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DATE FILED: NOVEMBER 3, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended MARCH 31, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________________________
Commission file number 0-24944
THE TRACKER CORPORATION OF AMERICA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
180 DUNDAS STREET WEST, SUITE 1505, TORONTO, ONTARIO, CANADA M5G 1Z8
(Address and Zip Code of Principal Executive Offices) (Zip Code)
(416) 593-2604
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934: NONE
Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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As of September 30, 1998, there were issued and outstanding 22,340,628
shares of the Registrant's capital stock, consisting of 22,340,628 shares of the
Registrant's common stock, par value $0.001 per share (the "Common Stock").
8,529,038 shares of the Registrant's capital stock is held by non-affiliates.
The aggregate market value of the shares of the Registrant's Common Stock held
by non-affiliates at such date was $639,678 (calculated on the basis of $0.0750
per share which was the average of the high bid and low asked quotations for the
Registrant's Common Stock on the OTC Bulletin Board on September 29, 1998).
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; (3) any prospectus filed pursuant to Rule 424(b) or (c)
under the Securities Act of 1933, as amended ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1980).
Registration Statement on Form S-8, filed with the Securities and
Exchange Commission on October 16, 1996, Registration Number 333-14229
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on October 23, 1996, Registration No. 333-14685.
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 11
6. Selected Consolidated Financial Data 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 13
7A. Quantitative and Qualitative Disclosures About Market Risk 20
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 20
PART III
10. Directors and Executive Officers of Registrant 20
11. Executive Compensation 23
12. Security Ownership of Certain Beneficial Owners and Management 33
13. Certain Relationships and Related Transactions 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
15. Signatures 43
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
</TABLE>
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PART I
ITEM 1. BUSINESS
CORPORATE HISTORY
The Tracker Corporation of America, Inc. (sometimes "Tracker U.S." or
the "Company") developed, markets and sells and operates a personal property
marking and monitoring system (the "Tracker(TM) System"). The Tracker(TM) System
utilizes advanced bar code and laser scanning technology to create an
identification device which interfaces with a computer database and scanning
network (the "Technology"). The Company's Website is located at www.tracker.com.
The current business of the Company originated in July 1994 through a
reorganization (the "Reorganization") in which the Company acquired all of the
issued and outstanding voting shares of The Tracker Corporation, an Ontario,
Canada corporation ("Tracker Canada"), in exchange for approximately 90% of the
total voting shares of the Company as of that date. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Reorganization." The Company's predecessor was
incorporated as a Utah corporation in 1986, and changed its state of
incorporation to Nevada in 1992 and Delaware in 1994 through change in domicile
mergers. Concurrent with the effective date of the reorganization, the Company
changed its fiscal year-end from December 31 to March 31.
BACKGROUND
Tracker Canada, which originated the Company's present line of
business, was incorporated in May 1993 and, until February 1998, was an
operating subsidiary of Tracker U.S. Tracker Canada supported the development,
marketing and sale of the Tracker(TM) System. The subsidiary's functions
included personnel recruitment and management, advanced bar code and laser
scanning technology research and development (including proprietary software
development), key supplier relationships, business and marketing planning, and
Canadian and U.S. patent and trademark protection.
Until 1995, the operations of Tracker Canada generated the Company's
sole source of revenue. During the fiscal year ended March 31, 1996, the
Company, through Tracker U.S., introduced a credit card registration service
marketed by independent telemarketing firms as an additional line of business.
Subsequently, cash sales increased from $382,632 for the 1995-96 fiscal year to
$7,977,881 for the fiscal year ended March 31, 1997. The increase in cash sales
(and the corresponding increase in recorded revenues) for the 1996-97 fiscal
year was due primarily to the increase in sales from the Company's credit card
registration service.
FTC LAWSUIT; BOARD OF DIRECTORS AND OFFICER RESIGNATIONS
In September 1997, the U.S. Federal Trade Commission (the "FTC") filed
a lawsuit against the Company in the U.S. District Court, Northern District of
Georgia, Atlanta Division. The complaint alleged that the Company's credit card
registration service had violated Section 5
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of the Federal Trade Commission Act and the FTC Trade Regulator Telemarketing
Sales Rule in telemarketing credit card protection services in the United
States. The FTC obtained a temporary restraining order ("TRO") halting the
further sale of credit card registration services and an injunction freezing the
Company's assets. Upon completing an internal investigation, the Company elected
to discontinue credit card registration service operations.
Following commencement of the lawsuit, four members of the Company's
five-member Board of Directors, including all of its non-employee outside
directors, tendered their resignations. Subsequently, the Company's Chief
Financial Officer resigned as an executive officer, leaving Bruce I. Lewis, the
Company's Chief Executive Officer, as the Company's sole Director and executive
officer.
The Company settled the FTC lawsuit on July 28, 1998. Pursuant to the
settlement, the U.S. District Court entered a Stipulated Final Judgment and
Order for Injunction that, among other things, permanently barred the Company
and Mr. Lewis from engaging directly or indirectly, in the business of credit
card registration or promotion.
TRACKER CANADA BANKRUPTCY; CESSATION OF OPERATIONS
The FTC lawsuit and the cessation of the credit card registration
service had a negative effect on the financial condition of the Company and
Tracker Canada. On January 27, 1998, Tracker Canada filed a notice with the
Ontario Courts declaring its insolvency and seeking the appointment of a
bankruptcy trustee to liquidate its assets and dissolve the corporation. The
liquidation and dissolution occurred in February 1998.
GLOBAL TRACKER
On February 10, 1998, the Global Tracker Corporation ("Global
Tracker"), a newly formed Ontario, Canada corporation, acquired substantially
all of Tracker Canada's assets at arm's length in a bankruptcy proceeding.
Shortly thereafter, Global Tracker entered into an agreement in principle with
the Company which permitted the Company to use personnel retained by Global
Tracker and assets formerly owned or leased by Tracker Canada to continue the
business formerly conducted by Tracker Canada. As a result of this arrangement,
Tracker U.S. continued on a limited basis the business formerly operated by
Tracker Canada without a complete cessation of operations.
Since February 26, 1998, Global Tracker has expended approximately
$400,000 to support the Company's business operations. Bruce I. Lewis, the
Company's Chief Executive Operator, has personally loaned Global Tracker
approximately $300,000 in operating capital. Jay S. Stulberg, Global Tracker's
sole shareholder, officer and director, has been nominated to join the Company
as its Chief Financial Officer and Director. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - Global Tracker."
On July 30, 1998, the Company entered into a License Agreement with
Global Tracker. The License Agreement grants the Company an exclusive worldwide
license to commercially exploit the technology formerly owned by, and benefit
from any copyrights or patents and
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applications therefor formerly held by, Tracker Canada. The license is for a
renewable seven-year term and provides for payment of a 12% royalty on gross
revenues commencing in the second year of the license.
Contemporaneously, Global Tracker agreed in principle to enter into a
General Consulting Agreement and an Equipment Rental Agreement with TCA
Management, Inc. ("TCA"), a wholly-owned subsidiary of the Company. Under the
proposed General Consulting Agreement, TCA provides management services,
research and development and customer support. Under the proposed Equipment
Rental Agreement, TCA rents office equipment, including computers, local area
network, telephone system, copier, fax and furniture which it makes available to
the Company.
THE PRODUCT
THE TRACKER(TM) SYSTEM
The Tracker(TM) System consists of an identification device and a
relational database that, depending upon the application of the product, works
in tandem with a scanning network and a recovery system.
Identification Device
The identification device consists of a label displaying a serial
number that is resistant to partial destruction or defacement. The label, which
attaches to an article by adhesive, thermal transfer (onto metal, plastic or
nylon textile) or laser etching, contains specially encoded insignia in advanced
two dimensional redundant bar code form (PDF 417 symbology). The PDF 417
symbology permits multiple repetitions of the alphanumeric number within the
advanced bar code. Partial destruction or defacement of the insignia does not
impair the ability of the laser scanners utilized by the Company to read the
label and communicate the information to the Company's database.
Relational Database
The relational database is a depository maintained by the Company that
indexes correlating identification information and other data entries to codes
identified with the corresponding identification device. Although the Company
makes substantial efforts to protect data, avoid human error and ensure system
security, privacy and integrity, no system is foolproof. Any material loss of
information or security breach could damage the credibility of the Company and
have an adverse effect on the Company's business, operating results and
financial condition.
Scanning Network
The Company is developing a network consisting of a series of PDF
417-capable scanners. The laser scanner reads the serial number displayed on the
identification device and transmits that information to the Company's relational
database. The Company intends to locate
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the scanners located at key points of recovery in major North American
metropolitan areas such as police stations. Scanners are also utilized with the
Company's inventory control and asset management systems.
As of June 30, 1998, the Company had placed scanners in 39 police
stations and other sites in Canada and 25 sites in the United States, as
compared to 39 placements in Canada and 29 in the United States as of June 30,
1997. Previously, the Company entered into letters of intent that have since
expired which would have permitted it to install scanners linked to the
Company's network in more than 125 police and sheriff locations throughout the
United States.
Recovery System
The recovery system is the method, after the scanner reads the
identification device and transfers the data via modem to the central database,
by which the Company notifies a user of an item's location and arranges for its
retrieval.
As of September 30, 1998, utilization of The Tracker(TM) System had
resulted in over 400 successful recoveries. While these recoveries demonstrate
the effectiveness of the system, to date the system has not generated sufficient
sales volume.
STRATEGIC FOCUS
The Company introduced The Tracker(TM) System to a limited test market
in Toronto, Canada in October 1994 and began expanding service throughout
Canada. The Company also began testing potential markets for The Tracker(TM)
System in the United States and offering the service through diverse marketing
channels such as joint promotional partners, selected retailers, telemarketers
and network referral marketers.
MARKETS
Prior to Tracker Canada's bankruptcy, the Company's marketing efforts
focused primarily on the consumer market for personal property identification
and recovery. Although the Company believes the system has significant
commercial potential, the marketing efforts undertaken by the Company to date
have failed, have not been fully realized, or have met with only limited market
acceptance.
Initially, the Company developed a personal property security kit that
it currently markets directly through its WebSite. The personal property
recovery kit includes 24 possession labels, eight clothing labels and ten
assorted shoe, key, luggage, and pet tags. The initial purchase is packaged as a
membership service term, typically between one to three years. In addition to
the personal property kit, the Company also markets the system indirectly as a
value-added service offered by third parties.
While management has conceived of many other potential applications for
The Tracker(TM) System, the Company's past experience and present financial
circumstances dictate a more narrowly focused strategy directed at the business
market, rather than the consumer market. For
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the business market, the Company has developed applications for inventory
control, fixed asset management and point of manufacture.
Applications
Inventory Control. The Company believes that The Tracker(TM) System
provides an efficient method for tracking inventory and accessing related
information. On July 1, 1998, the Company signed a two-year agreement with
Warrantech Additive, Inc. ("Warrantech"), a wholly-owned subsidiary of
Warrantech Automotive, Inc., to provide personal property identification labels
and global recovery services to automobile dealers participating in Warrantech's
vehicle service contract business. Through the labels, the Company will provide
immediate access to vehicle service information contained in the Company's
relational database.
Fixed Asset Management. The Company also believes that The Tracker(TM)
System can provide an efficient method for tracking and managing fixed assets.
Currently, the Company is negotiating with Sony Corporation ("Sony") to provide
fixed asset management services by linking labels affixed to certain of Sony's
physical assets to information contained in the Company's relational database
and recovery network to the Company's worldwide 24 hour recovery network.
Although the Company would promote utilization of The Tracker(TM) System for
fixed asset management by reference to the agreement it hopes to complete with
Sony, the Company can provide no assurances that it will successfully conclude
such an agreement.
Point of Manufacture. Manufacturers of products, such as computer
chips, bicycles, power tools, electronic equipment, cameras and auto parts, can
use The Tracker(TM) System by laser etching or otherwise applying a serial
number containing specially coded insignia directly onto or into products during
the manufacturing process. The Company believes that the coded insignia adds
value to a product by increasing the likelihood of recovery in the event of loss
or theft and provides an additional tool for combating retail and warranty
fraud. 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).
Currently, however, the Company does not have a contract with any manufacturer
to laser etch or otherwise apply coded insignia at the point of manufacture.
Niches
The Company's long-term strategy is to introduce applications of The
Tracker(TM) System in select market niches and establish the system as a
dominant brand-name therein. Currently, management is identifying market niches
it believes will prove most responsive to the Company's initiatives. Among the
niches the Company is considering are an international pet registry lost and
found, a key return service and a bike registration program. In addition, the
Company intends to market The Tracker(TM) System as an inventory control and
fixed asset management program to Fortune 1000 companies.
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MARKETING AND DISTRIBUTION
The Company is approaching the marketing and distribution of The
Tracker(TM) System in several ways.
Alliances, Sponsorships and Promotional Programs
The Company hopes to establish credibility and confidence in the
marketplace by, among other things, affiliations, alliances, sponsorships, and
promotional programs with well recognized, stable and reputable organizations.
For example, through a license agreement with the International Association of
Chiefs of Police (the "IACP"), a nonprofit organization of approximately 14,000
members from the world's law enforcement community, the Company obtained IACP's
endorsement of The Tracker(TM) System. Under the license agreement, the Company
agreed to pay the IACP the greater of $100,000 per year or a fee of $0.20 to
$0.075 per member based on the total number of members enrolled in the Company's
consumer personal property management service. On October 30, 1998, the Company
and IACP agreed to terminate the license agreement as a result of the Company's
failure to pay the license fee. The Company hopes to reduce its financial
liability to IACP, but no such settlement has yet been reached. The failure to
achieve a settlement reducing the Company's financial liability to IACP could
have a material adverse effect on the Company's propects.
Second, the Company is beginning to establish promotional programs with
manufacturers of consumer specialty products that have a high potential for
loss. In May 1997, the Company entered into an agreement with Schwinn Cycling &
Fitness Inc. ("Schwinn"), a United States manufacturer of quality bicycles and
accessories. In July 1998, Schwinn placed an additional order for 35,000 Tracker
labels to be combined with bicycle locks Schwinn is manufacturing in Taiwan.
Third, the Company intends to approach affinity groups, such as
charities and police benevolent societies, to market Tracker labels as
promotional incentives.
Fourth, the Company intends to explore the feasibility to establishing
an international pet registry marketed through veterinarians, animal shelters
and humane societies.
Previously the Company also entered into agreements with Samsonite
Canada, Inc. to affix Tracker tags to its merchandise at the Company's expense
as a promotion, and with Sony of Canada, Inc. to resell the Company's tags
through retail stores in Canada. To date, neither program has been successful.
While the Company is in current discussions with Samsonite, the Sony of Canada
agreement has been terminated.
The Company also entered into agreements with Liberty Health, a
division of Liberty Insurance Company, to provide its travel insurance customers
with the added protection of The Tracker (TM) System, and with Merchant Partners
Limited Partnership to introduce The Tracker(TM) System with certain retailers,
including Montgomery Ward and ValuVision. To date, the Company has yielded no
material benefit from either agreements.
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Direct Marketing
The Company also intends to build on its success in procuring contracts
with Warrantech and Sony Corporation through direct marketing of The Tracker(TM)
System as an inventory and asset management program for Fortune 1000 companies.
Recently, the Company retained a marketing executive as a full-time employee to
spearhead this initiative.
Material Backlogs; Commissions
The Company has no material backlog of orders because the Company fills
orders 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 products. 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 the United States.
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 impact on the Company's or its exclusive
agent's ability to market its products and services on an international basis.
In 1997, the Company signed an exclusive license agreement with
Executive Trading Ltd. for the sale of the Company's products in Germany,
Switzerland and Austria. To date, the Company has realized no revenue as a
result of this Agreement and has not received the license fee required for the
licensee to maintain its exclusivity for the territory.
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 and sell The Tracker(TM) System depends
in part on its ability to procure necessary equipment, supplies and services.
These 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 equipment, supplies or services will be available when needed by
the Company or on terms favorable to the Company. Any unavailability of such
equipment, supplies or services on terms favorable to the Company could prevent
or delay the development, marketing, sale, operation and effectiveness of the
Company's products and could have a material adverse effect on the Company's
business, operating results and financial condition.
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The Company procures scanning equipment from Symbol Technologies, Inc.
("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 two-dimensional bar code. The PDF 1000 laser scanner scans 30 times
faster than 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. 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 through 1997 in
order to maintain its exclusive right. The Company did not meet its minimum
commitment level for any of these years. If the Company is unable to continue
its relationship with Symbol, 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 form
Symbol or another manufacturer after such time.
COMPETITION
Although the Company believes that The Tracker(TM) System differs
significantly from those offered by other firms, the Company faces 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.
Most of these firms have substantially greater financial, technical, marketing
and management resources than the Company. The Company does not believe that any
single company commands significant market share. 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 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. There can be no
assurance that the Company will be able to compete successfully.
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 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.
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The Company has filed an international patent application pursuant to
the Patent Cooperation Treaty for The Tracker(TM) System. There can be no
assurance, however, that this will mature into an issued patent or that any
patent 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 other confidential
and proprietary rights infringe upon the proprietary rights of third parties.
One patent infringement claim has been filed against the Company, however. See
"Item 3. Legal Proceedings." In addition, there can be no assurance 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.
The Company has no registered trademarks or service marks, nor any
active trademark or service mark applications pending with the U.S. Patent and
Trademark Office or with other regulatory authorities.
CAPITAL REQUIREMENTS
The Company anticipates that it will require additional
capital in order to implement its business plan. In addition, the Company will
require additional capital to satisfy the claims of its major creditors. If the
Company is unable to settle these claims for substantially less than what its
major creditors demand, the Company will consider filing for bankruptcy
protection under U.S. bankruptcy laws.
During the upcoming 12 months, the Company plans to seek additional
equity financing to conduct such activities, as it is anticipated cash flows
from revenues will not be sufficient to fund the business plan until January
2001. 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 to support its operations. For a
complete discussion on capital requirements, see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital
Requirements."
EMPLOYEES
As of September 30, 1998, the Company, through contractual arrangements
with Global Tracker, employed a total of 12 persons, including one in
management, four in administration and accounting, three in operations (one of
whom is part-time), three in sales and marketing and one 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.
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None of the Company's employees is represented by a labor union. The
Company has experienced no work stoppages, and the Company believes that its
relations with its employees are excellent.
GOVERNMENTAL REGULATIONS
Except as described in the next paragraph, the Company is not subject
to any governmental regulations other than those applicable to businesses
generally. Although the Company believes it is in compliance with all currently
applicable regulations, additional regulations could be enacted in the future
that could have an adverse effect on the Company's business, operating results
and financial condition.
The Company believes that compliance with federal, state or provincial,
and local provisions which have been enacted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will not have any material effect upon the Company's capital
expenditures, earnings and competitive position. The Company does not believe
that it will incur any material capital expenditures for environmental control
facilities for the remainder of its current fiscal year and the next fiscal
year.
ITEM 2. PROPERTIES
The Company currently subleases from Global Tracker approximately 1,400
square feet of office premises in Toronto on a month to month basis at a rate of
$1,870 per month. Under the sublease, the Company may withhold rent payments to
Global Tracker for the lesser of up to six (6) consecutive months, or such
earlier date as the parties may terminate the sublease. Lease payments due and
unpaid accrue interest at the rate of ten percent (10%) per annum.
On or about December 1, 1998, the Company will vacate its existing
premises and occupy approximately 5,000 square feet of office premises in
Toronto leased by Global Tracker for the Company on the same terms and
conditions at a rate of $3,000 per month. The Company does not anticipate any
difficulty in securing adequate new space in the event Global Tracker terminates
the sublease. The Company believes that suitable additional space will be
available as needed if future expansion is required.
