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, 1999, 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
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THE TRACKER CORPORATION OF AMERICA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 86-0767918
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(State or Other Jurisdiction (I.R.S. Employer
Incorporation or of Organization) Identification No.)
180 DUNDAS STREET WEST, SUITE 1505, TORONTO, ONTARIO, CANADA M5G1Z8
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(Address and Zip Code of Principal Executive Offices) (Zip Code)
(416) 593-2604
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934: NONE
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Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934: NONE
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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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
As of June 30, 1999, there were issued and outstanding 50,388,579 shares of
the Registrant's capital stock, consisting of 50,388,579 shares of the
Registrant's common stock, par value $0.001 per share (the "Common Stock").
[46,212,506] 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 $[13,863,752] (calculated on the basis of
$0.30 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 June 30, 1999).
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.
Registration Statement on Form S-8, filed with the Securities and Exchange
Commission on January 14, 1999, Registration Number 333-70615.
Registration Statement on Form S-8, filed with the Securities and Exchange
Commission on January 14, 1999, Registration Number 333-70565.
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TABLE OF CONTENTS
PART I
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1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 11
PART II
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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
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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
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14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38
15. Signatures 43
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
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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 and corporate
property marking and monitoring system (the "Tracker System"). The Tracker
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 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 and business and marketing planning.
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. 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 alleging the Company's credit card registration service had violated
Section 5 of the Federal Trade Commission Act and the FTC Trade Regulator
<PAGE>
Telemarketing Sales Rule. 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. The settlement,
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 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.
Since February 26, 1998, Global Tracker has expended approximately $700,000
to support the Company's business operations. Jay S. Stulberg, Company's
President, Chief Operating Officer and Chief Financial Officer, has personally
loaned Global Tracker approximately $20,000 (USD) in operating capital. Jay S.
Stulberg is Global Tracker's sole shareholder. 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 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.
<PAGE>
Contemporaneously, Global Tracker entered into short-term agreements with
the Company to provide (i) management services, research and development and
customer support, and (ii) office equipment, including computers, local area
network, telephone system, copier, fax and furniture.
THE PRODUCT
THE TRACKER(TM) SYSTEM
The Tracker 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 has developed 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. Scanners are also utilized with the Company's inventory
control and asset management systems. As of June 30, 1999, the Company had
placed scanners in 34 police stations and other sites in Canada and 24 sites in
the United States, as compared to 39 placements in Canada and 25 in the United
States as of June 30, 1998.
<PAGE>
Recovery System
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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 June 30, 1999, utilization of The Tracker System had resulted in
over 500 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 System to a limited test market in
Toronto, Canada in October 1994. The Company also began testing potential
markets for The Tracker 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. The personal
property recovery kit included 24 possession labels, eight clothing labels and
10 assorted shoe, key, luggage, and pet tags. The initial purchase was packaged
as a membership service term. In addition to the personal property kit, the
Company also marketed the system indirectly as a value-added service offered by
third parties.
While management has conceived of many other potential applications for The
Tracker System, the Company's past experience and present financial
circumstances dictate a more narrowly focused strategy. A more narrowly defined
product/service is being proposed for the consumer market. For the business
market, the Company has developed applications for fixed asset management and
point of manufacture warranty protection
Applications
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Inventory Control. The Company believes that The Tracker 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.
<PAGE>
Fixed Asset Management. The Company also believes that The Tracker System
can provide an efficient method for tracking and managing fixed assets. The
Company has recently completed the sale and installation of a newly designed
fixed asset management service for Sony Corporation ("Sony"). The service
links labels affixed to certain of Sony's physical assets to information
contained in the Company's relational database and recovery network.
Point of Manufacture. Manufacturers of products, such as computer chips,
bicycles, power tools, electronic equipment, cameras and auto parts, can use The
Tracker 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
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The Company's long-term strategy is to introduce applications of The Tracker
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 System as an inventory control and fixed asset
management program to Fortune 1000 companies.
MARKETING AND DISTRIBUTION
The Company is approaching the marketing and distribution of The Tracker
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.
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 February 1999, Schwinn placed an additional order for 50,000 Tracker labels
to be combined with bicycle locks Schwinn is manufacturing in Taiwan.
The Company also intends to approach affinity groups, such as charities and
police benevolent societies, to market Tracker labels as promotional incentives.
<PAGE>
Finally, the Company intends to explore the feasibility to establishing an
international pet registry marketed through veterinarians, animal shelters and
humane societies.
