 30, Exercise March 31, Exercise
1996 Price 1996 Price
----------- --------- ------------- ----------
WARRANTS (COMMON STOCK AND CLASS B)
Opening 767,348 n/a 1,685,880 n/a
Issued during the period 0 250,000 $5.00
Exercised during the period 0 (849,803) Cdn$1.00
Expired during the period (1,771) (318,729) Cdn$14.00
---------- -----------
Closing 765,577 767,348
========== ===========
</TABLE>
F-32
<PAGE> 113
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK: (CONTINUED)
(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. 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 the 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.
(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 June 30, 1996, 803,807 common shares and 5,000 Class B common shares
have been subscribed for but remain unissued as the services for which these
shares were subscribed for have yet to be received.
<TABLE>
<CAPTION>
For the period From inception
3 months ended June 30, (May 6, 1993)
------------------------ through June 30,
1996 1995 1996
---------------------------------------------
<S> <C> <C> <C>
Opening,
Marketing services not yet received $1,322,800 $1,999,200 $ 0
Deferred compensation costs 340,599 0 0
Deferred consulting costs 280,928 87,485 0
Rent 0 0 0
---------- ---------- ----------
$1,954,327 $2,086,685 $ 0
Shares subscribed but not issued (future services),
Marketing services not yet received $ 0 $ 0 $1,999,200
Deferred compensation costs 125,182 826,875 1,905,622
Deferred consulting costs 0 866,323 1,693,023
Rent 0 0 354,465
---------- ---------- ----------
$ 125,182 $1,693,198 $5,952,310
Charged to expense as services are received,
Marketing services not yet received $ 249,900 $ 0 $ 916,300
Deferred compensation costs 295,481 826,875 1,735,322
Deferred consulting costs 11,124 641,517 1,423,219
Rent 0 0 354,465
---------- ---------- ----------
$ 556,505 $1,468,392 $4,429,306
Closing,
Marketing services not yet received $1,082,900 $1,999,200 $1,082,900
Deferred compensation costs 170,300 0 170,300
Deferred consulting costs 269,804 312,291 269,804
Rent 0 0 0
---------- ---------- ----------
$1,523,004 $2,311,491 $1,523,004
========== ========== ==========
</TABLE>
F-33
<PAGE> 114
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK: (CONTINUED)
(x) 742,573 shares were issued due to the conversion of subordinated
debentures totalling $310,000 and $1,150,000 in subordinated debentures remain
outstanding as at June 30, 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.
(xii) 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 hereinafter 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.
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.
For three months ended June 30, 1996, the Company paid $110,500 to a third
party as finders fees in connection with the Company's private equity placement
of the convertible preferred stock and the amounts are included as a reduction
in paid-in capital.
F-34
<PAGE> 115
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL STOCK: (CONTINUED)
(xiii) As at June 30, 1996, 1,611,156 common shares were issued due to the
conversion of 500 shares of convertible preferred stock totalling $500,000.
NOTE 12 - COMMITMENTS:
LEASES
The Company has a lease agreement for its current office premises. The term of
the lease is ten 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 three months ended June 30, 1996 amounted to $45,068 and
$233,705 for the year ended March 31, 1996.
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>
F-35
<PAGE> 116
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS: (CONTINUED)
INVESTOR MEDIA & PUBLIC RELATIONS
The Company entered into an agreement dated November 20, 1995 with Corporate
Relations Group, Inc. ("CRG"), of Winter Park, Florida 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 13 - 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, $93,868 for the three
months ended June 30, 1996 and $589,390 for the year ended March 31, 1996.
Finders fees amount to $25,870 for three months ended June 30, 1996 and $Nil
for the year ended March 31, 1996 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 $Nil for three months ended June 30, 1996 and $85,646
for the year ended March 31, 1996 were paid to related parties in connection
with the issuance of convertible subordinated debentures.
See also Note 11(iv) and (vii).
NOTE 14 - INCOME TAXES:
The estimated deferred tax asset of $3,510,000 and $3,696,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to June 30, 1996 and March 31, 1996, respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $10,036,000 expire
starting in 2001; the benefit of these losses has not been reflected in these
consolidated financial statements.
F-36
<PAGE> 117
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES: (CONTINUED)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,510,000 3,696,000
----------- -----------
3,510,000 3,696,000
Valuation allowance (3,510,000) (3,696,000)
----------- -----------
$ 0 $ 0
----------- -----------
</TABLE>
The valuation allowance increased by $186,000 during the three months ended
June 30, 1996.
NOTE 15 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at June 30, 1996 convertible subordinated
debentures in the amount of $1,150,000 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 following lists the
conversion rates:
<TABLE>
<CAPTION>
No. of shares
Principal Conversion rate on conversion
--------- --------------- -------------
<S> <C> <C>
$ 420,000 $0.4375 per share of common stock 960,002
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
- ---------- ---------
$1,150,000 1,688,959
--------- ---------
</TABLE>
Total interest paid and included in general and administrative expenses is
$88,739 for three months ended June 30, 1996 and $181,311 for the year ended
March 31, 1996.
NOTE 16 - SUBSEQUENT EVENTS:
Of the warrants issued since inception to acquire exchangeable preference
shares of the Canadian subsidiary at Canadian $14 per share, there remain only
9,006 outstanding as 6,571 warrants have expired since June 30, 1996. As
described in Note 11(ii), these warrants expire two years after the date of
issuance.
Subsequent to June 30, 1996, the Company issued 1,425,636 shares of Common
Stock of which 402,852 shares were issued upon conversion of $100,000 of
Series A Convertible Preferred Stock and 1,023,784 shares issued upon
conversion of $250,000 Series B Convertible Preferred Stock. See Note 11(xii).
Subsequent to June 30, 1996, the Company sold 200 shares of Series B
Convertible Preferred Stock for a consideration of $200,000.
F-37
<PAGE> 118
---------------------------
PROSPECTUS
---------------------------
THE TRACKER CORPORATION OF AMERICA - 13,799,479 SHARES OF COMMON STOCK
---------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE REGISTRANT OR ANY SELLING SECURITYHOLDER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TRACKER U.S. SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 6
THE COMPANY................................................................ 15
USE OF PROCEEDS............................................................ 18
DIVIDEND POLICY............................................................ 18
PRICE RANGE OF COMMON STOCK................................................ 19
DILUTION................................................................... 20
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................ 22
BUSINESS................................................................... 29
MANAGEMENT................................................................. 41
EXECUTIVE COMPENSATION..................................................... 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 57
SELLING SECURITYHOLDERS.................................................... 60
PLAN OF DISTRIBUTION....................................................... 65
DESCRIPTION OF SECURITIES.................................................. 66
SHARES ELIGIBLE FOR FUTURE SALE............................................ 78
LEGAL MATTERS.............................................................. 79
EXPERTS.................................................................... 79
CONSOLIDATED FINANCIAL STATEMENTS.......................................... F-1
---------------------------
October 21, 1996