ITEM 3. LEGAL PROCEEDINGS
The Company, along with Symbol Technologies, Inc. ("Symbol"), filed by
Datastrip (IOM) Limited ("Datastrip") is the subject of a lawsuit filed in the
United States District Court for the District of Delaware. Datastrip alleges
that the Company is infringing on Datastrip's U.S. Patent No. 4,782,221,
relating to certain data-encoding technology allegedly developed by Datastrip
and that Symbol is inducing infringement of the patent. The complaint seeks
injunctive relief and unspecified damages. The Company and Symbol believe, based
on advice of Symbol's counsel, that they have no liability to Datastrip and that
the claim is frivolous and
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without merit. Symbol, the supplier of automated card readers to the Company,
has agreed to vigorously defend itself and the Company against Datastrip's
claim. Symbol, however, has not agreed to indemnify the Company from any losses
that may result from this claim.
In August 1998, the Company received a letter from the Securities and
Exchange Commission (the "Commission") to advise the Company that it reserves
the right to bring an enforcement action against the Company for failure to
fulfill its reporting obligations under the Securities Exchange Act of 1934. The
Company has advised the Commission that the Company is making every effort to
bring current its required periodic and current reports in a timely manner.
The Company is not a party to any other 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 Securities and Exchange Commission is investigating trading in the Company's
securities. The Company has no reason to believe that any activity of the
Company will result in any liability of the Company under the federal securities
laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
During the fourth quarter of the fiscal year ended March 31, 1998, no
matters were submitted to a vote of the security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market, is
quoted on the OTC Bulletin Board and is quoted in the "pink sheets" under the
symbol "TRKR". Quotations for the Company's common stock were first listed on
the OTC Bulletin Board on May 5, 1993. The market for the Company's Common Stock
must be characterized as extremely limited due to the low trading volume and the
small number of brokerage firms acting as market makers. 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.
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. or
11
<PAGE> 15
Bloomberg L.P. 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, 1996 $0.8750 $0.0625
September 30, 1996 $0.2200 $0.0625
December 31, 1996 $0.2200 $0.0625
March 31, 1997 $0.2500 $0.0625
June 30, 1997 $0.1415 $0.0625
September 30, 1997 $0.3700 $0.1300
December 31, 1997 $0.2100 $0.0450
March 31, 1998 $0.0725 $0.0130
June 30, 1998 $0.1150 $0.0150
</TABLE>
On September 29, 1998, the high and low bid quotations for the
Company's Common Stock on the OTC Bulletin Board were $0.0750 and $0.0750,
respectively. As of September 30, 1998, there were 22,340,628 shares of Common
Stock outstanding held by approximately 450 holders of record, including
broker-dealers and clearing corporations holding common shares on behalf of
their customers.
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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented
below should be read in conjunction with the detailed information and financial
statements appearing elsewhere in this Report. The selected consolidated
financial data at March 31, 1994, 1995, 1996 and 1997 and for the years ended
March 31, 1995, 1996 and 1997 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 PricewaterhouseCoopers LLP,
independent accountants, after giving effect to reclassifications made to
reflect discontinued operations occurring in fiscal 1998. The selected
consolidated financial data at March 31, 1998 and for the year ended March 31,
1998 have been derived from the audited consolidated financial statements of the
Company which have been audited by Hirsch, Silberstein & Subelsky, P.C.,
independent accountants.
For accounting and financial reporting purposes, the Reorganization
with Tracker Canada is being treated as an issuance of shares by Tracker Canada.
Thus, pro forma information is not presented as the Reorganization was 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.
12
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS Inception Fiscal Year Fiscal Year Fiscal Year Fiscal Year
(5/6/93) to Ended Ended Ended Ended
March 31, 1994 March 31, 1995 March 31, 1996 March 31, 1997(1) March 31, 1998
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 10,187 $ 106,522 $ 138,462 $ 51,551
Loss from continuing operations (2,043,425) (5,068,583) (6,090,730) (163,483) (152,517)
Gain (loss) from discontinuing
operations -- -- -- (3,544,595) 62,050
Net Income (Loss) per share of
common stock 0.38 0.71 0.57 0.22 0.004
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA March 31, 1994 March 31, 1995 March 31, 1996 March 31, 1997 March 31, 1998
<S> <C> <C> <C> <C> <C>
Total assets $ 2,675,527 $ 1,669,452 $ 1,193,742 $ 4,238,345 $ 1,476,814
Total current liabilities 275,527 1,446,543 2,393,631 6,026,589 3,275,560(2)
Long-term debt -- -- -- 613,131 412,846
Stockholders' equity (deficit) 2,399,867 222,909 (1,378,742) (2,401,375) (2,211,591)
Working capital 2,195,349 (444,686) (1,728,529) (2,583,835) (2,087,861)
</TABLE>
(1) After giving effect to certain reclassifications made to reflect
discontinued operations that occurred in 1998.
(2) Included in total current liabilities for March 31, 1998 are $475,790 of
convertible subordinated debentures and $1,798,727 of current deferred
revenues (as compared with $590,746 of convertible subordinated debentures
and $4,509,401 of current deferred revenues for March 31, 1997, $1,460,000
of convertible subordinated debentures and $115,241 of current deferred
revenues for March 31, 1996 and $0 of convertible subordinated debentures
and $10,998 of deferred revenues for March 31, 1995).
As of March 31, 1998, the Company is in default in the payment of
interest to its convertible subordinated debentureholders in the aggregate
amount of $475,790. The Company has contacted all convertible subordinated
debentureholders by written correspondence and asked that they forebear from any
collection action.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company believes that the information contained in this Report
which does not constitute historical facts constitutes "forward-looking
statements" within the meaning of Section 27A of the Securities Act, 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; 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; the risk of an adverse result in a patent infringement case
pending against the Company and the risk that third parties may assert
infringement claims against the Company in the future; the risk that
13
<PAGE> 17
the Company may not be able to compete with existing or new competitors; the
risks inherent in international operations; and other risks detailed in this
Report and in the Company's other filings with the Securities and Exchange
Commission.
There can be no assurance that the forward-looking information
contained in this Report will prove to be accurate. The risks and uncertainties
discussed above increase the uncertainty inherent in such forward-looking
information. Accordingly, there may be differences between the actual results or
plans and the predicted results or plans. Actual results or plans may be
materially different than those indicated in the forward-looking information
contained in this Report.
OVERVIEW
Prior to the Reorganization effective July 12, 1994, Tracker U.S. (then
Ultra Capital Corp.) had been inactive for the preceding several years and had
conducted no significant operations or activities. Tracker Canada, which
originated the present line of business, The Tracker(TM) System, 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 certain jurisdictions. The Company has been in the
development stage since its formation.
The Company launched The Tracker(TM) System in a limited test market in
Toronto, Canada in October 1994 and began expanding service throughout Canada.
The Company also began to test potential markets for The Tracker(TM) System in
the United States and to offer the service through diverse marketing channels
such as joint promotional partners, selected retailers, telemarketers and
network referral marketers. Through the fiscal year ended March 31, 1998, these
efforts were in the incipient stage, had failed or met with only limited market
acceptance.
In September 1997, the U.S. Federal Trade Commission filed a lawsuit
against the Company in federal district court. The complaint alleged that the
Company's credit card registration service had violated Section 5 of the Federal
Trade Commission Act and the FTC Trade Regulator Telemarketing Sales Rule in
telemarketing credit card protection services in the United States. The FTC
obtained a temporary restraining order halting the further sale of credit card
registration services and an injunction freezing the Company's assets. Although
the federal district court lifted the TRO, permitting the credit card
registration service to resume, upon completing an internal investigation, the
Company elected to discontinue credit card registration service operations.
The Company settled the FTC lawsuit on July 28, 1998. Pursuant to the
settlement, the U.S. District Court entered a Stipulated Final Judgment and
Order for Injunction that, among other things, permanently barred the Company
and its chief executive officer, Bruce I. Lewis, from engaging directly or
indirectly, in the business of credit card registration or promotion.
14
<PAGE> 18
The FTC lawsuit and the cessation of the credit card registration
service had a negative effect on the financial condition of the Company and
Tracker Canada. On February 5, 1998, Tracker Canada filed a notice with the
Ontario Courts declaring its insolvency and seeking the appointment of a
bankruptcy trustee to liquidate its assets and dissolve the corporation. The
liquidation and dissolution occurred in February 1998.
On February 26, 1998, the Global Tracker Corporation ("Global
Tracker"), a newly formed Ontario, Canada corporation acquired substantially all
of Tracker Canada's assets at arm's length in a bankruptcy proceeding. Shortly
thereafter, Global Tracker entered into an agreement in principle with the
Company which permitted the Company to use personnel retained by Global Tracker
and assets formerly owned or leased by Tracker Canada to continue the business
formerly conducted by Tracker Canada. As a result of this arrangement, Tracker
U.S. has continued on a limited basis the business formerly operated by Tracker
Canada without a complete cessation of operations.
The Company continues to believe that The Tracker(TM) System has
significant commercial potential. However, 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.
The Company has been unprofitable since inception. During the fiscal
year ended March 31, 1998, the Company incurred a net loss of $90,467 from
continuing operations (net of a $62,050 gain from discontinued operations) and,
at the end of such period, had an accumulated deficit of $17,001,283. The
Company expects to continue to incur losses through at least the 4th quarter of
fiscal 2000. From the date of inception (May 6, 1993) through March 31, 1998,
the Company had realized revenues of $11,107,615 (including discontinued
operations of $10,800,893). The Company will require additional capital in order
to implement its business plan in the manner contemplated. See "Capital
Requirements" below. 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.
Historical financial information prior to the Reorganization effective
July 12, 1994 is that of Tracker Canada. Revenue for Company services is
recognized on a straight-line basis over the term of service offered. Amounts
received for which service has not yet been provided are recorded as deferred
revenue. As of March 31, 1998, the amount of deferred revenue (current and long
term) was $412,846 compared with $613,131 as of March 31, 1997.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Cash sales for the fiscal year ended March 31, 1998 decreased to
$5,731,777 ($5,680,226 from discontinued operations) as compared to $7,977,881
($7,671,160 from discontinued operations) for the fiscal year ended March 31,
1997. Because the Company recognized these cash sales on a straight-line basis
over the term of service offered, recorded revenues for the
15
<PAGE> 19
fiscal year ended March 31, 1998 increased to $8,642,737 as compared to
$2,348,169 for the fiscal year ended March 31, 1997. The increase in revenues
during the year was due primarily to the Company's emphasis on its now
discontinued credit card registration service and a reduction in resources
applied to its core business.
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Continuing Discontinued Continuing Discontinued
operations operations operations operations
Cash Sales $51,551 $5,680,226 $138,462 $7,839,419
Revenue $51,551 $8,591,186 $138,462 $2,209,707
Net Income (loss) ($152,517) $62,050 ($163,483) ($3,544,595)
During the fiscal year ended March 31, 1998, the Company incurred a net
loss of $152,517 as compared to a net loss of $163,483 for the fiscal year ended
March 31, 1997. These losses included total development costs in the amount of
$183,408 for the fiscal year ended March 31, 1998 as compared to $266,570 for
the fiscal year ended March 31, 1997.
The Company is continuing in its efforts to minimize its operating cash
"burn" rate from continuing operations and has reduced its expenditures by an
additional 31% when comparing the fiscal year ended March 31, 1998 to the fiscal
year ended March 31, 1997 The largest reduction in expenditures when comparing
the fiscal year ended March 31, 1998 to the fiscal year ended March 31, 1997 can
be noted in the General and Administrative category of Development Costs as the
Company primarily focused on reducing expenditures in the rent and public
relations areas.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Cash sales for the fiscal year ended March 31, 1997 increased to
$7,977,881 as compared to $382,632 for the fiscal year ended March 31, 1996.
Because the Company recognizes these cash sales on a straight-line basis over
the term of service offered, recorded revenues for the fiscal year ended March
31, 1997 increased to $2,348,169 as compared to $106,522 for the fiscal year
ended March 31, 1996. The increase in revenues during the year was due primarily
to the increase in sales of the Company's card registration service.
During the fiscal year ended March 31, 1997, the Company incurred a net
loss of $3,708,078 as compared to a net loss of $6,090,730 for the fiscal year
ended March 31, 1996. These losses included total development costs in the
amount of $4,442,825 for the fiscal year ended March 31, 1997 as compared to
$6,157,022 for the fiscal year ended March 31, 1996.
Included in the net loss for the year ended March 31, 1997 are
non-operating expenditures in the amount of (1) $222,791 in interest expense
incurred as a result of raising capital through convertible debentures; (2)
$199,336 relating to legal, audit and printing fees for the filing of the
Registration Statement on Form S-1 and amendments thereto, for which the Company
received no proceeds; (3) $472,956 reflecting non-cash outlays which included
(a) $454,326 associated with the development of the Company's direct selling
commercial through
16
<PAGE> 20
its contract with The L.L. Knickerbocker Company ("Knickerbocker") and the costs
associated with fees to cover its celebrity spokesperson, Angie Dickinson, and
(b) $18,630 associated with the services provided under the Amerasia contract;
(4) $221,190 for a writedown provision on the Company's short-term investment;
and (5) $137,842 associated with the non-cash outlay relating to the issuance of
541,822 shares of Common Stock to outside consultants as payment in lieu of
fees.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through March 31, 1998, the Company has
received approximately $10,209,923 in net cash from financing activities, net of
discontinued operations, some of which are noted below.
During the year ended March 31, 1998, the Company's net cash used in
operations was $505,244 as compared to $465,828 for the year ended March 31,
1997. The cash used in operations was devoted primarily to funding the
development of identification and recovery systems and software, labels,
packaging, marketing and advertising.
As of March 31, 1998, the Company had total current assets of
$1,187,699 as compared to $3,442,754 at March 31, 1997. Current assets consisted
of cash in the amount of $NIL as of March 31, 1998 as compared to $105,213 at
March 31, 1997, accounts receivable in the amount of $NIL as compared to
$133,613 at March 31, 1997, prepaid expenses and deposits in the amount of $NIL
as compared to $359,526 at March 31, 1997, inventories in the amount of $NIL as
compared to $24,338 at March 31, 1997, and current deferred charges in the
amount of $1,187,699 as compared to $2,820,064 at March 31, 1997. The decrease
in current assets resulted from the liquidation of Tracker Canada's assets in
February 1998. See "Overview" above.
As of March 31, 1998, the Company had amount due from stockholders in
the amount of $14,072 as compared to $61,487 at March 31, 1997, long-term
deferred charges totaling $275,043 as compared to $315,837 at March 31, 1997,
and net property and equipment totaling $NIL as compared to $418,267 at March
31, 1997. The decrease in net property and equipment also resulted from the
Tracker Canada liquidation since Tracker Canada held those assets.
As of March 31, 1998, the Company had liabilities net of discontinued
operations of $3,275,560 as compared to $6,026,589 at March 31, 1997. Such
liabilities consisted of accounts payable in the amount of $440,835 at March 31,
1998 as compared to $468,764 at March 31, 1997, accrued liabilities in the
amount of $528,399 as compared to $373,687 at March 31, 1997, deferred revenues
in the amount of $1,798,727 as compared to $4,509,401 at March 31, 1997,
debentures in the amount of $31,809 as compared to $83,991 at March 31, 1997,
and convertible subordinated debentures in the amount of $475,790 as compared to
$590,746 at March 31, 1997. The Company had long-term deferred revenues in the
amount of $412,846 at March 31, 1998 as compared to $613,131 at March 31, 1997.
As of March 31, 1998 and March 31, 1997, respectively, the Company had
accumulated deficits of $17,001,283 and $16,910,816. To date, the Company has
financed its research and
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<PAGE> 21
development activities and operations primarily through the sales of its
now-discontinued card registration program and the private placement of First
Series Convertible Debentures aggregating $1,000,000 from July to October 1995,
the private placement of Second Series Convertible Debentures aggregating
$1,189,529 through March 1996, the sale 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 1,050 shares of Preferred Stock for $1,050,000
during April, May and August 1996.
The sales of the 1,810,000 shares of Common Stock are described in the
remainder of this paragraph. On September 16, 1994, Tracker U.S. issued,
pursuant to Regulation S under the Securities Act, 785,000 shares of Common
Stock (200,000 shares of which were returned to the Company) for total gross
proceeds to Tracker U.S. of $2,351,700, $955,000 of which was received by
Tracker U.S. in the form of cash and the remainder of which was in the form of
payments by the buyer of the shares of Common Stock to third parties in
cancellation of indebtedness owed by the Company to such third parties. On
February 9, 1995, Tracker U.S. issued to two separate overseas buyers, pursuant
to Regulation S, 275,000 shares of Common Stock for total proceeds to the
Company of $550,000. On March 15, 1995, Tracker U.S. issued 500,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase Common
Stock, for total gross proceeds to the Company of $350,000. On May 1, 1995,
Tracker U.S. issued 250,000 units, each unit consisting of one share of Common
Stock and one warrant to purchase Common Stock, for total gross proceeds to the
Company of $250,000. Tracker U.S. also issued 200,000 shares of Common Stock to
a buyer for $200,000, of which only $83,000 has been paid to Tracker U.S. by the
buyer. The Company has filed suit against the investor to attempt to collect the
remaining $117,000 and the suit is still pending. 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.
The Company decided to writedown its short-term investment, recorded at
the Company's original cost of $221,190 (CDN$1.04 per share), in 288,462 shares
of Stratcomm Media Ltd. ("Stratcomm") to $0 in 1997 as the shares have been
delisted from the Vancouver Stock Exchange.
CAPITAL REQUIREMENTS
The Company anticipates that it will require additional capital in
order to implement its business plan in the manner contemplated. In addition,
the Company will require additional capital to satisfy the claims of its major
creditors. If the Company is unable to settle these claims for substantially
less than that demanded by its major creditors, the Company will consider filing
for bankruptcy protection under U.S. bankruptcy laws.
18
<PAGE> 22
During the upcoming twelve months, the Company plans to seek additional
equity financing to conduct such activities as it is anticipated that additional
capital will be needed to enhance current cash flows. Management is attempting
to obtain additional equity funding. 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 next twelve
months. However, if the Company does not receive sufficient funding on
acceptable terms, this 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
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.
A 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 has: (i) reduced staff to minimal safe
operating levels; (ii) when required, compensated certain members of senior
management in stock rather than cash; and (iii) 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. 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.
INFLATION; SEASONABLITY
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.
YEAR 2000 COMPLIANCE REQUIREMENTS
The Company uses PC hardware equipment and both packaged and
proprietary software in the operations of its business. The Company has
performed an initial evaluation to assess the impact of year 2000 issues on all
software and hardware. It has determined that all existing hardware equipment is
year 2000 compliant, except for certain equipment scheduled to be retired. The
Company uses various packaged software applications as tools in running the
Company's accounting operations, database management and general business
functions. It uses certain proprietary software programs as tools to run The
Tracker(TM) System. Management plans to implement any necessary software vender
upgrades and modifications to ensure that its accounting operations, database
management and general business systems remain functional with the year 2000.
The Company's proprietary software programs were developed on year 2000
compliant platforms; however, some user screens and sub-routines utilized in its
proprietary software programs are non-year 2000 compliant. The Company is not
dependent upon computer systems of any significant customers, vendor or other
third parties in the course of normal business. At present, management does not
expect that the software upgrade, replacement or development costs it expects to
incur to assure year 2000 compliance will exceed $20,000 (U.S.) in the
aggregate. The Company has not yet established a contingency plan, but intends
to formulate one to address unavoidable risks by July 1999.