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 System
as an inventory and asset management program for Fortune 1000 companies.
Material Backlogs; Commissions
--------------------------------
The Company has no material backlog of orders. The Company has granted,
and may grant in the future, commissions and other payments in connection with
the distribution of its products.
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. 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 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.
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%. On May 18, 1999, the Company entered
<PAGE>
into an agreement 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.
COMPETITION
The Company faces competition from firms providing alternative personal
property identification methods. These methods include tracking by serial
number, tracking by the personal property owner's imprinted name and address and
conventional forms of insurance that reimburse consumers for lost items.
Although no firm commands significant market share, most have substantially
greater financial, technical, marketing and management resources than the
Company. 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. There can be no assurance that the Company will be able to compete
successfully with existing or new competitors.
INTELLECTUAL PROPERTY PROTECTION AND INFRINGEMENT
The Company will rely on a combination of patent laws (if applicable),
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.
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. 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 requires additional capital to implement its business plan and
satisfy the claims of its major creditors. The failure to settle these claims
for substantially less than what its major creditors demand would have a
material adverse effect on the Company's prospects.
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 2002.
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. For a complete discussion on capital requirements, see
<PAGE>
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Capital Requirements."
EMPLOYEES
As of June 30, 1999, the Company, through contractual arrangements with
Global Tracker, employed a total of 16 persons, including two in management,
three in administration and accounting, six in operations (three of whom are
part-time), four 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.
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
The Company is not subject to any governmental regulations other than those
applicable to businesses generally. Although the Company believes it is in
compliance with all currently applicable regulations, additional regulations
could be enacted in the future that could have an adverse effect on the
Company's business, operating results and financial condition. The Company is
not affected by federal, state or provincial, and local environmental protection
laws and regulations.
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, 1999, the Company will vacate its existing premises
and occupy approximately 3,500 square feet of office premises in Toronto leased
by Global Tracker for the Company on the same terms and conditions at a rate of
$5,000 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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware
of any pending or threatened litigation that would have a material adverse
effect upon the Company's business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
During the third quarter of the fiscal year ended December 31, 1998, the
security holders of the Company amended the Company's Articles of Incorporation
to authorize the issuance of 50,000,000 shares of Common Stock, 6,500,000 shares
of blank check preferred stock and 100,000 shares of Class B Common Stock.
During the fourth quarter of the fiscal year ended March 31, 1999, 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 Bloomberg L.P. These quotations reflect inter-dealer
prices, without adjustments for retail markups, markdowns or commissions, and do
not represent actual transactions.
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Quarter Ended High Low
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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
September 30, 1998 $ 0.09 $ 0.075
December 31, 1998 $ 0.11 $ 0.05
March 31, 1999 $0.1775 $0.0725
June 30, 1999 $ 0.35 $ 0.10
</TABLE>
On June 30, 1999, the high and low bid quotations for the Company's Common
Stock on the OTC Bulletin Board were $0.320 and $0.280, respectively. As of
June 30, 1999, there were 50,388,579 shares of Common Stock outstanding held by
approximately 355 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 1995, 1996 and 1997 and for the years ended March 31,
1995, 1996 and 1997 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 1999 and for the year ended
March 31, 1998 and 1999 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.
<PAGE>
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CONSOLIDATED STATEMENT OF OPERATIONS Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended March Ended Ended
March 31, 1995 March 31, 1996 31, 1997(1) March 31, 1998 March 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues $ 10,187 $ 106,522 $ 138,462 $ 51,551 $ 126,875
Loss from continuing operations (5,068,583) (6,090,730) (163,483) (152,517) (1,030,979)
Gain (loss) from discontinuing -- -- (3,544,595) 62,050 279,225
Operations Net Income (Loss)
per share of common stock 0.71 0.57 0.22 0.004
0.023
CONSOLIDATED BALANCE SHEET DATA March 31, 1995 March 31, 1996 March 31, 1997 March 31, 1998 March 31, 1999
Total assets $ 1,669,452 $ 1,193,742 $ 4,238,345 $ 1,476,814 $ 487,921
Total current liabilities 1,446,543 2,393,631 6,026,589 3,275,560(2) 1,748,376
Long-term debt -- -- 613,131 412,846 215,244
Stockholders' equity (deficit) 222,909 (1,378,742) (2,401,375) (2,211,591) (1,475,699)
Working capital (444,686) (1,728,529) (2,583,835) (2,087,861) (1,416,128)
<FN>
(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, 1999 are $ 507,599 of subordinated debentures and $ 197,602 of
current deferred revenues (as compared $507,599 of subordinated debentures and $1,798,727 of current deferred revenues for
March 31, 1998, with $590,746 of 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).
</TABLE>
As of March 31, 1999, the Company is in default in the payment of interest
to its subordinated debentureholders in the aggregate amount of $115,209. The
Company has contacted all subordinated debentureholders by written
correspondence and asked that they forebear from any collection action. To
date, no collection action has commenced.
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 that third parties may assert infringement claims
against the Company in the future; the risk that the Company may not be able to
compete with existing or new competitors; the risks inherent in international
operations; and other risks detailed in this Report and in the Company's other
filings with the Securities and Exchange Commission.
There can be no assurance that the forward-looking information contained in
this Report will prove to be accurate. The risks and uncertainties discussed
above increase the uncertainty inherent in such forward-looking information.
Accordingly, there may be differences between the actual results or plans and
<PAGE>
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 conducted no significant operations or activities.
Tracker Canada, which originated the present line of business, The Tracker
System, had its inception on May 6, 1993. The Company has been in the
development stage since its formation.
The Company launched The Tracker System in a limited test market in
Toronto, Canada in October 1994. The Company also began to test potential
markets for The Tracker 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. Those efforts were
unsuccessful.
In September 1997, the U.S. Federal Trade Commission filed a lawsuit against the
Company in federal district court alleging 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. The Company settled the
FTC lawsuit on July 28, 1998. The settlement 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.
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")
acquired substantially all of Tracker Canada's assets at arm's length in a
bankruptcy proceeding. Shortly thereafter, Global Tracker entered into an
agreement 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.
The Company continues to believe that The Tracker 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, 1999, the Company incurred a net loss of $751,754 (net of a
$279,225 gain from discontinued operations) and, at the end of such period, had
an accumulated deficit of $17,707,856. 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, 1999, the Company had realized
revenues of 413,033,217 (including discontinued operations of $12,599,621). The
<PAGE>
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
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, 1999, the amount of deferred revenue (current and long term) was
$412,846 compared with $2,211,573 as of March 31, 1998.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Cash sales for the fiscal year ended March 31, 1999 decreased to $126,875 (NIL
discontinued operations) as compared to $5,731,777 ($5,680,226 from discontinued
operations) for the fiscal year ended March 31, 1998. Because the Company
recognized these cash sales on a straight-line basis over the term of service
offered, recorded revenues for the fiscal year ended March 31, 1999 decreased to
$1,925,602 as compared to $8,642,737 for the fiscal year ended March 31, 1998.
The decrease in revenues during the year was due primarily to the Company's
recognition of deferred revenues from its now discontinued credit card
registration service.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------------------- -------------------------
Continuing Discontinued Continuing Discontinued
operations operations operations operations
<S> <C> <C> <C> <C>
Cash Sales $ 126,875 $ NIL $ 51,551 $ 5,680,226
Revenue $ 126,875 $ 1,798,7276 $ 51,551 $ 8,591,186
Net Income (loss) ($1,030,979) $ 279,225 ($152,517) $ 62,050
</TABLE>
During the fiscal year ended March 31, 1999, the Company incurred a net
loss of $1,030,979 as compared to a net loss of $152,517 for the fiscal year
ended March 31, 1998. These losses included total development costs in the
amount of $1,086,223 for the fiscal year ended March 31, 1999 as compared to
$183,408 for the fiscal year ended March 31, 1998
The Company while continuing in its efforts to minimize its operating cash
"burn" rate from continuing operations has had to increase its expenditures by
an additional 592% when comparing the fiscal year ended March 31, 1999 to the
fiscal year ended March 31, 1998, in order to generate new initiatives to
replace revenues from discontinued operations. The largest increase in
expenditures when comparing the fiscal year ended March 31, 1999 to the fiscal
year ended March 31, 1998 can be noted in the Operations category of Development
Costs as the Company continued to service customers from the discontinued
operations as well as invested in the development of new applications of The
Tracker System.
<PAGE>
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 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
From inception at May 6, 1993 through March 31, 1999, the Company has
received approximately $NIL in net cash from financing activities, net of
discontinued operations, some of which are noted below.