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<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K, this Item is not applicable
to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements for the year ended
March 31, 1998 are included beginning at page 45.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 15, 1998, PricewaterhouseCoopers LLP, the Company's independent
accountant, declined to stand for re-election as the Company's independent
accountant for the fiscal year ended March 31, 1998. During the past two years,
there were no financial statements of the Company issued by
PricewaterhouseCoopers LLP that contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles, except that their reports on the financial statements as
of and for each of the years ended March 31, 1997 and 1996 included an
explanatory paragraph expressing doubt as to the Company's ability to continue
as a going concern. The decision to change accountants was not recommended or
approved by any committee of the Board of Directors, or by the Board of
Directors. Additionally, there were no disagreements with PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On August 18, 1998, the company retained Hirsch, Silberstein &
Subelsky, P.C. as the Company's independent accountants to audit its financial
statements at, and for the year ended, March 31, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers and directors as of September 30, 1998:
20
<PAGE> 24
NAME AGE POSITION
- ------------------------- ---- -------------------------------------------------
Bruce I. Lewis 58 Chief Executive Officer, President and Chairman
of the Board of Directors
Jay S. Stulberg* 48 Chief Financial Officer and Director
Dr. H. Joseph Greenberg* 76 Director
Carl J. Corcoran* 61 Director
David G.R. Butler* 62 Director
- ------------------------
*Nominee.
BRUCE I. LEWIS has been the Chairman of the Board of Directors and
Chief Executive Officer of Tracker U.S. since June 30, 1994, as President of
Tracker U.S. since August 12, 1995. 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 Chief Executive Officer of
Cape Breton Chemical Corporation, a start-up PVC flexible stretch wrap
manufacturer. From May 1990 through May 1993, Mr. Lewis was also a consultant to
various companies in the areas of management and acquisition financing. From May
1993 until its dissolution in February 1998, Mr. Lewis served as the Chief
Executive Officer and Chairman of the Board of Directors of Tracker Canada. From
November 1997 to date, Mr. Lewis has served as interim Chief Financial Officer.
JAY S. STULBERG has been nominated to serve as Chief Financial Officer
of the Company and as a Director of the Company for the term expiring at the
2001 annual meeting of stockholders. Since February 1998, Mr. Stulberg has been
the sole shareholder, director and officer of Global Tracker Corp., an Ontario,
Canada corporation. Since approximately 1984, Mr. Stulberg has served on the
Board of Directors of two privately held family holding companies. From 1992 to
1994, Mr. Stulberg served as the Public Controller (i.e., the Canadian
equivalent of Chief Financial Officer) of Enershare Technology Corp. From 1994
to mid-1996, Mr. Stulberg served as the Group Controller of Algorithmics, Inc.
H. JOSEPH GREENBERG has been nominated to serve as a Director of the
Company for a term expiring at the 1999 annual meeting of stockholders. Dr.
Greenberg has engaged in the practice of medicine since his graduation from
medical school in 1952. He has been a director of Genevest, Inc. since 1993.
CARL J. CORCORAN has been nominated to serve as a Director of the
Company for a term expiring at the 2000 annual meeting of stockholders. Mr.
Corcoran was employed by IBM Corporation in various capacities from 1951 to
1988, including General Manager of Operations of IBM Japan and President of IBM
Canada. Mr. Corcoran is currently an officer and director of several family-held
businesses, including Corcair Farms, Ltd., CorProperties, Inc., Cor Source Water
Corporation, Corcorvest Corporation and CJC Bottling, Ltd. He is also a director
of the Accessible Software Corporation, a publicly traded corporation, and
A.A.B. Building Systems, Inc., a private company.
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DAVID G. R. BUTLER has been nominated to serve as Director for a term
expiring at the 2001 annual meeting of stockholders. Mr. Butler is the chief
executive officer and sole shareholder of Holiday Breaks International, Inc.,
which offers stay-free hotel accommodations to companies as sales and marketing
incentives; MF Incentives, Inc., which offers travel coupons as sales incentives
for manufacturers' products; and Newfound Communications, Inc., which offers
premium incentive promotions. From 1978 until its sale in 1994, Mr. Butler was
the sole shareholder and chief executive officer of Marshall Fenn Limited, a
public relations and advertising agency. At Marshall Fenn, Mr. Butler
established several affiliated enterprises referred to as the Marshall Fenn
Group of Companies, including Holiday Breaks International, Inc., MF Incentives,
Inc., and Newfound Communications, Inc.
CLASSIFICATION OF BOARD OF DIRECTORS
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 1999 annual meeting of stockholders,
approximately one-third will continue to serve until the 2000 annual meeting of
stockholders, and approximately one-third will continue to serve until the 2001
annual meeting of stockholders.
The classification of the Board of Directors would make it more
difficult for stockholders to change the composition of the Board of Directors
and could discourage a third party from attempting to obtain control of Tracker
U.S.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee will be comprised of Messrs. Lewis and
Stulberg. The Audit Committee, which will be comprised of Messrs. Butler and
Stulberg, 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 will be comprised of Mr. Corcoran (Chairman) and Dr. Greenberg. The
Compensation Committee, which will be comprised of Messrs. Butler (Chairman) and
Corcoran, 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").
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company does not have a class of equity securities registered
pursuant to Section 12 of the Exchange Act. Accordingly, its directors, officers
and 10% beneficial owners are not required to file reports pursuant to Section
16(a) of the Exchange Act.
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ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors are paid $500 for attendance at each meeting of
the Board of Directors or a committee meeting and an annual retainer of $10,000.
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."
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table provides certain information concerning the
compensation earned by the Company's Chief Executive Officer and to the other
then-executive officer who received compensation in excess of $100,000 for
services rendered in all capacities to the Company for fiscal 1998 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
-------------------------------- --------------------------------------
Other Restricted Securities
Annual Stock Under-Lying LTIP All Other
Name and then- Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
<S> <C> <C> <C>
BRUCE I. LEWIS, CEO & 1998 175,000
President(1)
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
1997 175,000
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
1996 175,000
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
MARK J. GERTZBEIN, CFO 1998 175,000
& Exec. Vice
President(2)
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
1997 80,200
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
1996 175,000 413,437
- ------------------------- ------ --------- --------- ------------- ---------- -------------- ----------- -------------
</TABLE>
(1) Other annual compensation for Mr. Lewis for fiscal year 1998 was $NIL in
medical insurance premiums and $10,000 in automobile allowance; other
annual compensation for fiscal year 1997 was $NIL in medical insurance
premiums and $10,000 in automobile allowance; and other annual compensation
for fiscal year 1996 was $NIL in medical insurance premiums and $10,000 in
automobile allowance.
(2) Mr. Gertzbein served as Chief Financial Officer and Executive Vice
President from 1994 to November 1997 when he resigned his positions. Other
annual compensation for Mr. Gertzbein for fiscal year 1998 was $NIL in
medical insurance premiums and $10,000 in automobile allowance; other
annual compensation for fiscal year 1997 was $NIL in medical insurance
premiums and $10,000 in automobile allowance; and other annual compensation
for fiscal year 1996 was $NIL in medical insurance premiums and $10,000 in
automobile allowance.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
On September 24, 1996, the Company entered into an employment agreement
with Mr. Lewis, pursuant to which Mr. Lewis serves as President, Chief Executive
Officer and Chief Operating Officer of the Company. The agreement provides for
an annual base salary of $175,000, with increases of $37,500 each year based
upon certain performance criteria beginning
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<PAGE> 27
April 1, 1997, a maximum automobile allowance of $10,000 and eligibility for
discretionary bonuses.
The agreement for Mr. Lewis has an initial term of three years with one
year renewal terms thereafter, and provides for the payment of a relocation
allowance equal to the lesser of the actual relocation expenses or $25,000 per
each occurrence. The agreement provides that Mr. Lewis 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 Mr. Lewis' employment is terminated by the Company for cause (as
defined in the employment agreement) or by Mr. Lewis for any reason (other than
for good reason (also as defined)), Mr. Lewis will be entitled to his
compensation through the date of termination. If, prior to a change of control
of the Company (as defined), employment is terminated due to Mr. Lewis' death or
disability, by the Company other than for cause or by Mr. Lewis for good reason,
Mr. Lewis 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 Mr. Lewis for 12 months, or, if earlier, through the date he
obtains alternative employment, his participation in the employee benefit plans
of the Company in which he was eligible to participate immediately before
termination, to the extent permissible under such plans. Mr. Lewis (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 Mr. Lewis at termination. If Mr. Lewis' employment
is terminated after a change of control, either by the executive for good reason
or by the Company without cause, he 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 him 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 its former
President, Gregg C. Johnson, which took effect upon his resignation as President
of the Company on August 12, 1995. The Consulting Agreement provides for: (a) a
monthly fee of $10,000 until March 31, 1996; (b) a commission of 10% on funds
raised for the Company; (c) a commission of 5% of net sales, if any, generated
by the Company from certain marketing arrangements up to July 12, 1997, to a
maximum of $500,000; (d) a commission of up to 8% of net sales generated from
any other sales arrangement introduced and negotiated (subject to Company prior
approval) by Mr. Johnson, up to July 12, 1998; (e) release by the Company from
his $56,786 (as of August 31, 1995) indebtedness to the Company upon his
returning to the Company 2,986 shares of the Company's Common Stock; and (f)
reimbursement of preapproved business related expenses. To date, the Company has
not paid any compensation to Mr. Johnson under the Consulting Agreement and Mr.
Johnson has not returned the 2,986 shares to the Company.
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<PAGE> 28
1994 STOCK INCENTIVE PLAN
GENERAL. On June 30, 1994, the stockholders approved the 1994 Stock
Incentive Plan and on November 1, 1995 and August 22, 1997, 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 stockholder value. Individuals are selected
for participation in the 1994 Plan by a Compensation Committee of the Board of
Directors (the "Committee"). An aggregate of 6,250,000 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 four
(4). 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
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<PAGE> 29
any action it deems equitable or in the best interests of Tracker U.S. The
purchase price of Common Stock subject to an incentive stock option cannot be
less than 100% of the fair market value of such Common Stock on the date of
grant. The purchase price of Common Stock subject to a nonqualified option may
be less than, equal to or greater than the fair market value of such Common
Stock on the date of grant. However, if any individual to whom an incentive
stock option is granted is the owner of stock (as determined under Section
424(d) of the Code) possessing 10% or more of the total combined voting power of
all classes of Stock of Tracker U.S. or any subsidiary of Tracker U.S., then the
purchase price per share shall not be less than 110% of the fair market value of
such Common Stock on the date of grant. The option price may be due upon
exercise of the option and may be paid in cash, check, shares of Common Stock or
other consideration acceptable to the Committee (including restricted stock), or
may be deferred through a sale and remittance procedure with a
Company-designated brokerage firm. Grants may also provide for reload option
rights upon the exercise of options, provided that the term of any such reload
option will not extend beyond the term of the option originally exercised.
During the fiscal year ended March 31, 1998, options for 50,000 shares, vesting
over a three-year period, were granted at fair market value. The options
terminated in full upon resignation of the employee prior to the first
anniversary of the option agreement.
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
26
<PAGE> 30
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. In 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. In 1996, Tracker U.S. granted 413,437 shares of
restricted Common Stock to Mr. Gertzbein.
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
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<PAGE> 31
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 one directors' 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. As a result of one directors' resignation after
serving three years on the Board of Directors, he holds vested options to
purchase 10,000 shares.
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> 32
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
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<PAGE> 33
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.
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 September 30, 1998, no grants had been made under the 1994 Plan,
other than the automatic option grants to the non-employee directors and the
grants to Messrs. Johnson and Gertzbein totalling 1,043,437 shares of restricted
stock 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 three 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
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<PAGE> 34
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 "1995 Wage Plan") on September 28, 1995. The purpose of
the 1995 Wage Plan was to retain and motivate participants in the 1995 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 1995 Wage Plan. Under the 1995 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.
No fees, commissions or other charges will be paid by the participants
in connection with the grants of shares to such persons under the 1995 Wage
Plan. The 1995 Wage Plan may not be altered, amended or modified except by
written agreement signed by the participants and Tracker U.S. As the 1995 Wage
Plan is a contract among the participants and Tracker U.S. 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 1995 Wage Plan. The
Company registered the shares issued under the 1995 Wage Plan under the
Securities Act.
1996 STOCK WAGE AND FEE PAYMENT PLAN
The Board of Directors adopted 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 was 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. Under the 1996 Wage Plan, the Company could
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
non-employee (outside) director of the Company may elect 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
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<PAGE> 35
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 had notified each full-time employee or
non-employee (outside) director who had elected Option (b) or Option (c) whether
the month will be a Designated Month. If it was, then the affected employee or
director received his or her compensation for the Designated Month in the
previously elected form.
An employee or director who elected Option (b) received 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 agreed that if he terminated service before the end of the
Designated Month, he would 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 was laid off or otherwise terminated by
the Company (other than for cause) before the end of the Designated Month, he
would not be obligated to return any such shares or cash value.
An employee or director who elected Option (c), would 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 agreed that if he terminated service
before the end of the Designated Month, he would return to the Company the
proportion of shares (or their cash value) that correspond to the remainder of
the Designated Month. However, in the case of an employee who was laid off or
otherwise terminated by the Company (other than for cause) before the end of the
Designated Month, he would not be obligated to return any such shares or cash
value.
If an employee or director did not dispose of any Option (c) shares for
30 months after the shares were 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 registered 1,400,000 shares for the 1996 Wage Plan under
the Securities Act. 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 and Tracker U.S. As the
1996 Wage Plan is a contract among the participants and Tracker U.S. relating to
a
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<PAGE> 36
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of September 30, 1998 by (i) each
person known to the Company to own beneficially more than 5% of the total voting
stock of the Company, (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 is the only outstanding class of equity
securities of Tracker U.S. As of September 30, 1998, there were approximately
450 record holders of Common Stock.
<TABLE>
<CAPTION>
Number of
Shares of Total Number Percentage
Beneficial Owner Common Stock Of Shares (1) of Total Number
- -------------------------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
Bruce I. Lewis (2) 2,939,246 2,939,246 11.80%
180 Dundas Street W., Suite
1505
Toronto, Ontario
Canada M5G 1Z8
Saturn Investments, Inc. (3) 1,052,564 1,052,564 4.23%
c/o Anthony Bonanno, Esq.
Gibson, Dunn & Crutcher
1050 Connecticut Ave. N.W.
Washington, D.C. 20036-5306
Ismail A. Abudawood (4) 1,281,136 1,281,136 5.15%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Ayman I. Abudawood (4) 1,073,264 1,073,264 4.31%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Osama I. Abudawood(4) 1,115,564 1,115,564 4.48%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Anas I. Abudawood(4) 1,067,264 1,067,264 4.29%
P.O. Box 227
Jeddah, 21411
Kingdom of Saudi Arabia
Executive Officers and 2,939,436 2,939,436 11.8%
Directors as a group,
including those named
above (one person)
</TABLE>
33
<PAGE> 37
(1) Percentage of ownership is based upon 24,898,394 shares of Common Stock
beneficially owned on September 30, 1998, including 22,340,628 shares
of Common Stock, currently exercisable warrants to purchase 750,000
shares of Common Stock, currently exercisable options to purchase
40,000 shares of Common Stock, 667,766 shares reserved for issuance
under the Company's currently convertible Convertible Debentures,
200,000 shares reserved for issuance under the Toda Option and 900,000
shares reserved for issuance under the Merchant Partners Option.
(2) Includes Common Stock over which Mr. Lewis has voting power pursuant to
agreements with Mr. Jonathan Lewis, Mr. Lewis' son.
(3) 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.
(4) Includes Convertible Debentures which are currently convertible into
228,572 shares of 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
The Company has entered into employment agreements containing severance
arrangements with certain of its executive officers, which provide for payment
under certain circumstances to each officer of compensation through the
remainder of the terms of the agreements. See "EXECUTIVE COMPENSATION -
Employment Contracts, Termination of Employment and Change of Control." The
Company's Certificate of Incorporation and By-laws provide for indemnification
of all Directors and officers. In addition, each Director nominee of the
Company, when elected, will enter into a separate indemnification agreement with
the Company.
The Company has agreed with certain state regulatory authorities that
so long as the Company's securities are registered in such states, the Company
will not make loans to its officers, directors, employees, or principal
stockholders, except for loans made in the ordinary course of business, such as
travel advances, expense account advances, relocation advances, or reasonable
salary advances.
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.
GLOBAL TRACKER
In February 1998, Global Tracker Corporation, a newly organized
Ontario, Canada corporation, acquired substantially all of the assets of Tracker
Canada in a bankruptcy proceeding. Jay S. Stulberg, the Company's Chief
Financial Officer and Director nominee, is the
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<PAGE> 38
sole shareholder, officer and Director of Global Tracker. Following the
bankruptcy proceeding, Global Tracker made available to the Company the assets
formerly owned by Tracker Canada to permit the Company to carry on Tracker
Canada's business. Since February 1998, Global Tracker has expended
approximately $400,000 to support Tracker U.S.'s business operations. Bruce I.
Lewis, the Company's Chief Executive Officer, has provided Global Tracker with
approximately $300,000 with which to purchase Tracker Canada's assets and
operate Global Tracker. Under a license agreement with Global Tracker, the
Company will pay Global Tracker a 12% gross royalty on its sales. It is
anticipated that Mr. Stulberg will enter into an employment agreement with the
Company and acquire equity in the Company through the exercise of stock options
he will receive as a condition of his employment or otherwise. See "BUSINESS -
Background - Global Tracker," and "DIRECTORS AND EXECUTIVE OFFICERS OF
REGISTRANT."
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,
Inc."
INVESTMENT BY SATURN INVESTMENTS, INC.
In March 1994, prior to the Reorganization, Tracker Canada received an
investment of CDN $3,350,000 from Stalia Holdings B.V. ("Stalia") for units
consisting of common shares of Tracker Canada and warrants to purchase common
shares of Tracker Canada. In connection with that investment by Stalia, Tracker
Canada on March 14, 1994 entered into a Stock Option Agreement with Stalia (the
"Stalia Option Agreement") and Tracker Canada and certain of its stockholders
entered into a Right of First Refusal, Co-Sale and Voting Agreement with Stalia
(the "Stalia Agreement"). As described below, Stalia has transferred its shares
and its rights under the Stalia Option Agreement and the Stalia Agreement to
Saturn Investments, Inc. ("Saturn"). On May 27, 1997, Tracker Canada and Saturn
entered into a Modification agreement ("Modification Agreement") which
immediately terminated the Stalia Option Agreement. On May 27, 1997, Tracker
Canada and Saturn entered into a Modification Agreement which immediately
terminated the rights of co-sale set forth in Article III of the Stalia
Agreement.
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
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<PAGE> 39
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. On May 27,
1997, Tracker Canada and Saturn entered into a Modification Agreement which
amended the definition of New Securities so as to exclude securities covered by
a registration statement which has been declared effective under the 1933 Act or
securities issued pursuant to an employee stock option, stock purchase, stock
wage or other similar plan or securities issued after May 27, 1997, relating to
Convertible Securities that were outstanding as of the date of the Modification
Agreement or securities issued to any person not party to the Modification
Agreement for the consideration other than cash.
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 Modification Agreement, the Company confirmed that the Company and
Tracker Canada agrees to (a) allow Stalia or a nominee to attend Board meetings;
(b) provide Stalia, or its designee with copies of all communications regularly
made to the directors; (c) use best efforts to elect a nominee of Stalia to the
Company's Board; (d) provide monthly updates on the Company's business and
affairs; and (e) provide Stalia's counsel with all documentation relating to
issues which may affect Stalia.
The Stalia Agreement, as amended by the Modification Agreement, further
provides, as a protective provision in favor of Stalia, that, without first
obtaining the written consent of Saturn, certain controlling shareholders,
subject to their fiduciary duties under Delaware law, shall not vote for, and
shall exercise their best efforts as significant shareholders of the Company to
ensure that the Board does not approve: (a) the liquidation of dissolution of
the Company; (b) the declaration or payment of any dividends (excluding
dividends declared in connection with any class of the Company's Preferred
Stock) or the making of any distribution out of the ordinary course of the
Company's business, whether in cash or any other property, to the holders of the
Common Stock of the Company; or (c) any material alteration in the rights,
preferences, privileges and restrictions of the Common Shares."