During the year ended March 31, 1999, the Company's net cash used in
operations was $795,745 as compared to $505,244 for the year ended March 31,
1998. 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, 1999, the Company had total current assets of $332,248 as
compared to $1,187,699 at March 31, 1998. Current assets consisted of accounts
receivable of $97,843 as compared to $NIL at March 31, 1998, prepaid expenses of
$120,000 as compared to $NIL at March 31, 1998 and current deferred charges in
the amount of $114,405 as compared to $1,187,699 at March 31, 1998. The
decrease in current assets resulted mostly from the amortization of deferred
charges remaining from discontinued operations after the liquidation of Tracker
Canada's assets in February 1998. See "Overview" above.
As of March 31, 1999, the Company had amount due from stockholders in the
amount of $14,072 as compared to $14,072 at March 31, 1998 and long-term
deferred charges totaling $141,600 as compared to $275,043 at March 31, 1998.
<PAGE>
The decrease in net property and equipment also resulted from the Tracker Canada
liquidation since Tracker Canada held those assets.
As of March 31, 1999, the Company had liabilities of $1,748,376 as compared to
$3,275,560 at March 31, 1998. Such liabilities consisted of accounts payable in
the amount of $458,352 at March 31, 1999 as compared to $440,835 at March 31,
1998, accrued liabilities in the amount of $584,823 as compared to $528,399 at
March 31, 1998, deferred revenues in the amount of $197,602 as compared to
$1,798,727 at March 31, 1998, debentures in the amount of $31,809 as compared to
$31,809 at March 31, 1998, and convertible subordinated debentures in the amount
of $475,790 as compared to $475,790 at March 31, 1998. The Company had
long-term deferred revenues in the amount of $215,846 at March 31, 1999 as
compared to $412,846 at March 31, 1998.
As of March 31, 1999 and March 31, 1998, respectively, the Company had
accumulated deficits of $17,753,037 and $17,001,283. To date, the Company has
financed its research and 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
<PAGE>
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.
CAPITAL REQUIREMENTS
The Company requires additional capital to implement its business plan and
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.
During the upcoming 12 months, the Company will seek additional equity. 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. 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.
The Company has minimized the Company's cash requirements by (i) reducing
staff to minimal safe operating levels; (ii) compensating certain senior
management in stock rather than cash; and (iii) otherwise controlling 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 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 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 System. The Company has assessed 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.
Management is in the process of implementing the necessary software vender
<PAGE>
upgrades and modifications to ensure that its accounting operations, database
management and general business systems remain functional with the year 2000.
The cost thereof is not expected to exceed $20,000. The Company's proprietary
software programs were developed on year 2000 compliant platforms. The Company
is not dependent upon computer systems of any significant customers, vendors or
other third parties in the course of normal business.
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, 1999 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 previous year,
there was no financial statement 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 report on the financial statements as of and for the year
ended March 31, 1997 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 years ended, March 31, 1998 and March 31, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
<PAGE>
The following table sets forth certain information with respect to the
Company's executive officers and directors as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------------------------------
<S> <C> <C>
Bruce I. Lewis 59 Chief Executive Officer and Chairman of the Board of Directors
Jay S. Stulberg* 49 President, Chief Operating Officer, Chief Financial Officer and Director
Dr. H. Joseph Greenberg* 77 Director
Carl J. Corcoran* 62 Director
David G.R. Butler* 63 Director
<FN>
_______________________
*Nominee.
</TABLE>
BRUCE I. LEWIS has been the Chairman of the Board of Directors and Chief
Executive Officer of Tracker U.S. since June 30, 1994, and President of Tracker
U.S. from August 12, 1995 to December 22, 1998. 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 December 22, 1998, Mr. Lewis served as
interim Chief Financial Officer.
JAY S. STULBERG has been President, Chief Operating Officer and Chief
Financial Officer of the Company and a Director of the Company since December
22, 1998 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. 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 Controller (i.e., the Senior
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 a Director of the Company since December 22,
1998 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 a Director of the Company since December 22, 1998
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
<PAGE>
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.
DAVID G. R. BUTLER has been a Director since December 22, 1998 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 is comprised of Messrs. Lewis and Stulberg. The
Audit Committee, 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 is comprised of Mr. Corcoran (Chairman) and Dr. Greenberg. The
Compensation Committee, which is 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") and 1998
Stock Incentive Plan (the "1998 Plan").
<PAGE>
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.
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 $100,000 for services rendered in
all capacities to the Company for fiscal 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
------------------------- -------------------------- --------
Restricted Securities All Other
Stock Under-Lying LTIP Compensation
Name and then- Salary Bonus Other Award(s) Options/SARs Payouts ($)
Principal Position Year ($) ($) ($)(1) ($) (#) ($)
- --------------------- ---- -------- ------ ------- ----------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BRUCE I. LEWIS, CEO 1999 0 0 175,000 2,488,578
1998 43,750 10,000 131,250
1997 175,000 10,000
JAY S. STULBERG,
President, COO & CFO 1999 40,000 85,000 2,488,578
<FN>
(1) $NIL Automobile allowance
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
On September 22, 1998, 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 April 1, 2000, a maximum automobile
allowance of $10,000 and eligibility for discretionary bonuses.
<PAGE>
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.
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 twelve (12). The total number of non-employee directors who may
receive grants under the 1994 Plan is three (3). 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,
<PAGE>
performance units, restricted shares or deferred shares to participants and to
resolve all questions relating to the administration of the 1994 Plan. Members
of the Committee are not eligible to receive grants or awards under the 1994
Plan other than the automatic grants to non-employee directors. See "EXECUTIVE
COMPENSATION - 1994 Stock Incentive Plan - - Stock Options for Non-Employee
Directors."
STOCK OPTIONS. Under the 1994 Plan, the Committee may grant options to
purchase shares of Common Stock, including options qualifying as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to employees as additional compensation for their services
to Tracker U.S. Options may be granted prior to termination of the 1994 Plan,
which will occur on the earlier of June 29, 2004 or the date on which all awards
available for issuance in the last year of the 1994 Plan will have been issued
or canceled. Options granted are subject to adjustment in the event of a stock
split, stock dividend or other change in the Common Stock or the capital
structure of Tracker U.S.
Options are exercisable over such period as determined by the Committee,
but no incentive stock option may be exercised after ten years from the date of
grant. However, the option term of incentive stock options which are granted to
holders of ten percent or more of Tracker U.S.'s combined voting power shall not
exceed five years from the date of grant. Options may be exercisable in
installments as determined by the Committee and are evidenced by option
agreements. No option may be transferred other than by will or by the laws of
descent and distribution. Options generally cannot be exercised after the
termination of service, except under certain circumstances where such
termination of service is with the consent of the Committee or due to
retirement, disability or death, in which event the Committee (subject in any
case to the foregoing limitation on the maximum term of incentive stock options)
may take any action it deems equitable or in the best interests of Tracker U.S.
The purchase price of Common Stock subject to an incentive stock option cannot
be less than 100% of the fair market value of such Common Stock on the date of
grant. The purchase price of Common Stock subject to a nonqualified option may
be less than, equal to or greater than the fair market value of such Common
Stock on the date of grant. However, if any individual to whom an incentive
stock option is granted is the owner of stock (as determined under Section
424(d) of the Code) possessing 10% or more of the total combined voting power of
all classes of Stock of 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, 1999, options for 5,377,157 shares,
vesting over a three-year period, were granted at fair market value.
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
<PAGE>
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.
PERFORMANCE SHARES AND PERFORMANCE UNITS. Performance shares and
performance units entitle the participant to receive cash or shares of Common
Stock, or a combination thereof, based upon the degree of achievement of
pre-established management objectives over a pre-established performance period
determined by the Committee in its discretion. The Committee may adjust the
management objectives, and the related minimum acceptable level of achievement,
after the date of grant to avoid distortion that would otherwise result from
events not related to the performance of the participants occurring after the
date of grant. Management objectives are fixed by the Committee in its
discretion on the basis of such criteria and to accomplish such objectives as
the Committee may select. The Committee has sole discretion to determine the
participants eligible for performance shares or performance units, the duration
of each performance period, the value of each performance unit and the number of
shares or units earned on the basis of Tracker U.S.'s performance relative to
the established objectives. At the end of the performance period, the Committee
will determine the number of performance shares and the number of performance
units which have been earned on the basis of Tracker U.S.'s performance in
relation to the performance objectives. Generally, a participant must be an
employee at the end of the performance period to receive the performance shares
or units; provided, however, that if the participant dies, retires, becomes
disabled or ceases to be an employee prior to the end of the period with the
Committee's consent, and in certain other circumstances, the Committee may take
any action it deems equitable or in the best interests of Tracker U.S.
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.
<PAGE>
DEFERRED SHARES. The Committee may grant deferred shares to participants
under the 1994 Plan. Each grant or sale of deferred shares will be subject to
the fulfillment of conditions and a deferral period specified by the Committee.