The Stalia Agreement terminates upon the earlier of (a) the date on
which a registration statement of the Company registering any equity securities
of the Company for sale to the general public in a primary offering under the
1933 Act is declared effective or (b) March 14, 1999.
36
<PAGE> 40
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 to Saturn, an affiliate of
Stalia, all of Stalia's rights under the Stalia Option Agreement and the Stalia
Agreement. Thus, references above to Stalia's rights shall be deemed to be
references to Saturn's rights.
CORPORATE RELATIONS GROUP
The Company had obtained 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 tradable shares of
Common Stock upon execution of the agreement and to issue options to CRG to
purchase shares of Common Stock as follows: 100,000 shares at $2.00 per share
one year from the date of the agreement, 100,000 shares at $2.40 per share two
years from the date of the agreement, 100,000 shares at $2.60 per share three
years from the date of the agreement, 100,000 shares at $2.80 per share five
years from the date of the agreement, and 100,000 shares at $3.00 per share five
years from the date of the agreement.
On November 4, 1996, the Company exercised an option within the
agreement and terminated the services of CRG. CRG had not provided any services
under the agreement and the Company had not made any payment to CRG.
37
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IMMEDIATELY FOLLOWING
THIS REPORT:
1. Financial Statements
Page No.
--------
Independent Auditor's Report F-1
Report of Independent Accountants F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Cash Flows F-5
Consolidated Statement of Shareholders' Equity (Deficit) F-6
Notes to Financial Statements F-10
2. Financial Statement Schedules
- None -
3. See (c) for exhibits filed as part of this report
b. REPORTS ON FORM 8-K
During the period from January 1, 1998 through October 8, 1998, the
Company filed Current Reports on Form 8-K with the Securities and Exchange
Commission on February 4, 1998, September 14, 1998, September 24, 1998 and
October 8, 1998.
C. EXHIBITS
NUMBER DESCRIPTION
2.1++++ Reorganization Agreement Among Ultra Capital Corp. (the
predecessor of the Registrant), Jeff W. Holmes, R. Kirk Blosch
and the Tracker Corporation dated May 26, 1994, as amended by
Amendment Number One dated June 16, 1994, Amendment Number Two
dated June 24, 1994, and Amendment Number Three dated June 30,
1994, Extension of Closing dated June 23, 1994, and July 11,
1994 letter agreement.
2.2++++ Agreement and Plan of Merger dated July 1, 1994 between Ultra
Capital Corp. (the predecessor of the Registrant) and the
Registrant
38
<PAGE> 42
3.1++++ Certificate of Incorporation, as corrected by Certificate of
Correction of Certificate of Incorporation dated March 27,
1995, and as amended by Certificate of Amendment to the
Certificate of Incorporation dated November 1, 1995, and
Certificate of Designation of Rights, Preferences and
Privileges of $1,000.00 6% Cumulative Convertible Preferred
Stock of the Registrant dated April 19, 1996
3.2++++ Bylaws
4.1++++ Specimen Common Stock Certificate
9.1++++ Agreement dated December 21, 1993 among 1046523 Ontario
Limited, Gregg C. Johnson and Bruce Lewis
9.2++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994
10.1++++ 1994 Stock Incentive Plan of the Registrant, as amended by
Amendment No. 1 to the 1994 Stock Incentive Plan
10.2++++ Discretionary Cash Bonus Arrangement of the Registrant
10.3++++ Form of Indemnification Agreement entered into between the
Registrant and each of its Directors
10.4++++ Employment Agreement dated June 30, 1994 between the
Registrant and I. Bruce Lewis, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.5++++ Employment Agreement dated June 30, 1994 between the
Registrant and Mark J. Gertzbein, as amended by Amendment to
Employment Agreement dated July 12, 1995
10.6++ Marketing Agreement between the Registrant and The L.L.
Knickerbocker Company, Inc. dated March 15, 1995
10.7++++ Lease dated October 18, 1993 between The Dundas/Edward Centre
Inc. and The Tracker Corporation
10.8++++ Corporate Relations Agreement dated February 24, 1994 between
Corporate Relations Group, Inc. and The Tracker Corporation,
as amended by letter agreement dated January 16, 1995 and by
Amendment to Corporate Relations and Marketing Agreement dated
June 22, 1995
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<PAGE> 43
10.9++++ Consulting arrangement with Gregg C. Johnson effective August
12, 1995
10.10++++ Right of First Refusal, Co-Sale and Voting Agreement dated
March 14, 1994 between The Tracker Corporation, Stalia
Holdings B.V., I. Bruce Lewis, MJG Management Accounting
Services Ltd., Spire Consulting Group, Inc., 1046523 Ontario
Limited, Mark J. Gertzbein, Gregg C. Johnson and Jonathan B.
Lewis, as confirmed by letter dated June 22, 1994 and
Agreement dated July 1994 (contained in Exhibit 9.2)
10.11++++ Stock Option Agreement dated March 14, 1994 between The
Tracker Corporation and Stalia Holdings B.V., as confirmed by
letter dated June 22, 1994
10.12++++ Letter from DHL International Express Ltd to The Tracker
Corporation dated March 8, 1994
10.13++++ Agreement dated September 1994 between The Tracker Corporation
and Purolator Courier Ltd.
10.14++++ National Account Agreement dated September 15, 1994 between
Mail Boxes Etc. USA, Inc. and the Registrant, as amended by
Amendment to National Account Agreement dated September 14,
1994
10.15++++ Letter agreement dated March 15, 1995 between The Tracker
Corporation and Black Photo Corporation, as amended by
facsimile amendment dated March 4, 1995
10.16++++ Letter agreement dated September 14, 1995 between The Tracker
Corporation and Amerasia International Holdings Limited
10.17++++ Letter Agreement dated August 31, 1995 between The Tracker
Corporation and Tokai Boeki Co. Ltd.
10.18++++ Letter agreement dated October 5, 1993 between The Tracker
Corporation and Symbol Technologies, Inc., as amended by
letter from The Tracker Corporation to Symbol Technologies
Canada, Inc. dated November 23, 1995, and letter from Symbol
Technologies Canada, Inc. to The Tracker Corporation dated
November 27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis
to the Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among
Ultra Capital Corp. (the predecessor of the Registrant), The
Tracker Corporation and Montreal Trust Company of Canada
40
<PAGE> 44
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital
Corp. (the predecessor of the Registrant) and The Tracker
Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L. Knickerbocker
Company, Inc. and the Registrant
10.24+++ Share Purchase Agreement dated July 29, 1994 among The Tracker
Corporation, Page-Direct Ltd., Marc Bombenon, Marc Bombenon
Enterprises Ltd. and 614593 Alberta Ltd.
10.25++++ General Release dated June 15, 1995 among The Tracker
Corporation, 614593 Alberta Ltd., 1069232 Ontario Inc.,
Gowling, Strathy & Henderson, Page-Direct Ltd., Marc Bombenon
Enterprises Ltd. and Mark Bombenon.
10.26+++++ Agreement Between The International Association of Chiefs of
Police and The Tracker Corporation dated February 13, 1996
10.27+++++ Letter agreement dated January 26, 1996 between The Tracker
Corporation and Consumers Distributing Inc.
10.28+++++ The Tracker Corp./Tracker Referral Network, Int'l Marketing
Agreement dated April 8, 1996 between The Tracker Corporation
and Tracker Referral Network, Int'l
10.29+++++ Letter agreement dated March 7, 1996 between The Tracker
Corporation and Samsonite Canada Inc.
10.30+++++ Letter agreement dated March 22, 1996 between The Tracker
Corporation and Sony of Canada Ltd.
10.31+++++ Lead Generation/Corporate Relations Agreement dated November
20, 1995 between The Tracker Corporation and Corporate
Relations Group, Inc., as amended by Amendment to the
Marketing Agreement between the Registrant and Corporate
Relations Group, Inc. dated December 5, 1995
10.32+++++ Independent Contractor Agreement between The Tracker
Corporation and Datatrack Inc. dated January 12, 1996
10.33+++++ Services Agreement and Registration Rights Agreement and
Options Agreement dated July 10, 1996 between the Registrant
and Merchant Partners, L.P.
41
<PAGE> 45
10.34++++++ Exclusive Agent License Agreement dated April 4, 1997 between
The Tracker Corporation of America and Executive Trading Ltd.
10.35++++++ Agreement dated May 15, 1997 between The Tracker Corporation
and Liberty Health.
10.36++++++ Agreement dated May 22, 1997 between The Tracker Corporation
of America and Schwinn Cycling & Fitness Inc.
10.37++++++ Modification Agreement dated May 27, 1997 between The Tracker
Corporation of America, Saturn Investments, Inc., The Tracker
Corporation, I. Bruce Lewis, Mark J. Gertzbein, and Jonathan
B. Lewis.
10.38 Agreement dated July 1, 1998 between The Global Tracker
Corporation and Warrantech Additive, Inc.
10.39 License Agreement dated as of July 30, 1998 between The Global
Tracker Corporation and the Tracker Corporation of America,
Inc.
10.40 Employment Agreement dated September 24, 1996 between I. Bruce
Lewis and The Tracker Corporation of America, Inc.
21.1++++ List of subsidiaries of the Registrant
23 Consent of Independent Accountants
27.1 Financial Data Schedule, Fiscal Year Ended March 31, 1998
27.2 Financial Data Schedule, Fiscal Year Ended March 31, 1997 --
Restated
- --------------------
+ Incorporated by reference from the Registrant's Current
Report on Form 8-K dated July 12, 1994.
++ Incorporated by reference from the Registrant's Current
Report on Form 8-KA dated February 28, 1995 (filed March 15,
1995).
+++ Incorporated by reference from the Registrant's Current
Report on Form 8-K dated July 29, 1994 (filed August 12,
1994).
++++ Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (No. 33-99686).
+++++ Incorporated by reference from the Registrant's Annual
Report on Form 10-K dated March 31, 1996 (filed July 15,
1996).
++++++ Incorporated by reference from the Registrant's Annual
Report on Form 10-K dated March 31, 1997 (filed July 3,
1997).
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<PAGE> 46
ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
THE TRACKER CORPORATION OF AMERICA,
a Delaware corporation
By: /s/ Bruce I. Lewis
--------------------------------------------------------------
Bruce I. Lewis, Chairman of the Board, President, Chief
Executive Officer, Chief Financial Officer (Principal Executive Officer and
Principal Financial Officer and Principal Accounting Officer)
Dated: November 3, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: November 3, 1998 By: /s/ Bruce I. Lewis
-----------------------
Bruce I. Lewis
Chairman of the
Board, President,
Chief Executive
Officer, Chief
Financial Officer
(Principal Executive
Officer, Principal
Financial Officer and
Principal Accounting
Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
The Registrant has not sent out proxy materials to security-holders for
the fiscal year ended March 31, 1998. A copy of this Report and proxy materials
will be sent out to security-holders subsequent to the filing of this Report.
The Registrant is not providing any annual report (other than this Report) to
security-holders. The Registrant will furnish the proxy materials to the
Commission when they are sent out to the security-holders. Such materials shall
not be deemed to be "filed" with the Commission or otherwise subject to the
liabilities of Section 18 of the Act.
43
<PAGE> 47
THE TRACKER CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1998 and 1997
<PAGE> 48
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
The Tracker Corporation of America, Inc.
We have audited the accompanying consolidated balance sheet of The Tracker
Corporation of America, Inc. and Subsidiary as of March 31, 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of The
Tracker Corporation of America, Inc. and Subsidiary as of March 31, 1997 and
1996 and for the years then ended and from inception at May 6, 1993 through the
year ended March 31, 1997 were audited by other auditors whose reports dated
June 24, 1997 and May 28, 1996 included an explanatory paragraph that described
the going concern uncertainties discussed in Note 2 to the consolidated
financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Tracker Corporation of America, Inc. and Subsidiary as of March 31, 1998, and
the consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and 2
to the consolidated financial statements, the Company is in the development
stage and has suffered significant losses since inception. Additionally, the
Company discontinued its telemarketing program for its credit card registration
business. The Company is relying upon affiliated parties to fund its cash flow
deficiencies through debt and equity infusions. Those conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Notes 1 and
2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/
- -----------------------------------
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
September 18, 1998
F-1
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Tracker Corporation of America, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
statements of operations, of cash flows and of stockholders' equity (deficit)
present fairly, in all material respects, the financial position of The Tracker
Corporation of America, Inc. and its subsidiary at March 31, 1997 and the
results of their operations and their cash flows for the two year period ended
March 31, 1997 and for the period from inception at May 6, 1993 through March
31, 1997 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 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 had not yet been able to obtain significant outside financing. As a result,
there is a 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
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
Phoenix, Arizona
June 24, 1997
F-2
<PAGE> 50
THE TRACKER CORPORATION OF AMERICA, INC.
( A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ -- $ 105,213
Short-term investment -- --
Accounts receivable -- 133,613
Prepaid expenses and deposits -- 359,526
Inventory -- 24,338
Deferred charges 1,187,699 2,820,064
------------ ------------
Total current assets 1,187,699 3,442,754
Due from Stockholders 14,072 61,487
Deferred charges 275,043 315,837
Property and equipment (net) -- 418,267
------------ ------------
Total assets $ 1,476,814 $ 4,238,345
============ ============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 440,835 $ 468,764
Accrued liabilities 528,399 373,687
Deferred revenue 1,798,727 4,509,401
Debenture payable 31,809 83,991
Convertible debentures 475,790 590,746
------------ ------------
Total current liabilities 3,275,560 6,026,589
Deferred revenue 412,846 613,131
Commitments (Note 10) -- --
Stockholders' deficiency
$1000 6% Convertible preferred stock, $.001 par value, 500,000 shares
authorized, Nil (Nil - March 31, 1997) shares issued and outstanding -- --
Common stock, $.001par value, 30,000,000 shares authorized,
22,340,628 (15,925,505 - March 31, 1997) shares issued and outstanding 19,718 15,925
Class B voting common stock, $0.00000007 par value, 20,000,000 shares
authorized, 2,622,484 (4,862,537 - March 31, 1997) issued
and outstanding, (Nil - March 31, 1998) shares issued and outstanding -- --
Paid-in capital 15,371,641 15,207,895
Other capital (356,002) (394,333)
Deficit accumulated during the development stage (17,001,283) (16,910,816)
Cumulative translation adjustment (245,665) (320,046)
------------ ------------
Total stockholders' deficit (2,211,591) (2,401,375)
------------ ------------
Total liabilities and stockholders' deficit $ 1,476,814 $ 4,238,345
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 51
THE TRACKER CORPORATION OF AMERICA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(MAY 6, 1993) YEAR ENDED
through March 31, March 31,
----------------- --------------------------------------------
1998 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ 306,721 $ 51,551 $ 138,462 $ 106,522
Cost of sales 100,294 20,660 35,375 40,230
------------ ------------ ------------ ------------
Gross profit 206,428 30,891 103,087 66,292
------------ ------------ ------------ ------------
Development costs
Operational 1,521,860 53,647 38,392 592,880
Information systems 930,032 26,613 17,373 262,942
Sales and marketing 3,437,044 7,928 54,366 1,031,041
General and administrative 7,836,231 95,221 156,439 4,270,159
------------ ------------ ------------ ------------
Total development costs 13,725,166 $ 183,408 $ 266,570 6,157,022
Loss from continuing operations (13,518,739) (152,517) (163,483) (6,090,730)
Gain (loss) from discontinued operation (3,482,545) 62,050 (3,544,595) --
------------ ------------ ------------ ------------
Net loss applicable to common stock $(17,001,283) $ (90,467) $(3,708,078) $ (6,090,730)
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Loss from continuing operations $ (1.4164) (0.0071) $ (0.2159) $ (0.5726)
Loss from discontinued operation (0.2901) 0.0029 (0.2064) --
------------ ------------ ------------ ------------
NET LOSS $ (1.7065) $ (0.0042) $ (0.4222) $ (0.5726)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 12,003,255 21,480,767 17,177,476 10,637,237
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 52
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(May 6, 1993) Year Ended Year Ended
through March 31 March 31 March 31
1998 1998 1997
---------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net loss $(17,001,283) $ (90,467) $ (3,708,078)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 380,019 12,893 131,780
Loss on sale of long-term investment 13,414 -- 13,414
Rent, consulting and marketing services, employee
compensation settled via the issuance of company
shares 5,284,144 165,870 1,245,473
Changes in assets and liabilities:
Prepaid expenses and deposits (17,273) 359,526 (191,181)
Accounts receivable -- 133,613 (126,252)
Short-term investment -- -- 221,190
Inventory -- 24,338 91,274
Deferred charges (1,462,742) 1,673,159 (2,995,917)
Deferred revenue 2,211,573 (2,910,959) 4,828,408
Accounts payable and accrued liabilities 983,879 126,783 24,061
------------ ------------ ------------
Net cash used in operating activities (9,608,269) (505,244) (465,828)
------------ ------------ ------------
Cash flows from (used in) investing activities:
Acquisition of fixed assets 6,028 790,661 (13,006)
Loan to stockholders (370,484) 47,415 (8,911)
Repayment of loans to stockholders 356,412 -- 142,611
Note receivable (200,317) -- --
Repayment of note receivable 200,317 -- 178,350
Long-term investment (2,301,372) -- (10,929)
Unwind of long-term investment 2,287,958 -- --
------------ ------------ ------------
Net cash from (used in) investing activities (21,458) 838,076 288,115
------------ ------------ ------------
Cash flows from (used in) financing activities:
Issuance of common shares 8,952,530 30,000 --
Issuance of preferred shares 1,050,000 -- 1,050,000
Issuance of convertible subordinated debentures 2,189,529 -- --
Repayment of debentures and convertible subordinated debentures (297,401) (167,138) (130,263)
Share issue costs (1,684,735) -- (224,741)
------------ ------------ ------------
Net cash from (used in) financing activities 10,209,923 (137,138) 694,996
------------ ------------ ------------
Effect of exchange rate changes (580,196) (300,907) (490,914)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents during 0 (105,213) 26,369
the period
Cash and cash equivalents, beginning of period -- 105,213 78,844
------------ ------------ ------------
Cash and cash equivalents, end of period 0 0 $ 105,213
============ ============ ============
Supplemental schedule of noncash financing activities
The Company issued certain shares of its Class B voting common stock for
service and for nominal values
See Consolidated Statement of Stockholders' Equity (Deficit)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 53
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------- --------------------------------
Paid-in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to officers at inception
(Cash - $Nil) 5,089,286 $ - $ - $ -
Shares issued for cash (Cash - $4,714,188) 884,729 4,714,188
Shares issued in lieu of rent (note 9-x)
(Cash - $Nil) 60,871 324,344
Share issue costs (466,142)
Translation adjustment
Net loss
Balance at March 31, 1994 6,034,886 - - 4,572,390
Shares issued for cash (Cash - $1,175,797) 234,517 1,175,797
Shares issued in lieu of rent (note 9-x)
(Cash - $Nil) 5,777 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 739,219 739 (639)
Shares issued from Regulation S offering
(including 79,658 shares at $7 per share
for consulting services and 3,571 shares
at $5.50 per share for the purchase of
fixed assets) (Cash -$1,505,000) 860,000 860 2,900,840
Share proceeds to be received subsequent
to March 31, 1995 (819,459)
Shares issued for consulting and marketing
services (Cash-$Nil) 825,000 78,005 825 2,204,153
Less: consulting and marketing services not
yet received (814,583) (815)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 500,000 500 349,500
Shares issued to employees for employment
services (note 9-x) (Cash-$Nil) 25,063 74,409
Share issue costs (779,495)
Translation adjustment
Net loss
Balance at March 31, 1995 - 2,109,636 6,378,248 - 2,109 9,707,617
</TABLE>
<TABLE>
<CAPTION>
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) $ - $ - $ - $ -
Shares issued for cash (Cash - $4,714,188) 4,714,188
Shares issued in lieu of rent (note 9-x)
(Cash - $Nil) 324,344
Share issue costs (466,142)
Translation adjustment (129,098) (129,098)
Net loss (2,043,425) (2,043,425)
Balance at March 31, 1994 - (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 9-x)
(Cash - $Nil) 30,121
Reverse merger with The Tracker Corporation
on July 12, 1994 (Cash - $100) 100
Shares issued from Regulation S offering
(including 79,658 shares at $7 per share
for consulting services and 3,571 shares
at $5.50 per share for the purchase of
fixed assets) (Cash -$1,505,000) 2,901,700
Share proceeds to be received subsequent
to March 31, 1995 (819,459)
Shares issued for consulting and marketing
services (Cash-$Nil) 2,204,978
Less: consulting and marketing services not
yet received (2,086,685) (2,087,500)
Shares proceeds received from private placement
on March 15, 1995 (Cash - $350,000) 350,000
Shares issued to employees for employment
services (note 9-x) (Cash-$Nil) 74,409
Share issue costs (779,495)
Translation adjustment (159,026) (159,026)
Net loss (5,068,583) (5,068,583)
Balance at March 31, 1995 (2,086,685) (288,124) (7,112,008) 222,909
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 54
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------- -----------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
------------------------------------- -----------------------------------
<S> <C> <C> <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 9-x) (Cash - $ Nil) 14,582 14
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) 266,664 265
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 98,858 99 86,402
Shares issued to Amerasia for marketing services
(note 9-x) (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 a director (Cash - $Nil) 770,000 770 769,230
Less: employment and consulting services not yet
received (340,939) (341)
Shares issued to R. Zuk (Cash - $83,000) 200,000 200 199,800
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement
(Cash - $250,000) 250,000 250 249,750
Shares issued upon exercise of warrants at
Canadian $1 per share (Cash - $619,166) 849,803 619,166
Shares issued to officers (note 9-iiii(a))
(Cash - $Nil) 630,000 630 826,245
Shares issued to a consultant (note 9-x)
(Cash - $Nil) 7,500 8 9,836
Shares issued for investor relation services
(note 9-v) (Cash - $Nil) 200,000 200 262,300
Less: services not yet received (200,000) (200)
Shares issued to employees for employment
services (note 9-x) (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 as at March 31, 1996 - 6,130,929 6,126,362 $ - $ 6,131 $ 14,013,062
</TABLE>
<TABLE>
<CAPTION>
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 9-x) (Cash - $ Nil) 87,486 87,500
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) 666,400 666,665
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 86,501
Shares issued to Amerasia for marketing services
(note 9-x) (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 a director (Cash - $Nil) 770,000
Less: employment and consulting services not yet
received (340,598) (340,939)
Shares issued to R. Zuk (Cash - $83,000) 200,000
Less: shares proceeds to be received (117,000)
Share proceeds received from private placement
(Cash - $250,000) 250,000
Shares issued upon exercise of warrants at
Canadian $1 per share (Cash - $619,166) 619,166
Shares issued to officers (note 9-iiii(a))
(Cash - $Nil) 826,875
Shares issued to a consultant (note 9-x)
(Cash - $Nil) 9,844
Shares issued for investor relation services
(note 9-v) (Cash - $Nil) 262,500
Less: services not yet received (262,300) (262,500)
Shares issued to employees for employment
services (note 9-x) (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 as at March 31, 1996 $ (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-7
<PAGE> 55
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------ ------------------------------------
Paid in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) 133,336 $ - $ 135 $ (999,600)
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 34,445 34 15,466
Marketing services received from Amerasia
(note 9-x) (Cash - $Nil) 5,000 (11,124)
Employment and consulting services and
Directors' fees received re S-8 (CASH - $NIL) 1,740,938 1,741 316,054
Shares issued for conversion from debenture
holders (note 9-ix) (Cash -$Nil) 1,433,443 1,434 653,566
Preferred shares issued from private placement
(Cash - $1,050,000) 1,050 1 1,049,999
Common shares issued for conversion from
preferred stockholder (Cash - $Nil) (1,050) 4,365,136 (1) 4,364 (4,363)
Shares exchanged as per exchange agreement
(Cash - $Nil) 1,268,825 (1,268,825) 1,269 (1,269)
Shares issued to employees for employment
services (note 9-x) (Cash-$Nil) 26,000 26 12,474
Shares issued for consulting services
(note 9-x) (Cash-$Nil) 208,250 208 49,634
Shares issued in lieu of finder fee for
debenture holders (note 9-x) (Cash -$Nil) 52,906 53 52,853
Shares issued in lieu of finder fee for
preferred stockholders (note 9-x) (Cash -$Nil) 112,500 113 44,887
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 333,272 332 87,668
Shares issued for office rental expense
( Cash $ Nil) 615,780 616 153,329
Less: rental expense not yet amortized (530,255) (531)
Share issue cost from April 1, 1996 to March
31, 1997 (224,741)
Translation adjustment
Net loss from April 1, 1996 to March 31, 1997
Balance as at March 31, 1997 - 15,925,505 4,862,537 $ - $ 15,925 $ 15,207,895
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS
-------------------------------------------------------
Deficit
Accumulated
Cumulative During
Other Translation Development
Capital Adjustment Stage Total
-------------------------------------------------------
<S> <C> <C> <C> <C>
Marketing services received re shares issued
to LL Knickerbocker Co. (Cash - $ Nil) $ 1,332,800 $ - $ - $ 333,335
Shares issued to Directors as compensation
(note 9-x) (Cash - $Nil) 15,500
Marketing services received from Amerasia
(note 9-x) (Cash - $Nil) 18,630 7,506
Employment and consulting services and
Directors' fees received re S-8 (CASH - $NIL) 340,598 658,393
Shares issued for conversion from debenture
holders (note 9-ix) (Cash -$Nil) 655,000
Preferred shares issued from private placement
(Cash - $1,050,000) 1,050,000
Common shares issued for conversion from
preferred stockholder (Cash - $Nil) -
Shares exchanged as per exchange agreement
(Cash - $Nil) -
Shares issued to employees for employment
services (note 9-x) (Cash-$Nil) 12,500
Shares issued for consulting services
(note 9-x) (Cash-$Nil) 49,842
Shares issued in lieu of finder fee for
debenture holders (note 9-x) (Cash -$Nil) 52,906
Shares issued in lieu of finder fee for
preferred stockholders (note 9-x) (Cash -$Nil) 45,000
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 88,000
Shares issued for office rental expense
( Cash $ Nil) 153,945
Less: rental expense not yet amortized (132,034) (132,565)
Share issue cost from April 1, 1996 to March
31, 1997 (224,741)
Translation adjustment (79,146) (79,146)
Net loss from April 1, 1996 to March 31, 1997 (3,708,078) (3,708,078)
Balance as at March 31, 1997 $ (394,333) $ (320,046) $(16,910,816) $ (2,401,375)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 56
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES AMOUNTS
------------------------------------- --------------------------------
Paid-in
Class B Capital in
Preferred Common Common Preferred Common Excess
Stock Stock Stock Stock Stock of Par
----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) 339,755 $ 341 $ 69,659
Shares issued for office rental expense
(note 9-x) (Cash $ Nil) 153,945 $ 153
Shares exchanged as per exchange agreement
(Cash - $Nil) 2,240,053 (2,240,053) $ 2,240 $ (2,240)
Shares issued to employee for employment services 19,303 $ 19 $ 2,617
Shares issued for consulting services 539,583 $ 540 $ 64,210
Share proceeds received from private placement
(Cash - $30,000) 500,000 $ 500 $ 29,500
Translation adjustment
Net Profit (loss) from April 1, 1997 to March
31, 1998
Balance as at March 31, 1998 - 19,718,144 2,622,484 $ - $ 19,718 $ 15,371,641
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Shares issued pursuant to W.Marches S-8 stock
payment plan (note 9-xii) $ 70,000
Shares issued for office rental expense
(note 9-x) (Cash $ Nil) $ 38,331 $ 38,484
Shares exchanged as per exchange agreement
(Cash - $Nil) $ 0
Shares issued to employee for employment services $ 2,636
Shares issued for consulting services $ 64,750
Share proceeds received from private placement
(Cash - $30,000) $ 30,000
Translation adjustment $ 74,381 $ 74,381
Net Profit (loss) from April 1, 1997 to March
31, 1998 $ (90,467) $ (90,467)
Balance as at March 31, 1998 $ (356,002) $ (245,665) $(17,001,283) $ (2,211,591)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 57
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES AND CORPORATE HISTORY:
The Tracker Corporation of America, Inc. (sometimes "Tracker U.S." or the
"Company") has been in the development stage since its formation. It developed
and markets, sells and operates a personal property marking and monitoring
system (the "Tracker(TM) System") that utilizes advanced bar code and laser
scanning technology to create an identification device which interfaces with a
computer database and scanning network (the "Technology").
The current business of the Company originated in July 1994 through a
reorganization (the "Reorganization") in which the Company acquired all of the
issued and outstanding voting shares of The Tracker Corporation, an Ontario,
Canada corporation ("Tracker Canada"), in exchange for approximately 90% of the
total voting shares of the Company as of that date. The Company's predecessor
was incorporated as a Utah corporation in 1986, and changed its state of
incorporation to Nevada in 1992 and Delaware in 1994 through change in domicile
mergers. Concurrent with the effective date of the reorganization, the Company
changed its year-end from December 31 to March 31.
In conjunction with the reorganization, the common stock of Tracker Canada was
reclassified as exchangeable preference stock which was (i) exchangeable at the
option of the holder, beginning July 12, 1995 through July 12, 2002, on a
one-for-one basis for shares of the common stock of the Company; or (ii) upon
liquidation at the option of the Company, exchangeable at an "exchange rate" for
shares of the common stock of the Company, or upon payment by the Company to the
holder of a "basic liquidation amount."
For accounting purposes, the merger was treated as a reverse merger/acquisition
because, among other factors, the assets and operations of Tracker Canada
significantly exceeded those of the Company and the shareholders of Tracker
Canada controlled 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 was recorded at
the value of the Company's net tangible assets as of the effective date. The
accumulated deficit of Tracker Canada was carried forward and the common stock
and paid-in capital of Tracker Canada prior to the merger were retroactively
restated for the equivalent number of shares received in the merger and carried
forward.
The Company launched The Tracker(TM) System in a limited test market in Toronto,
Canada in October 1994 and began expanding service throughout Canada. The
Company also began to test potential markets for The Tracker(TM) System in the
United States and to offer the service through diverse marketing channels such
as joint promotional partners, selected retailers, telemarketers and network
referral marketers. Prior to the bankruptcy of Tracker Canada as further
described below, these efforts were in the incipient stage, had failed or met
with only limited market acceptance.
In September 1997, the U.S. Federal Trade Commission (the "FTC") filed a lawsuit
against the Company in the U.S. District Court, Northern District of Georgia,
Atlanta Division. The complaint alleged that the Company's credit card
registration service had violated Section 5 of the Federal Trade Commission Act
and the FTC Trade Regulator Telemarketing Sales Rule in telemarketing
F-10
<PAGE> 58
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
credit card protection services in the United States. The FTC obtained a
temporary restraining order ("TRO") halting the further sale of credit card
registration services and an injunction freezing the Company's assets. Although
the U.S. District Court subsequently lifted the TRO, permitting the credit card
registration service to resume, upon completing an internal investigation, the
Company elected to discontinue credit card registration service operations.
Shortly following initiation of the lawsuit, four of the Company's five Board
members and its Chief Financial Officer resigned.
The Company settled the FTC lawsuit on July 28, 1998. Pursuant to the
settlement, the U.S. District Court entered a Stipulated Final Judgment and
Order for Injunction that, among other things, permanently barred the Company,
and its Chief Executive Officer, Bruce Lewis, from engaging directly or
indirectly, in the business of credit card registration or promotion.
The FTC lawsuit and the cessation of the credit card registration service had a
negative effect on the financial condition of the Company and Tracker Canada. On
January 27, 1998, Tracker Canada filed a notice with the Ontario Courts
declaring its insolvency and seeking the appointment of a bankruptcy trustee to
liquidate its assets and dissolve the corporation. The liquidation and
dissolution occurred in February 1998.
In conjunction with the liquidation and dissolution, the Company has (i)
cancelled the issued and outstanding shares of the Company's Class B voting
common stock which have been held in trust for exchangeable preference share
stockholders in accordance with the terms thereof, and (ii) exchanged at a
specified "exchange rate" shares of its common stock for the exchangeable
preference shares of Tracker Canada.
On February 10, 1998, the Global Tracker Corporation ("Global Tracker"), a newly
formed Ontario, Canada corporation, acquired substantially all of Tracker
Canada's assets at arm's length in a bankruptcy proceeding. Shortly thereafter,
Global Tracker entered into an agreement in principle with the Company which
permitted the Company to use personnel retained by Global Tracker and assets
formerly owned or leased by Tracker Canada to continue the business formerly
conducted by Tracker Canada. As a result of this arrangement, Tracker U.S. has
continued on a limited basis the business formerly operated by Tracker Canada
without a complete cessation of operations.
On July 30, 1998, the Company entered into a License Agreement with Global
Tracker. The License Agreement grants the Company an exclusive worldwide license
to commercially exploit the technology formerly owned by, and benefit from any
copyrights or patents and applications therefor formerly held by, Tracker
Canada. The license is for a renewable seven-year term and provides for payment
of a 12% royalty on gross revenues commencing in the second year of the license.
Contemporaneously, Global Tracker entered into a proposed General Consulting
Agreement and a proposed Equipment Rental Agreement with TCA Management, Inc.
("TCA"), a wholly-owned subsidiary of the Company. Under the proposed General
Consulting Agreement, TCA provides management services, research and development
and customer support. Under the proposed Equipment Rental Agreement, TCA rents
office equipment, including computers, local area network, telephone system,
copier and fax, and furniture which it makes available to the Company.
Although the Company continues to believe that The Tracker(TM) System has
significant commercial potential, the Company's present financial circumstances
and past experience require a more narrowly focused and less costly marketing
strategy. The Company is currently examining
F-11
<PAGE> 59
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
strategies for applying most advantageously the limited resources the Company
anticipates it will have at its disposal if the private placement described in
Note 2 below is successful. The Company is in the process of identifying markets
it believes will prove most responsive to the Company's initiatives.
NOTE 2 - GOING CONCERN:
The Company has been in a development stage since its inception on May 6, 1993.
The likelihood that the Company will attain profitability depends on many
factors, including its ability to obtain adequate financing and generate
sufficient revenues. Management is currently working to secure adequate capital
through the private placement of securities. The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern, although the reports of its former independent accountant as
of and for each of the years ended March 31, 1997 and 1996, and its current
independent accountant as of and for the year ended March 31, 1998, express
doubt as to the Company's ability to 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 Company and
its former wholly owned subsidiary, Tracker Canada. 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 or period end.
F-12
<PAGE> 60
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
DEFERRED CHARGES
Deferred charges relate primarily to unamortized commissions, net of a 30%
cancellation reserve, and other costs of sales which 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 services agreement varies from
monthly to a five-year period.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets as follows:
<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 Tracker Canada 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.
F-13
<PAGE> 61
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NEW ACCOUNTING PRONOUNCEMENTS
Other pronouncements issued by the Financial Accounting Standards Board adopted
during the year are not material to the consolidated financial statements of the
Company. Further, pronouncements with future effective dates are either not
applicable or not material to the consolidated financial statements of the
Company.
NOTE 4 - PREPAID EXPENSES AND DEPOSITS:
Prepaid expenses and deposits comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Security deposit for merchant facility $ - $ 300,000
Other - 59,526
----------------- ---------
$ - $359,526
================= =========
</TABLE>
NOTE 5 - DUE FROM SHAREHOLDERS:
Promissory notes held on loans made to shareholders bear interest at 5% per
annum and are due on demand.
NOTE 6- DEFERRED CHARGES:
Deferred charges consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
Current:
Deferred sales commission (net of cancellation reserve) $ 776,055 $2,658,446
Other 411,644 161,618
---------- ----------
$1,187,699 $2,820,064
---------- ----------
Long term:
Deferred sales' commission (net of cancellation reserve) $ 183,041 $ 281,163
Other 92,002 34,674
---------- ----------
$ 275,043 $ 315,837
========== ==========
</TABLE>
F-14
<PAGE> 62
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 7 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Scanning equipment $ -- $120,737
Computer equipment -- 310,047
Computer software -- 32,501
Office furniture and equipment -- 163,979
Leasehold improvements -- 99,608
Kiosk equipment -- 63,789
-------- --------
Total original cost -- 790,661
Less: Accumulated depreciation -- 372,394
-------- --------
-- $418,267
======== ========
</TABLE>
Depreciation expense for the year ended March 31, 1998 was $ 12,893 and was
$131,780 for the year ended March 31, 1997.
NOTE 8 - ACCRUED LIABILITIES:
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Directors fees $ 24,432 $ 27,399
Interest expense for convertible debentures 58,785 --
Others 445,182 346,288
-------- --------
$528,399 $373,687
======== ========
</TABLE>
NOTE 9 - CAPITAL STOCK:
(i) The common stock and Class B voting common stock shared ratably as to
dividends. Until the insolvency and winding up of Tracker Canada, the Class B
voting common stock was 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 permitted the persons holding the
exchangeable shares to direct the voting of the Class B common shares and
provided a mechanism for the exchange of exchangeable shares for a like number
of common shares.
(ii) At March 31, 1997, all outstanding warrants to acquire exchangeable
preference shares of the Canadian subsidiary at Canadian $14 per share had
expired.
(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 were exercisable during the
one-year period commencing July 12, 1995 to July 12, 1996 at a price
F-15
<PAGE> 63
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
of $5.00 per share. Since the common stock underlying the warrants could not be
purchased legally on margin at a marginable price, the exercise period has been
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.
(iv) (b) The Company issued the following options and warrants:
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH EXERCISE MARCH EXERCISE
31, 1998 PRICE 31, 1997 PRICE
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS:
Opening (*) 40,000 40,000 $ 7.95
Granted during the period (*) 50,000 $ 0.13 0
Granted during the period (**) 300,000 $ 0.50 0
Granted during the period (**) 2,400,000 $ 0.75 0
Expired/cancelled during period 900,000 0
========== =========
Closing 1,890,000 40,000
========== =========
</TABLE>
(*) 40,000 options were issued in July 1994 ;10,000 options were issued in
September 1995 and 50,000 options were issued in July 1997 to non-employee
directors and vest proportionately over a period of three years.
(**) 2,700,000 options were issued in August 1997 to management at various terms
from 4 to 7 years
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH EXERCISE MARCH EXERCISE
31, 1998 PRICE 31, 1997 PRICE
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK
AND CLASS B):
Opening 750,000 n/a 767,348 n/a
Issued during the period 0
Exercised during the period 0
Expired during the period 0 (17,348) Cdn$14.00
------- --------
Closing 750,000 750,000
======= ========
</TABLE>
(v) On May 1, 1995, the Company entered into an agreement and sold, for net
proceeds of $250,000, 250,000 units comprised of 250,000 restricted common
shares and 250,000 warrants to purchase 250,000 restricted common shares to
Reynold Kern. The warrants were exercisable during the one-year period
commencing July 12, 1995 to July 12, 1996 at a price of $5.00 per share. Since
the common stock underlying the warrants could not be purchased legally on
margin at a marginable price, the exercise period has been extended until the
first day that the common stock becomes marginable.
F-16
<PAGE> 64
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(vi) In June 1995, the Company issued 200,000 shares of common stock, restricted
as to transferability for a period of two years from date of issuance, to Robert
Zuk for certain investor relations services for the Company.
(vii) In October 1995, the Company issued 770,000 shares of common stock
pursuant to the registration statement on S-8 to six key employees and one
director as payment in lieu of prior accrued salaries and fees and as an advance
of their salaries and fees up to September 30, 1996. The shares issued were all
valued at $1.00 per share.
(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, 1998, 627,625 common shares have been subscribed for but remain
unissued as the service for which these shares were subscribed for have yet to
be received.
<TABLE>
<CAPTION>
YEAR ENDED FROM INCEPTION
MARCH 31, (MAY 6, 1993)
------------------------------- THROUGH MAR 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received $ 0 $ 1,332,800 $ 0
Deferred compensation costs 0 340,599 0
Deferred consulting costs 262,500 280,928 0
Rent 93,502 0 0
----------- ----------- -----------
356,00 1,954,327 0
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received 0 (999,600) 999,600
Deferred compensation costs 0 441,734 2,222,174
Deferred consulting costs 0 116,201 1,809,224
Rent 0 153,329 507,794
----------- ----------- -----------
0 (288,336) 5,538,792
CHARGED TO EXPENSE AS SERVICES ARE
RECEIVED,
Marketing services not yet received 0 333,200 999,600
Deferred compensation costs 0 782,333 2,222,174
Deferred consulting costs 0 134,629 1,546,724
Rent 0 21,496 410,515
----------- ----------- -----------
0 1,271,658 5,182,790
CLOSING,
Marketing services not yet received 0 0 0
Deferred compensation costs 0 0 0
Deferred consulting costs 262,500 262,500 262,500
Rent 93,502 131,833 93,502
----------- ----------- -----------
$ 356,002 $ 394,333 $ 356,002
=========== =========== ===========
</TABLE>
F-17
<PAGE> 65
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(x) For the year ended March 31, 1998, no common shares were issued pursuant to
the conversion of convertible subordinated debentures. For the year ended March
31, 1997, 1,433,433 common shares were issued pursuant to the conversion of
convertible subordinated debentures totaling $655,000. In November 1996, all
holders of the convertible subordinated debentures were requested to extend the
maturity date from December 1, 1996 to June 1, 1997 on same terms and
conditions. No additional requests for extension have been made thereby placing
the Company in default under the terms of the convertible subordinated debenture
agreement. As of March 31, 1998 there remains outstanding $475,790 ($590,746 at
March 31, 1997) in convertible subordinated debentures with a maturity date of
June 1, 1997. The remaining balance of $ 31,809 ($Nil at March 31, 1996) has
been reclassified as debentures which had a repayment maturity term of December
1997 at a 4.75% interest rate.
(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 the year ended March 31, 1997, the Company issued 1,050 shares of
$1,000 6% Cumulative Convertible Preferred Stock (the "Convertible Preferred
Stock"). As at March 31, 1997, 4,365,136 common shares were issued due to the
conversion of 1,050 shares of convertible preferred stock totaling $1,050,000.
As at March 31, 1997, no convertible preferred stock remains outstanding.
For the year ended March 31, 1997, the Company paid $136,500 to a third party as
finders fees in connection with the Company's private equity placement of the
convertible preferred stock and the amount are included as a reduction in
paid-in capital.
(xiii) On October 21, 1996, the Company's Prospectus on Amendment No. 4 of the
Registration Statement on Form S-1 was declared effective by Securities and
Exchange Commission.
(xiv) During the year ended March 31, 1997, the Company issued 1,740,000 shares
of common stock amounting to $658,393 pursuant to the registration statement on
S-8 to five key employees and five outside (non-employee) directors as payment
in lieu of salaries and consulting fees.
(xv) In October 1996, the Company entered into a one-year consulting agreement
(the "Consulting Agreement") with a Consultant who was retained to provide
advice to the Company concerning the Company's growth strategy, financial public
relations obligations and future capital structure. Under the terms of the
Consulting Agreement, the Company has agreed to pay the Consultant one hundred
thousand (100,000) shares of the Company's common stock. As additional
consideration, the Company has granted to the Consultant certain options to
purchase up to a total of 900,000 shares of the Company's Common Stock (the
"Options") for the price of the par value of the Common stock, $.001 per share.
In addition, the Company has agreed to pay the Consultant $10,000 per month, for
administrative expenses. The Company shall reimburse the Consultant for all
other pre-approved expenses. In 1998 The Company issued 339,755 shares of common
stock (1997 - 333,272 shares) pursuant to the registration statement on S-8 to
Consultant as payment for consulting fees. The shares were carried an aggregate
value of $ 70,000 (1997 - $ 88,000).
F-18
<PAGE> 66
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS:
LEASES
The Company leased space in Smyrna, Georgia to house its now discontinued
fulfillment, processing telemarketing and verification center for a three (3)
year term commencing May 15, 1997. On November 1 , 1997, the Company
discontinued occupancy of the leased premises, defaulting under the terms of the
lease. The lease requires payment of an annual base rent of $41,772.
Rental expense for the year ended March 31, 1998 amounted to $ 120,196 and
$214,470 for the year ended March 31, 1997.
EXCLUSIVE DISTRIBUTION RIGHTS
The Company amended its arrangement with Symbol Technologies Inc. for the
exclusive right to use its PDF bar code scanner technology within the property
identification and recovery industry in Canada, the United States and Europe.
The commitment under this arrangement is as follows:
<TABLE>
<CAPTION>
Units Amount
---------------- ----------------
<S> <C> <C>
1998 500 $450,000
</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 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.
On December 11, 1996, the Company entered into an agreement to end its
relationship with Knickerbocker. The Company received 400,000 of the 800,000
restricted common shares back from Knickerbocker. These shares were immediately
cancelled in treasury.
F-19
<PAGE> 67
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
THE IACP ENDORSEMENT
Previously, the Company 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. 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>
At March 31, 1998, the Company had defaulted in its payment obligations under
the agreement. The Company has terminated the agreement and is negotiating with
IACP regarding amounts due thereunder.
NOTE 11 - 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, $ 185,000 for the year
ended March 31, 1998 and $648,231 for the year ended March 31, 1997.
Finders fees amounting to Nil for year ended March 31, 1998 and $25,870 for the
year ended March 31, 1997 paid to related parties in connection with the
Company's private equity placement are included as a reduction in paid-in
capital.
NOTE 12 - INCOME TAXES:
The estimated deferred tax asset of $3,724,000 and $4,127,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1998 and March 31, 1997 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $10,641,000 ($11,800,000
F-20
<PAGE> 68
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
at March 31,1997) expire starting in 2001; the benefit of these losses has not
been reflected in these consolidated financial statements.
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses 3,724,000 4,127,000
----------- -----------
3,724,000 4,127,000
Valuation allowance (3,724,000) (4,127,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance decreased by $403,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
The Company has outstanding at March 31, 1998 convertible subordinated
debentures in the amount of $475,790 ($ 590,746 as at March 31, 1997) 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, 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>
$150,000 $0.4375 per share of common stock 342,858
145,790 $0.9375 per share of common stock 155,509
75,000 $1.00 per share of common stock 75,000
30,000 $1.06 per share of common stock 28,302
20,000 $1.0625 per share of common stock 18,824
30,000 $1.10 per share of common stock 27,273
25,000 $1.25 per share of common stock 20,000
-------- --------
$475,790 667,766
======== ========
</TABLE>
Total interest incurred and included in general and administrative expenses is $
53,590 and $222,791 for year ended March 31, 1998 and 1997 respectively.
NOTE 14 - RECLASSIFICATIONS:
Certain amounts as originally reported in the March 31, 1997 financial
statements were reclassified to conform to the March 31, 1998 presentation. The
changes related primarily to the discontinuance of the credit card registration
operation and did not have any effect on the previously reported net income of
the Company.
F-21
<PAGE> 69
THE TRACKER CORPORATION OF AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 15 - SUBSEQUENT EVENTS:
See Note 1 regarding the initiation and settlement of the FTC lawsuit,
resignation of directors and chief financial officer, insolvency and liquidation
of Tracker Canada, the purchase of Tracker Canada's assets by Global Tracker,
the relationship between Global Tracker and the Company, the status of Tracker
Canada's exchangeable preference shares, and the cancellation of the Class B
voting common stock.
F-22
<PAGE> 1
Exhibit 10.38
Wednesday, July 01, 1998
Mr. Steve Williams
President, Vemeco
1441 West Airport Freeway
Bldg. #200
Euliss, TX
76040 USA
Dear Steve:
This letter shall serve as an Agreement between Warrantech Additive, Inc.
("WAI") and The Global Tracker Corporation ("TRACKER") whereby WAI will
distribute Tracker's personal property identification labels and global recovery
services to Automotive Dealers through WAI's warranty program per the following
terms and conditions:
1. WAI will purchase a minimum of 400,000 labels during the term of this
contract. WAI will remit to TRACKER $1.00US per label. Payment on a net 45
day basis upon shipment of labels to WAI.
2. TRACKER will bulk ship labels to WAI for distribution to the automotive
industry.
3. WAI will capture activation and label information and electronically
transfer to TRACKER.
4. TRACKER will offer 24-hour service activation call center access for WAI
customers.
5. TRACKER will provide ownership identification service to law enforcement
officials and WAI upon auto recovery.
6. WAI can purchase scanners and software from TRACKER at a cost of
$1,450.00US per unit for reselling purposes.
7. WAI will provide the call to activate service information to be included
with every warranty sold. The design and content of the activation card to
be mutually agreed upon by WAI and TRACKER.
8. TRACKER will provide three years of recovery service per label issued.
9. TRACKER will revenue share with WAI on property kit its upgrades as per the
following schedule:
If 1%-4% of activations purchase upgrades then revenue sharing is 10% If
5%-9% of activations purchase upgrades then revenue sharing is 15% If 10%
plus of activations purchase upgrades then revenue sharing is 20%
10. TRACKER will provide WAI with a monthly report of activations and upgrades
and will roll revenue sharing into a three (3) month payment schedule.
11. TRACKER will not provide any customer information to WAI, but will verify
if a specific label has been activated upon request from WAI.
<PAGE> 2
12. WAI will incorporate TRACKER information into advertising, collateral and
web site materials where applicable and at the discretion of WAI.
13. TRACKER will promote awareness of WAI products to TRACKER customers upon
recovery, renewal and from time to time through correspondence with its
membership.
14. TRACKER will provide WAI with immediate notification of every WAI customer
recovery.
15. This Agreement will commence the date of this letter, and will be for an
initial period of two (2) years. Thereafter, this Agreement shall
automatically renew on a bi-annual basis (with such amendments to this
Agreement, which may be necessary or desirable) unless terminated by either
party upon written notice at least ninety (90) days prior to commencement
of each new term. Either party to this Agreement may immediately terminate
this Agreement by giving written notice of termination to the other party
in the event such party shall, (i) elect to be wound up or dissolved; (ii)
become insolvent or admit in writing its inability to pay its debts as they
mature; (iii) make any assignment for the benefit of creditors, file a
voluntary petition in bankruptcy for reorganization or be adjudicated as
bankrupt or insolvent; or (iv) have a liquidator or trustee appointed over
its affairs and such appointment shall not have been terminated and
discharged within thirty (30) calendar days. In the event that any party to
this Agreement has been informed by a state or federal regulatory agency or
a court of competent jurisdiction that its continued performance pursuant
to this Agreement is impermissible or if applicable law or regulation makes
its continued performance impermissible, that party may terminate this
Agreement immediately upon written notice, unless this Agreement can be
amended so that the party" performance would no longer be impermissible.
This Agreement shall also terminate should either party be in breach of any
obligation, representation or warranty under this Agreement and such breach
shall remain uncured for a period of thirty (30) days after receipt of
written notice of the breach thereof from the non-breaching party. Upon
termination of this Agreement TRACKER will continue to provide TRACKER
service to existing WAI customers until a customer's membership is
terminated. In the event of early termination of this Agreement, WAI shall
be obligated to pay only for TRACKER products pending payment as per any
existing orders received by TRACKER and not for any balance of tags as
noted in the following section.
16. WAI may promote its TRACKER products using the name "TRACKER" and all logos
and other identifying names and marks which TRACKER authorizes WAI to use
in connection with any such name, provide that WAI shall do so only in
conformity with such direction as may be given from time to time by
TRACKER.
17. (a) Tracker shall indemnify WAI and hold WAI harmless from any and all
claims, suits, actions, liabilities and costs of any kind, including
reasonable legal fees and all costs of litigation, for any and all
claims by any party resulting directly or indirectly from any acts,
representations or omissions by TRACKER relating to this Agreement or
the performance of TRACKER. TRACKER shall, at the request of WAI,
assume the defense of any claims or proceedings brought against WAI by
reason thereof and pay any damages payable by WAI as a result of the
disposition of any such claims or proceedings.
(b) WAI shall indemnify TRACKER and hold TRACKER harmless from any and all
claims, suits, actions, liabilities and costs of any kind, including
reasonable legal fees and all costs of litigation, for any and all
claims by any party resulting directly or indirectly from any acts,
representation or omissions by WAI relating to their performance under
this Agreement. WAI shall, at the request of TRACKER, assume the
defense of any claims or proceedings brought against TRACKER by reason
thereof and pay any damages payable by TRACKER
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as a result of the disposition of any such claims or proceedings.
(c) TRACKER hereby agrees to indemnify and hold Warrantech, its
subsidiaries and affiliates, and their respective directors, officers,
employees and agents (collectively referred to as the "Indemnified
Party") harmless from and against any and all claims, causes of action,
costs (including, but not limited to, increased costs of doing
business), expenses, losses, liabilities, damages, penalties and
demands whatsoever (collectively "Claims"), together with reasonable
counsel fees and expenses, arising, directly or indirectly, out of (i)
any act of negligence or willful misconduct on the part of TRACKER, its
employees or agents, (ii) the actual or alleged infringement of any
patent, license, copyright, trademark or trade name by TRACKER or any
entity through which TRACKER derives any of its rights, (ii) any
failure on the part of TRACKER, its employees or agents to perform its
obligations under or in connection with this Agreement or (iv) the
final adjudication of all litigation between Datastrip Ltd. And Symbol
Technologies Inc. with respect to PDF417 symbology. If any action or
proceeding in connection with any such matters is brought against the
Indemnified Party, it shall notify TRACKER and furnish TRACKER with a
copy of any papers served. TRACKER shall defend any such action or
proceeding, employing competent counsel, selected by TRACKER with the
approval of the Indemnified Party, but the Indemnified Party shall have
the right at any time, if it has reasonable grounds to believe its
interests are not being protected, at TRACKER's expense, to defend or
join the defense of any such action or proceedings through attorneys
selected by the Indemnified Party and approved by TRACKER, which
approval shall not be unreasonably withheld. The provisions of this
Section shall survive the termination of this Agreement.
(d) In consideration for TRACKER entering into this Agreement, WAI agrees
that the following items used in TRACKER's business are secret,
confidential, unique, and valuable, were developed by TRACKER at great
cost and over a long period of time and disclosure of any of the items
to anyone other than TRACKER's officers, agents, or authorized
employees will cause TRACKER irreparable injury:
- Non public financial information, accounting information, plans of
operation, possible mergers or acquisitions prior to the public
announcement;
- Customer lists, call lists, and other confidential customer data;
- Memoranda, notes, records concerning the technical process
conducted by TRACKER;
- Sketches, plans, drawings and other confidential research and
development data;
- Neither party shall disclose or otherwise reveal to any third party
without the express written consent of the other party the specific
terms or existence of this Agreement, except where required by law.
(e) In consideration for WAI entering into this Agreement, TRACKER agrees
that the following items used in WAI's business are secret,
confidential, unique and valuable, were developed by WAI at great cost
and over a long period of time, and disclosure of any of the items to
anyone other than WAI's officers, agents, or authorized employees will
cause WAI irreparable injury:
- Non public financial information, accounting information, plans of
operation, possible mergers or acquisitions prior to the public
announcement;
- Customer lists, call lists, and other confidential customer data;
- Memoranda, notes, records concerning the technical process
conducted by WAI;
- Sketches, plans, drawings and other confidential research and
development data;
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- Neither party shall disclose or otherwise reveal to any third party
without the express written consent of the other party the specific
terms or existence of this Agreement, except where required by law.
18. TRACKER agrees to obtain authorization from WAI to issue an press release
regarding the signing of this Agreement. WAI agrees that this authorization
will not be unreasonably withheld.
19. TRACKER shall maintain accurate records and accounts of all transactions
pertaining to this Agreement. If WAI requires any information concerning
such accounts and records, the previously mentioned accounts and records
shall be made available by TRACKER during its normal business hours for
examination by WAI or its representative appointed in writing.
20. This Agreement shall be governed under the laws of the province of Ontario,
Canada.
Kindly indicate your approval of this Agreement below. We look forward to a long
and mutually beneficial relationship with WAI.
Sincerely,
THE GLOBAL TRACKER CORPORATION Agreed and accepted by:
/s/ Donna Skinner /s/ Steve Williams
- ------------------------------ ----------------------------
Donna L. Skinner Mr. Steve Williams
Sales Executive President, Vemeco
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Exhibit 10.39
LICENSE AND DISTRIBUTION AGREEMENT
DATED as of, and effective from, the 30th day of July, 1998
between
THE GLOBAL TRACKER CORPORATION ("GT"), a corporation duly organized and
existing under the laws of the Province of Ontario, having offices at 66
Wellington Street West, Suite 5104, Toronto Dominion Bank Tower, Toronto
Dominion Centre, Toronto, Ontario, CANADA M5K 1K2
and
TRACKER CORPORATION OF AMERICA, INC. ("TCA"), a corporation duly organized
and existing under the laws of Delaware, having offices at 180 Dundas
Street West, Suite 1505, Toronto, Ontario CANADA M5G 1Z8.
GT owns and is engaged in the business of licensing two dimensional bar-code
technology used for the purposes of personal property identification and
recovery; and
TCA wishes to acquire a license to use GT's Technology (as defined below) for
its own use along with the right to distribute the Technology on an exclusive
world-wide basis in accordance with the terms and conditions set out in this
License and Distribution Agreement.
Intending to be legally bound, the parties agree as follows:
1. DEFINITIONS
1.1. "Confidential Information" means any information designated as
confidential or which ought to be considered confidential from the
circumstances surrounding its disclosure including without
limitation any information related to the Technology, but does not
include information which:
(a) is known to the receiving party before receipt thereof from
the other party, as evidenced by the receiving party's written
records;
(b) is disclosed to the receiving party in good faith by a third
party who had a right to make such disclosure;
(c) is made public by the originating party, or is established to
be a part of the public domain otherwise than as a consequence
of a breach by the receiving party of its obligations
hereunder;
(d) is required by law to be disclosed; and
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(e) can be demonstrably proven to have been independently
developed by the receiving party.
1.2. "Technology" means the executable object code of GT's proprietary
two dimensional bar-code technology which provides its end-use
customers with a highly secured and cost effective service to aid in
the recovery of lost or stolen possessions.
1.3. "Territory" means the world.
2. GRANT OF RIGHTS AND APPOINTMENT OF DISTRIBUTOR
2.1. Subject only to the conditions set out in this Agreement, GT:
(a) appoints TCA as its authorized distributor of the Technology
in the Territory for the term set out in Article 12 below; and
(b) grants to TCA an exclusive, worldwide right and license to the
Technology for its use, and its license or sub-license to
third parties, directly, or indirectly, through sales agents,
distributors or otherwise.
3. OWNERSHIP OF THE TECHNOLOGY
3.1. All right, title and interest in and to the Technology including,
without limitation, all industrial and intellectual property rights,
shall be and remain vested in GT or GT's affiliated companies or
licensors. These rights are protected by United States and Canadian
intellectual property right laws, international treaty provisions
and other applicable national laws.
4. COMPENSATION AND PAYMENT
4.1. TCA will pay no royalties or other fees on revenue received by TCA
under contracts between TCA and any third party in which the
Technology is a component in the first year of the Initial Term (as
defined below);
4.2. After the first year, TCA will pay to GT royalties of twelve percent
(12%) of the gross revenues payable to TCA under contracts between
TCA and any other third party in which the Technology is a
component;
4.3. Royalties shall be payable monthly in arrears in accordance with the
following procedure: TCA shall deliver to GT an amount equal to the
Royalties payable with respect to revenue received by TCA under
contracts between TCA and any third party in which the Technology is
a component during a monthly period within thirty (30) days after
the end of each month during the term of this Agreement (the
"Royalty Deposit Day"), together with a written report showing its
computation of Royalties actually due under this Agreement during
the respective calendar month just completed.
5. CONDITIONS OF TECHNOLOGY USE
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5.1. TCA will:
(a) not modify the Technology in any manner whatsoever, without
the prior written consent of GT;
(b) to the extent permitted by law, not attempt to reverse
engineer or otherwise render the Technology to a
human-readable form in order to understand the Technology
structure or details in any way, or to produce any work
derived from the Technology;
(c) not attempt to defeat any mechanisms that control the number
of copies of the Technology allowed to operate simultaneously
during any particular time period; and
(d) allow the Technology only to be used and accessed by TCA's
employees, agents or customers for the purposes of this
Agreement who have a legitimate need and right to use the
Technology, provided that such employees, agents or customers
have entered into GT's standard form of license agreement
which provides for the same or greater level of protection for
Confidential Information as set out herein. TCA hereby accepts
full responsibility and liability for the actions or omissions
of its employees, agents or customers.
6. DUTIES OF TCA
6.1. TCA shall:
(a) use its best efforts to diligently promote and sell the
Technology throughout the Territory.
(b) at its own cost and expense:
(i) display, operate and demonstrate the Technology in
accordance with the instructions set forth in the
then current user's manual provided for such
Technology by GT;
(ii) conduct such sales promotion activities as are
necessary to stimulate and promote the sale of the
Technology in the Territory;
(iii) develop all necessary sales and marketing literature
to promote and positions the Technology in each
unique area of the Territory, including but not
limited to translation and production of local
language variants of said materials. TCA agrees to
maintain the prominent display of GT's logo and
proprietary rights in the Technology on all
literature, brochures and other promotional
materials;
(iv) maintain sales office facilities and a staff of
trained sales personnel throughout the Territory;
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(v) maintain a staff of trained technical and
administrative personnel to provide training and
customer support services consistent with
establishing and maintaining a high degree of
customer proficiency and satisfaction with the
Technology.
(vi) comply with all applicable laws and regulations
within the Territory and/or each region of the
Territory;
(vii) provide GT, within seven (7) days of the end of every
calendar month, with a written report showing a list
of all end-user customers who have purchased the
Technology and who have executed GT's standard
Software License and Software Support Agreements
during the month;
(viii) provide GT, upon request, with information relating
to potential end-user customers of the Technology,
activities of competitors and such other information
as GT may require from time to time about the
Territory;
(ix) promptly notify GT of any complaints or problems
reported or encountered, in connection with the
design or operation of the Technology; and
(x) cause all end-user customers to execute GT's standard
Software License and Software Support Agreements, and
return same to GT in a timely manner.
7. COMMERCIAL TERMS
7.1. All monetary amounts in this Agreement, including but not limited to
list prices and discounts, shall be in US dollars, unless expressly
stated to the contrary.
7.2. Prices for the Technology shall be as described in GT's applicable
international price list as published and updated from time to time
by GT. GT may at its sole discretion change the prices and such
changed prices shall become effective ninety (90) days after written
notification to TCA.
7.3. Prices do not include sales tax or similar taxes. TCA shall pay such
taxes either directly or when invoiced by GT, or shall supply
appropriate tax exemption certificates in a form satisfactory to GT.
7.4. TCA shall be responsible, at its own expense, for obtaining all
necessary import permits and for the payment of any and all taxes
and duties imposed on the delivery, importation, sale or license of
the Technology in the Territory or other destination designated by
TCA.
7.5. TCA shall be free to determine its own resale prices to end-user
customers. Any list prices published or provided by GT are
suggestions only.
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8. LEGAL RISK MANAGEMENT
(a) THE OBLIGATIONS OF THE PARTIES EXPRESSLY STATED IN THIS
AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS
EXPRESSED OR IMPLIED. WITHOUT LIMITATION, TO THE FULLEST
EXTENT ALLOWABLE BY LAW, THIS EXCLUSION OF ALL OTHER
WARRANTIES AND CONDITIONS EXTENDS TO IMPLIED WARRANTIES OR
CONDITIONS OF SATISFACTORY QUALITY, MERCHANTABLE QUALITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND THOSE ARISING BY STATUTE
OR OTHERWISE IN LAW, OR FROM A COURSE OF DEALING OR USAGE OF
TRADE.
(b) THE PARTIES AGREE THAT EACH PARTY'S LIABILITY TO THE OTHER,
UNDER ANY THEORY OF LAW OR EQUITY, INCLUDING WITHOUT
LIMITATION, FOR BREACH OF CONTRACT, NEGLIGENCE OR OTHERWISE,
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
INTENDED FULFILLMENT OF EACH PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT, IS LIMITED TO THE AMOUNT REQUIRED TO REIMBURSE THE
OTHER PARTY FOR DIRECT MONEY DAMAGES NOT TO EXCEED THE TOTAL
AMOUNT PREVIOUSLY PAID BY TCA TO GT FOR THE SIX MONTH PERIOD
IMMEDIATELY PRECEDING THE OCCURRENCE OF THE ERROR, OMISSION OR
ACTION GIVING RISE TO THE LIABILITY CLAIM.
(c) NEITHER PARTY WILL HAVE ANY LIABILITY WHATSOEVER FOR ANY
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS,
ANTICIPATED REVENUE, SAVINGS OR GOODWILL OR OTHER ECONOMIC
LOSS OF THE OTHER PARTY.
9. PATENT, COPYRIGHT AND TRADE SECRET INDEMNITIES
9.1. GT will indemnify and hold harmless TCA from any losses, damages,
expenses (including legal fees), costs, penalties and liabilities
whatsoever that are reasonable and that arise out of or in
connection with any action or claim that the Technology provided by
GT hereunder infringes or violates any patents, copyrights or trade
secrets of any third party.
9.2. GT will, at its own expense, defend any such action or claim and TCA
will, at its own expense, assist in the defense, provided that, so
long as GT can demonstrate sufficient financial resources, GT will
control the defense and all negotiations related to the settlement
of any such claim and further provided that any settlement intended
to bind TCA will not be final without TCA's written consent, which
will not be unreasonably withheld.
9.3. TCA will promptly provide GT with written notice of any information
that comes to its attention and that might lead to a claim that TCA
may assert under this indemnity provision. Failure by TCA to notify
GT of such information (or of any actual third
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party claim), which results in GT being materially prejudiced, will
relieve GT of its liability under this indemnity provision.
9.4. If the Technology or any portion thereof are held to constitute an
infringement and their use are enjoined by a final non-appealable
decree, GT will have the obligation, at its own expense, to:
(a) modify the infringing portion of the Technology without
impairing in any material respect its functionality or
performance, so that it is non-infringing;
(b) procure for TCA the right to continue to exercise its rights
under this Agreement, or
(c) replace the technology with equally suitable, non-infringing
software, provided that any replacement or modification does
not prejudice TCA's right to market, sell and use the
Technology and that the replacement or modification will be
carried out in a manner intended to limit interruptions in
TCA's use of the Technology and its marketing activities.
9.5. Notwithstanding the foregoing, GT will have no liability to TCA with
respect to any claim of patent or copyright infringement to the
extent that the claim is based upon (i) the combination of the
Technology with machines, systems or devices not approved by GT; and
(ii) the modification by TCA of the Technology; or (iii) the use of
the Technology not in accordance with user's manual.
10. CONFIDENTIALITY
10.1. TCA shall have a fiduciary level of care to hold GT's Confidential
Information in strict confidence.
10.2. TCA will use GT's Confidential Information strictly for the purposes
contemplated under this Agreement.
11. NON-COMPETITION
11.1. TCA hereby covenants and agrees that during the term of this
Agreement, and for a period of one (1) year following the
termination of this Agreement, TCA shall not, for whatever reason
and with or without cause, either individually or in partnership or
jointly or in conjunction with any person or persons, firm,
association, syndicate, company, corporation or entity as principal,
agent, employee, shareholder, owner, investor, partner or in any
other manner whatsoever, directly or indirectly, carry on or be
engaged in or be concerned with or interested in or advise, lend
money to, guarantee the debts or obligations of or permit its name
or any part thereof to be used or employed by any person or persons,
firm, association, syndicate, company, corporation or entity engaged
in or concerned with or interested in the business of manufacturing
producing, marketing, distributing or selling, for wholesale or
retail, any products similar to or competitive with the Technology.
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11.2. The parties agree that all of the restrictions contained herein are
reasonable and valid in these circumstances and will not
unreasonably restrain the trade of TCA and all defenses to the
strict enforcement thereby of GT are hereby waived by TCA.
12. TERM AND TERMINATION
12.1. The Initial Term of this Agreement will be seven (7) years commencing
from the date of execution of this Agreement and will be automatically
renewed for one (1) further seven (7) year Renewal Term unless either
of the parties gives notice to the other at east six (6) months prior
to the end of the Initial Term of its intent not to renew.
12.2. Either party may terminate this Agreement in its discretion if,
immediately upon written notice to the other party, the other party has
a winding up or bankruptcy order made against it (other than for the
purpose of a reconstruction or amalgamation not involving an insolvency
of that party) or if a Receiver or Manager over any of its assets is
appointed or if it becomes unable to pay its debts or if it enters into
any arrangement or composition with or for the benefit of its creditors
or if a resolution is passed for the voluntary winding up or
dissolution of that party or if an Administrator is appointed in
respect of that party or any of its assets or if it is dissolved or any
analogous occurrence under any other jurisdiction.
12.3. GT may terminate this Agreement immediately upon written notice to TCA
if TCA does not present to GT, within ninety (90) days of the end of
the first year of the Initial Term, a written statement by TCA's
auditors that TCA has entered into bona fide, arms-length license and
support agreements with end-user customers, in which the Technology is
a component and which, in the aggregate, will generate annual gross
revenues to TCA in the second year of the Initial Term of at least
$250,000.
13. GENERAL
13.1. This Agreement is to be governed by and construed in all respects in
accordance with the laws of the State of Georgia and the parties agree
to submit to the non-exclusive jurisdiction of the courts of the State
of Georgia as regards any claim or matter arising in relation to this
Agreement.
13.2. The parties expressly waive any right they may have to trial by jury
and agree that any proceeding shall be only to the court sitting
without a jury.
13.3. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and merges all prior
communications.
13.4. If one or more of the provisions is found to be invalid or
unenforceable, that provision shall be deemed to be severed herefrom
tot he extent of the facts in dispute and the remaining provisions
shall remain valid and enforceable.
13.5. This Agreement shall not be assigned by TCA without the prior written
approval of GT, TCA shall not sub-license its rights under this
Agreement to any other person or
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entity and any such sub-license shall be null and void. GT shall
have the right to assign the agreement without notice or consent of
TCA.
13.6. The execution and delivery of the Agreement by either party hereto
by facsimile transmission will constitute valid execution and
delivery of this Agreement.
13.7. Articles 3, 8, 9, 10 and 11 will survive termination of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first noted above.
THE GLOBAL TRACKER TRACKER CORPORATION OF AMERICA:
CORPORATION:
/s/ Jay S. Stulberg /s/ Bruce I. Lewis
- ------------------------------ ---------------------------------------
Signature Signature
- ------------------------------ ---------------------------------------
Name Name
- ------------------------------ ---------------------------------------
Title Title
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Exhibit 10.40
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 24th day of September 1996, between The Tracker Corporation of America a
Delaware corporation (the "Company") and I. Bruce Lewis (the "Executive").
RECITALS
A. The Company provides a unique service for its registered members to
encode their personal possessions for identification purposes. The Company
maintains a database of stored membership information and is the owner of, or
has the right to use this unique identification system, and is the owner of, or
has the right to use the patents, design, trademarks, copyrights and other
intellectual property embodied therein, including certain confidential
information relating to the system and business records, customer and supplier
lists and information with respect to the method of carrying on the business of
the Company. The Executive has been employed by the Company and consequently has
substantial experience and expertise in managing and operating the business of
the Company.
B. The Company desires to retain the services of the Executive as its
President, Chief Executive Officer and Chief Operating Officer, and the
Executive desires and is willing to be employed by the Company in those
capacities.
C. The Company and the Executive desire to embody the terms and
conditions of the Executive's employment in a written agreement, which will
supersede all prior agreements of employment, whether written or oral, between
the Company and the Executive, pursuant to the terms and conditions hereinafter
set forth.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of their mutual covenants and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DUTIES AND TERM
1.1 Employment
(a) The Executive is employed as the President, Chief Executive Officer
and Chief Operating Officer of the Company. The Executive shall have such duties
and responsibilities as shall be assigned to the Executive from time to time by
the Board of Directors of the Company (the "Board") in the Executive's capacity
as the President, and Chief Executive Officer and Chief Operating Officer of the
Company.
(b) The Executive may agree to serve, if elected, as a director of the
Company and as an officer or director of any subsidiary or affiliate of the
Company.
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(c) During the period of his employment hereunder, the Executive shall
devote substantially all of his business time, attention, skill and efforts to
the faithful performance of his duties hereunder; provided, however, that the
Executive may serve or continue to serve on the board of directors or hold other
offices or positions in companies or organizations if they involve no conflict
of interest with the interests of the Company and may engage in customary
professional activities which in the judgment of the Board will not materially
affect the performance by the Executive of his duties hereunder. The Executive
has disclosed to the Board all material business ventures in which he is
currently involved, and subject to approval by the Board (after written notice
to it), may in the future have other business investments and participate in
other business ventures which may, from time to time, require portions of his
time, but shall not interfere with his duties hereunder.
1.2 Term. The term of this Agreement shall commence on October 1, 1996 and
shall continue, unless sooner terminated as provided herein, for three (3) years
(the "Initial Term"). Thereafter, the term of this Agreement shall automatically
be extended for successive one (1) year periods ("Renewal Terms") unless either
the Board or the Executive gives written notice to the other at least ninety
(90) days prior to the end of the Initial Term or any Renewal Term, as the case
may be, of its or his intention not to renew the term of this Agreement. The
Initial Term and any Renewal Terms of this Agreement shall be collectively
referred to as the "Term."
1.3 Location. During the Term of this Agreement, the Executive shall be
based in the principal offices of the Company in the greater Toronto, Ontario,
Canada metropolitan area (hereinafter collectively referred to as the "Base
City"), and shall not be required to be based anywhere other than the Base City,
except for travel reasonably required in the performance of his duties hereunder
and except as may be otherwise agreed to by the Executive in his sole
discretion.
ARTICLE II
COMPENSATION
2.1 Base Salary
(a) Subject to the further provisions of this Agreement, the Company
shall pay the Executive during the Term of this Agreement a base salary at an
annual rate of not less than One Hundred Seventy Five Thousand Dollars
($175,000)(United States currency) (the "Base Salary"). The Base Salary shall be
increased on April 1, 1997 and April 1, 1998 by Thirty Seven Thousand Five
Hundred Dollars ($37,500) (United States currency), respectively, if the Company
generates Positive Cash Flow for the previous fiscal year (for the purposes of
this Agreement, Positive Cash Flow will be determined when the sum of the net
cash used in operating activities, plus the current and long-term deferred
revenue for the fiscal year as disclosed in the Company's annual Consolidated
Financial Statements, is a positive number), which increased salary shall then
become the Base Salary. The Base Salary of the Executive shall not be decreased
at any time during the Term of this Agreement from the amount of Base Salary in
effect from time to time. Participation in deferred compensation, discretionary
bonus, retirement, stock option and other employee benefit plans and in fringe
benefits shall not reduce the Base Salary payable to the Executive under this
Section 2.1. The Base Salary under this Section 2.1 shall be payable by the
Company to the Executive not less frequently than semi-
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monthly.
2.2 Discretionary Bonuses. Subject to the further provisions of this
Agreement, during the Term of this Agreement the Executive shall be entitled to
participate in an equitable matter with all other senior executives of the
Company in such discretionary bonuses an may be authorized, declared and paid to
the Company's senior executives generally. The foregoing shall not give the
Executive the right to participate in any individualized bonus programs whether
or not such bonus programs are applicable to any or all of the Company's other
senior executives.
2.3 Participation in Retirement and Employee Benefit Plans; Fringe
Benefits. The Executive shall be entitled to participate in all plans of the
Company relating to stock options, stock purchases, pension, thrift, profit
sharing, life insurance, hospitalization and medical coverage, disability,
travel or accident insurance, education or other retirement or employee benefits
that the Company has adopted or may adopt for the benefit of its senior
executives, subject to the terms and conditions of such plans. In addition, the
Executive shall be entitled to participate in any other annual fringe benefits,
such as club dues and fees of professional organizations and associations, which
are now or may become applicable to the Company's senior executives, a car
allowance the amount of which shall not exceed $10,000 per annum and any other
benefits which are commensurate with the duties and responsibilities to be
performed by the Executive under this Agreement. The Executive shall, during the
Term of his employment hereunder, continue to be provided with benefits at a
level which shall in no event be less in any material respect than the benefits
available to the Executive as an employee of Tracker Canada as of the date of
this Agreement.
2.4 Vacations. The Executive shall be entitled, without loss of pay, to be
absent voluntarily for reasonable periods of time from the performance of his
duties and responsibilities under this Agreement. All such voluntary absences
shall count as paid vacation time, unless the Board otherwise determines. The
amount and timing of paid vacations shall be scheduled in a manner reasonably
acceptable to the Company and shall conform to the standards set forth in the
policies and procedures, if any, established by the Company with respect to
vacations and other absences.
2.5 Expense Reimbursements. The Company, in accordance with such uniform
expense reimbursement policies and procedures as it may adopt, shall reimburse
all of the Executive's out-of-pocket expenses properly incurred by the Executive
in connection with the performance of his duties hereunder and substantiated to
the Company. Except as provided herein to the contrary, all expense
reimbursements, and other amounts due under this Section 2.6, shall be paid to
the Executive on or before the twenty-fifth (25th) day following the receipt by
the Company of the annual audited financial statements of the Company; provided
however, that the foregoing shall not prevent the Company from paying expense
reimbursements as they are incurred and reported by the Executive.
2.6 Relocation Expenses. If the Company decides to relocate the Executive,
the Company shall pay the Executive, twenty-five percent (25%) of the
Executive's Base Salary (not in excess of $25,000 per occurrence) or shall
reimburse the Executive for expenses in connection with the relocation of the
Executive and his family whichever is less. Such expenses shall include, but
shall not be limited to, real estate sales commissions and expenses incurred in
connection with the sale by the Executive of his principal residence, expenses
associated with
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moving the Executive's household goods, transportation of the Executive and his
family in connection with such relocation and temporary housing as reasonably
required by such relocation.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 Death or Retirement of Executive. This Agreement shall automatically
terminate upon the death or Retirement (as defined in Section 3.4) of the
Executive.
3.2 By the Executive. The Executive shall be entitled to terminate this
Agreement by giving written notice to the Company.
(a) at least ninety (90) days prior to the end of the Initial Term of
any Renewal Term of this Agreement;
(b) for Good Reason (as defined in Section 3.4) prior to a Change of
Control (as defined in Section 3.4); and
(c) for Good Reason following a Change of Control.
3.3 By the Company. The Company shall be entitled to terminate this
Agreement by giving written notice to the Executive, executed by at least
two-third (2/3) of the members of the Board:
(a) at least ninety (90) days prior to the end of the Initial Term of
any Renewal Term of this Agreement;
(b) in the event of the Executive's Disability (as defined in Section
3,4); and
(c) for Cause (as defined in Section 3,4).
3.3 Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Cause" shall mean any of the following:
(i) the conviction of or a plea of guilty or nolo contendere by the
Executive to a felony or serious misdemeanor involving fraud, embezzlement,
theft, dishonesty any other crime involving moral turpitude;
(ii) an act or acts of dishonesty on the part of the Executive in
connection with the performance of his duties hereunder that constitute a felony
or serious misdemeanor and resulting or intended by the Executive to result
directly or indirectly in personal gain or enrichment at the expense of the
Company;
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(iii) failure of or refusal on the part of the Executive to
substantially perform all of his duties hereunder, which failure or refusal
shall not be cured within fifteen (15) days following (A) receipt by the
Executive of a written notice, executed by at least two-thirds (2/3) of the
Board, specifying the factors or events constituting such failure or refusal,
and (B) a reasonable opportunity for the Executive to correct such deficiencies;
(iv) the Executive's use of drugs and/or alcohol in violation of
then current Company policy;
(v) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, momentarily or otherwise;
or
(vi) other material breach of this Agreement by the Executive, which
breach shall not be cured within fifteen (15) days after written notice thereof
to the Executive, executed by at least two-thirds (2/3) of the members of the
Board.
(b) "Change of Control" shall mean a change in ownership or control of
the Company effected through any of the following transactions (other than a
transaction contemplated by the Reorganization Agreement entered into by and
between the Company and Tracker Canada as of May 26, 1994);
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possession more than fifty
percent (50%) of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the Company's
stockholders or other transaction, in any case whether or not the Board
recommends that the Company' stockholders accept this offer.
(ii) a change in the composition of the Board over a period of
thirty-six (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 (A) have been Board members continuously since the beginning of such
period, or (B) 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 (A) who were still in office at the time such election or nomination was
approved by the Board;
(iii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(iv) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in complete liquidation or dissolution of the
Company; or
(v) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such merger.
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(c) "Disability" shall mean the Executive's failure substantially to
perform his duties hereunder on a full-time basis for a period exceeding one
hundred eighty (180) consecutive days or for periods aggregating more than one
hundred eighty (180) days during any twelve (12) month period as a result of
incapacity due to physical or mental illness not due to drug or alcohol abuse.
If there is a dispute as to whether the Executive is or was physically or
mentally unable to perform his duties under this Agreement, such dispute shall
be submitted for resolution to a licensed physician agreed upon by the Board and
the Executive, or if an agreement cannot be promptly reached, the Board and the
Executive will each select a physician, and if these physicians cannot agree,
they will pick a third physician whose decision shall be binding on all parties.
If such a dispute arises, the Executive shall submit to such examinations and
shall provide such information as such physician(s) may request, and the
determination of the physician(s) as to the Executive's physical or mental
condition shall be binding and conclusive; provided, however, that the Executive
shall be conclusively presumed not to be Disabled until the Board provides
written notice to the Executive or his representative, signed by at least
two-thirds (2/3) of the members of the Board, concerning its final determination
of the Executive's status under this Section 3.4(c).
(d) "Good Reason" shall mean any of the following if the same shall
occur without the Executive's express prior written consent:
(i) a material change by the Company in the Executive's function,
duties or responsibilities (including reporting responsibilities), which would
cause the Executive's position with the Company to become of less dignity,
responsibility and importance than those associated with his functions, duties
or responsibilities as of the date of this Agreement, or in the case of a change
of Control, involving duties of a scope less than that associated with the
Executive's most significant position with the Company during the ninety (90)
day period immediately preceding the date such Change of Control occurs;
(ii) the Executive's Base Salary is reduced by the Company;
(iii) relocation of the Executive's principal place of employment to
a place located outside of the Base City;
(iv) the failure by the Company to obtain the assumption by
operation of law or otherwise of this Agreement by any entity which is the
surviving entity in any merger or other form of corporate reorganization
involving the Company or by any entity which acquires all or substantially all
of the Company's assets; or
(v) other material breach of this Agreement by the Company, which
breach shall not be cured within fifteen (15) days after written notice thereof
to the Company.
(e) "Retirement" shall mean normal retirement at age 60 or in
accordance with retirement rules generally applicable to the Company's senior
executives.
ARTICLE IV
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COMPENSATION UPON TERMINATION OF EMPLOYMENT
4.1 Termination by the Company for Cause or by the Executive Without Good
Reason. If the Executive's employment is terminated by the Company for Cause or
by the Executive without Good Reason, the Company shall:
(a) pay the Executive (or his estate or beneficiaries) any Base Salary
which has accrued but not been paid as of the termination date (the "Accrued
Base Salary");
(b) reimburse the Executive (or his estate or beneficiaries) for
allowable expenses incurred by him prior to the date of termination which are
subject to reimbursement hereunder pursuant to applicable Company policies then
in effect (the "Accrued Reimbursable Expenses");
(c) provide to the Executive (or his estate or beneficiaries) any
accrued and vested benefits required to be provided by the terms of any
Company-sponsored benefit plans or programs (the "Accrued Benefits");
(d) pay the Executive (or his estate or beneficiaries) any
discretionary bonus and any individualized bonuses or other payment due to the
Executive under the terms of this Agreement or any other agreement between the
Executive and the Company, which has accrued and been earned but has not been
paid (the "Accrued Bonus"); and
(e) in addition, the Executive (or his estate or beneficiaries) shall
have the right to exercise all vested, unexercised stock options outstanding a
the termination date in accordance with the terms of the plans and agreements
pursuant to which such options were issued.
4.2 Termination by the Company Without Cause or by the Executive for Good
Reason Prior to a Change of Control or due to the Expiration of the Term of this
Agreement, or the Death or Disability of the Executive. If the Executive's
employment is terminated by the Company without Cause or by the Executive for
Good Reason, in each case prior to a Change of Control, or due to the expiration
of the Term of this Agreement, or the death or Disability of the Executive, the
Company shall:
(a) pay the Executive the Accrued Base Salary;
(b) pay the Executive the Accrued Reimbursable Expenses;
(c) pay the Executive the Accrued Benefits pursuant to the terms of the
plans, programs or arrangements governing such Accrued Benefits, including any
benefits required to be paid or provided in the event of the Executive's death
or Disability under applicable law;
(d) pay the Executive the Accrued Bonus;
(e) pay the Executive his Base Salary, as and when the same would have
been paid to the Executive pursuant to Section 2.1 had the termination not
occurred, until the end of the then current Term of this Agreement; provided,
however, than in no event shall the Base Salary paid to the Executive pursuant
this Section 4.2(e) be for less than one (1) year;
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(f) maintain in full force and effect, for the continued benefit of the
Executive and his eligible beneficiaries, until the first to occur of (I) his
attainment of alternative employment; provided that, except in the case of death
or Disability, the Executive agrees to use reasonable efforts to obtain suitable
employment with another company following termination; or (ii) twelve (12)
months following the termination date, the employee benefits pursuant to
Company-sponsored benefit plans, programs or other arrangements in which the
Executive was entitled to participate immediately prior to such termination, but
only to the extent that the Executive's continued participation is permitted
under the general terms and provisions of such plans, programs and arrangements;
and
(g) in addition, the Executive (or his estate or beneficiaries) shall
have the right to exercise all vested, unexercised stock options outstanding at
the termination date in accordance with the terms of the plans and agreements
pursuant to which such options were issued.
4.3 Upon Termination by the Company Without Cause or by the Executive for
Good Reason Following a Change of Control.
(a) If, following a Change of Control, the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason, the
Company shall make the payments and provide to the Executive the same benefits
set forth in Section 4.2 hereof. In addition, all unvested stock options owned
by the Executive at the date of termination shall become fully vested at the
termination date, and the Executive (or his estate or beneficiaries) shall have
the right to exercise all vested, unexercised stock options outstanding at the
termination date (including the accelerated options) in accordance with the
terms (except the vesting terms with respect to the accelerated options) of the
plans and agreements pursuant to which such options were issued.
(b) Notwithstanding anything herein to the contrary, if the
deductibility by the Company of any payments to be made to the Executive under
this Agreement would be limited by Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") or if an excise tax would be imposed with respect
to such payments under Section 4999 of the Code, or any successor provisions
thereto, the payments to be made to the Executive hereunder shall automatically
be limited to an amount equal to the maximum amount that would otherwise be
deductible by the Company under Code Section 280G and that will not result in an
excise tax under Code Section 4999; provided, however, that if pursuant to a
final determination of a court of competent jurisdiction or an Internal Revenue
Service proceeding that, notwithstanding the good faith of the Executive and the
Company in applying the terms of this Agreement, any portion of the aggregate
payments made hereunder would not be deductible by the Company under Code
Section 280G, the Executive agrees to pay to the Company, upon demand, an amount
equal to the sum of (I) the portion of such amount that would not be deductible
by reason of Code Section 280G, and (ii) interest on the amount set forth in
clause (I) of this sentence at the Applicable Federal Rate (as defined in
Section 1274(d) of the Code) from the date of receipt of such excess payment
through the date of repayment. In applying the provisions of this Section, if,
for any reason, any exemption from the applicable of the rules of Sections 280G
and/or 4999 of the Code shall be available under the terms of said sections or
under any applicable regulations or rulings thereunder, such exemption shall be
fully applied.
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No payment under this Agreement or otherwise that is not a "parachute payment"
under Section 280G of the Code shall be taken into account in applying the
provisions of this Section. Calculations necessary to be made in applying the
provisions of this Section shall be made by the public accounting firm serving
as the Company's independent auditor immediately prior to a Change of Control,
whose determination, made in good faith, shall be binding and conclusive upon
both the Company and the Executive.
4.4 Restricted Stock. If the Executive's employment is terminated pursuant
either to Section 4.2 or Section 4.3 hereof at a time when the Executive holds
Company stock which constitutes "restricted securities" within the meaning of
Securities and Exchange Commission Rule 144(a)(3), then the Company will use its
best efforts to eliminate the restrictions applicable to such shares of Company
stock and to make such shares of Company stock freely tradable by the Executive.
ARTICLE V
RESTRICTIVE COVENANTS
5.1 Confidentiality.
(a) The executive agrees that, during the Term of this Agreement, and
at any time following its termination, he will keep all trade secrets and/or
proprietary information (collectively, "Confidential Information") of the
Company in strict confidence and agrees not to disclose any Confidential
Information to any other person, firm, association, partnership, corporation or
other entity for any reason except as such disclosure may be required in
connection with his employment hereunder. The Executive further agrees, during
the Term of this Agreement, and at any time following its termination not to use
any Confidential Information for any purpose except on behalf of the Company.
(b) For purposes of this Agreement, "Confidential Information" shall
mean any information, process or idea that is not generally known in the
industry, that the Company considers confidential, and/or that gives the Company
a competitive advantage, including, without limitation, computer program
listings, source code and object code; all information relating to hardware,
software and other technology under development by or licensed to the Company,
including but not limited to schematics, prototypes, flow charts, design
statistics, specifications, evaluations, test results and beta-test results;
customer lists and records; hardware design and/or programming techniques and
development tools; joint ventures with other companies; suppliers, production
costs or production information; business or marketing plans; business
forecasts; management information systems; trade secrets; processes; formulae;
know-how; methods and procedures of operation; proposals; budgets and forecasts;
sales records and any other licensed, patented or copyrighted documentation. The
Executive understands that the above list is intended to be illustrative and
that other Confidential Information may currently exist or arise in the future.
If the Executive is unsure whether certain information or material is
Confidential Information, the Executive shall treat that information or material
as confidential unless the Executive is informed by the Company, in writing, to
the contrary. "Confidential Information" shall not include any information
which; (I) is or becomes publicly available through no act or failure of the
Executive; (ii) was or is rightfully learned by the Executive from a source
other than the Company before being received from the Company; or (iii) becomes
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independently available to the Executive as matter of right from a third party.
If only a portion of the Confidential Information is or becomes publicly
available, then only that portion shall not be Confidential Information
hereunder.
(c) In the event that the Executive shall make any invention,
discovery, design improvement or copyright work (collectively, an "Invention")
relating to or capable of being used in the business of the Company, the
Executive shall promptly disclose to the Company the full details thereof. The
Executive hereby acknowledges and agrees that the Company shall have full
ownership rights in any such Invention, by virtue of the fact that the Executive
is employed by the Company. Without limiting the generality of the foregoing,
the Executive agrees that he shall execute any and all documentation reasonably
requested by the Company to assign all right, title and interest in any
Invention to the Company.
(d) The Executive further agrees that upon termination of his
employment with the Company, for whatever reason, the Executive will surrender
to the Company all of the property, client lists, notes, manuals, reports,
documents and other things in the Executive's possession, including copies or
computerized records thereof, which relate directly or indirectly to
Confidential Information.
5.2 Competition.
(a) The Executive agrees that during his employment with the Company
and for a period of one (1) year following the date of termination of his
employment hereunder for any reason (whether such termination shall be voluntary
or involuntary), the Executive, either individually or in conjunction with any
other person or entity, shall not, within the geographic boundaries or the North
American continent (the "Area"):
(i) except as a passive investor in publicly-held companies, and
except for investments held as of the date hereof, directly or indirectly own,
operate, manage, consult with, control, participate in the management or control
of, be employed by, maintain or continue any interest whatsoever in any person
or entity that directly or indirectly competes with the Company, or has as a
business purpose either competition with the Company or carrying on business
dealings which are reasonably capable of having an adverse effect on the
business of the Company; or
(ii) directly or indirectly solicit any business of a nature that is
directly competitive with the business of the Company from, or in any way
interfere with the Company's business relationships with, any individual or
entity that obtained products or services from the Company or its affiliates, or
that was a supplier of the Company or its affiliates, with whom the Company had
active business dealings, whether or not solicited by the Executive on behalf of
the Company, at any time during his employment with the Company, or in any other
way try to divert or attempt to divert from the Company any business, the origin
of which is within the Area; or
(iii) employ, or directly or indirectly solicit, or cause the
solicitation of, or in any way interfere with the employment by the Company or
its affiliates of, any employees (or independent contractors) of the Company who
are in the employ of the Company or its
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affiliates on the termination date of his employment hereunder for employment by
the Executive or others.
(b) The Executive expressly agrees and acknowledges that:
(i) this covenant not to compete is reasonably necessary for the
protection of the interests of the Company and is reasonable as to time and
geographical area and does not place any unreasonable burden upon him;
(ii) the general public will not be harmed as a result of
enforcement of this covenant not to compete;
(iii) his personal legal counsel has reviewed this covenant not to
compete; and
(iv) he understands and hereby agrees to each and every term and
condition of this covenant not to compete.
5.3 Remedies. The Executive expressly agrees and acknowledges that the
covenant not to compete set forth in Section 5.2 is necessary for the Company's
and its affiliates' protection because of the nature and scope of their business
and his position with the Company. Further, the Executive acknowledges that, in
the event of his breach of his covenant not to compete, money damages will not
sufficiently compensate the Company for its injury caused thereby, and he
accordingly agrees that in addition to such money damages he may be restrained
and enjoined from any continuing breach of the covenant not to compete without
any bond or other security being required. The Executive acknowledges that any
breach of the covenant not to compete would result in irreparable damage to the
Company The executive further acknowledges and agrees that if the covenant not
to compete herein is deemed to be unenforceable and/or the Executive fails to
comply with this Article V, the Company has no obligation to provide any
compensation or other benefits described in Article IV hereof. The Executive
acknowledges that the remedy at law for any breach or threatened breach of
Sections 5.1 and 5.2 will be inadequate and, accordingly, that the Company
shall, in addition to all other available remedies (including without
,imitation, seeking such damages as it can show it has sustained by reason of
such breach), be entitled to injunctive relief or specific performance.
ARTICLE VI
MISCELLANEOUS
6.1 No Assignments. This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. This
Agreement shall be binding upon and inure to the benefit of any successor
corporation to the Company. The provisions of this Section 6.1 shall not
prevent, or require the consent of the parties hereto to, the assignment of this
Agreement in connection with the transactions contemplated by the Reorganization
Agreement entered into by and between the Company and Tracker Canada as of May
26, 1994.
(a) The Company shall use reasonable efforts to require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of
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the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as defined herein
and any successor to its business and/or assets which assumes this Agreement by
operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder
had he continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee, or if there is not such designee, to his estate.
6.2 Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or within five (5) business days
after mailing if mailed by United States or Canadian certified or registered
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other addresses as either party may have
furnished to the other in writing in accordance herewith, except that notice of
a change of address shall be effective only upon actual receipt:
To the Company: The Tracker Corp. of America
180 Dundas Street West
Suite #1502
Toronto, Ontario M5G 1Z8
To the Executive: I. Bruce Lewis
44 The Bridle Path
North York, Ontario
Canada M2L 1C8
Notices pursuant to Article III of this Agreement shall specify the specific
termination provision relied upon by the party giving notice and shall state the
effective date of the termination.
6.3 Amendments or Additions. No amendments or additions to this Agreement
shall be binding unless in writing and signed by each of the parties hereto.
6.4 Section Headings. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
6.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If, in any
judicial proceedings, a court shall refuse to enforce one or more of the
covenants or agreements contained herein because the duration thereof is too
long, or the scope thereof is too broad, it is expressly agreed between the
parties hereto that such scope or
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duration shall be deemed reduced to the extent necessary to permit the
enforcement of such covenants or agreements.
6.6 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be original but all of which together shall
constitute one and the same instrument.
6.7 Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively in the manner set forth in this
Section 6.7. If the Company and the Executive disagree on any matter arising
under or in connection with this Agreement, either party shall have the right to
deliver to the other party a written request ( a "Consent Request") that the
other party consent to the position of the requesting party with respect to the
matter in question. The parties shall negotiate in good faith to resolve the
matters set forth in the Consent Request. If the parties are unable to agree on
a matter set forth in a Consent Request within ten (0) days following delivery
thereof, then the parties shall select one arbitrator, who shall be
knowledgeable in the high technology industry. If the parties fail to agree upon
an arbitrator within ten (10) days, either party may request the Office of the
president of the American Arbitration Association to do so. Each party shall
then submit its or his position in writing to the arbitrator within ten (10)
days of the arbitrator's selection. After receiving the written positions of the
parties, and after a hearing, if the arbitrator deems a hearing to be necessary,
the arbitrator shall and must select the position offered by one of the parties.
Such arbitration procedure shall be commenced immediately upon selection of the
arbitrator and shall be completed within forty-five (45) days. The decision of
the arbitrator shall be final and binding on the parties. Notwithstanding any
other provision of this Agreement, if any termination of this Agreement becomes
subject to arbitration, the Company shall not be required to pay any amounts to
the Executive (except those amounts required by law) until the completion of the
arbitration and the rendering of the arbitrator's decision. The amounts, if any,
determined by the arbitrator to be owned by the Company to the Executive shall
be paid within five (5) days after the decision by the arbitrator is rendered.
All matters approved pursuant to this Section 6.7 shall be deemed conclusively
to have been approved or agreed upon by the parties for all purposes of this
Agreement. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The costs and expenses of such arbitration shall be borne in
accordance with the determination of the arbitrator.
6.8 Modifications and Waivers. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer of the Company
as may be specifically designated by the Board. No waiver by either party hereto
at any time of any breach by the other party hereto of, compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver or similar or dissimilar provisions or conditions a the
same or at any prior or subsequent time.
6.9 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles.
13
<PAGE> 14
6.10 Survival. The obligations of the Company under Article IV hereof and
the obligations of the Executive under Article V hereof shall survive the
expiration of this Agreement.
6.11 Assignment. Notwithstanding Article 6.1, the Executive and the
Company agree that the Executive may assign the benefits but not the obligations
of this Agreement to an entity controlled by him or under common control with
him.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first indicated above.
THE COMPANY
THE TRACKER CORPORATION OF AMERICA
WITNESS: __________________ BY: /S/ MARK GERTZBEIN
ITS: DEPUTY CHAIRMAN OF THE BOARD
OF DIRECTORS, PURSUANT TO
COMPENSATION COMMITTEE
THE EXECUTIVE
WITNESS: __________________ /S/ BRUCE LEWIS
I. BRUCE LEWIS
14
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-14229 and 333-14685) of The Tracker Corporation
of America, Inc. of our report dated June 24, 1997 appearing in this Form 10-K.
We also consent to the reference to us under the heading "Selected Consolidated
Financial Data" in this Form 10-K.
PricewaterhouseCoopers LLP
Phoenix, Arizona
November 2, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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