During the deferral period, the participant will have no right to transfer the
award, no right of ownership in the deferred shares, and no right to vote the
deferred shares. The Committee, however, may authorize payment of dividend
equivalents on the deferred shares in cash or shares of Common Stock of Tracker
U.S. on a current, deferred or contingent basis. Grants may be made without
additional consideration or in consideration of a payment by the participant
that is less than the fair market value on the grant date.
STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS. Under the 1994 Plan as
originally adopted, each non-employee director elected or appointed on or after
the effective date of the 1994 Plan was, upon election, automatically granted an
option to purchase 10,000 shares of Common Stock. The price per share to be
paid at the time such option is exercised by a non-employee director equals 100%
of the fair market value of the Common Stock on the date of the grant of the
option. The 1994 Plan provides that options granted to non-employee directors
have a maximum term of ten years and are exercisable ratably in annual
installments over three years. The option price is due upon exercise of the
option and may be paid in cash, check, shares of Common Stock or other
consideration acceptable to the Committee or may be deferred through a sale and
remittance procedure with a Company-designated brokerage firm. All options
granted to a non-employee director who dies or becomes disabled while serving as
a director will become immediately and fully exercisable at the time of such
termination of service as a director, and all of his options may be exercised
within twelve months after such cessation of service. If a former non-employee
director should die within six months after cessation of Board service, the
personal representative of such former director's estate may exercise those
options in which the former director was vested at the time of death for a
twelve month period following the death of the former director. If a
non-employee director's service terminates for any reason other than those
stated above, options which are not then exercisable will be canceled and
options which are then exercisable may be exercised at any time within six
months after the date of such termination (but not later than the expiration
date of the respective options). All options granted to non-employee directors
vest immediately upon a "Change of Control" of Tracker U.S. (as defined below).
The portion of the 1994 Plan applicable to non-employee directors is designed to
be self-executing.
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
<PAGE>
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. On
December 22, 1999, options were granted to the Company's three outside
directors.
CHANGE OF CONTROL; CORPORATE TRANSACTIONS. The Committee has the discretion
to accelerate benefits under the 1994 Plan in the event of a Change of Control
or a Corporate Transaction.
Under the 1994 Plan, "Change of Control" is a change in ownership or
control of Tracker U.S. effected through either of the following transactions:
a. the direct or indirect acquisition by any person or related group of
persons (other than Tracker U.S. or a person that directly or indirectly
controls, is controlled by, or is under common control with, Tracker U.S.) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than 50% of the total combined voting power of the
outstanding securities of Tracker U.S. pursuant to a tender or exchange offer
made directly to Tracker U.S.'s stockholders or other transaction, in each case
which the Board does not recommend that Tracker U.S.'s stockholders accept; or
b. a change in the composition of the Board over a period of 36 consecutive
months or less such that a majority of the Board members (rounded up to the next
whole number) ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (i) have been Board
members continuously since the beginning of such period or (ii) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
Under the 1994 Plan, "Corporate Transaction" means any of the following
stockholder-approved transactions to which Tracker U.S. is a party:
a. a merger or consolidation in which Tracker U.S. is not the surviving
entity, except for a transaction the principal purpose of which is to change the
state in which Tracker U.S. is incorporated;
b. the sale, transfer or other disposition of all or substantially all of
the assets of Tracker U.S. in complete liquidation or dissolution of Tracker
U.S.; or
c. any reverse merger in which Tracker U.S. is the surviving entity but in
which securities possessing more than 50% of the total combined voting power of
the outstanding securities of Tracker U.S. are transferred to a person or
persons different from the persons holding those securities immediately prior to
such merger.
TERMINATION, AMENDMENT AND ACCELERATION. The Board of Directors of Tracker
U.S. may amend, suspend or terminate the 1994 Plan at any time, but no such
action may in any way impair the rights of recipients under any options or
shares of restricted stock previously granted or any agreement executed under
the 1994 Plan. Further, no amendment may increase the total number of shares,
appreciation rights or performance units (or shares) which may be issued under
the 1994 Plan, reduce the minimum purchase price for shares subject to options,
extend the maximum period during which options may be exercised or change the
employees eligible to participate in the plan without the approval of the
holders of a majority of the shares of Tracker U.S. Common Stock present or
represented at a meeting duly called and held for such purpose; provided,
however, that such shareholder approval is required only to the extent that Rule
16b-3, as promulgated by the Securities and Exchange Commission under the
Exchange Act, requires the approval of the stockholders of a company of any
material amendment to any employee benefit plan of such company.
LOAN PROGRAM. The Committee may, in its discretion, permit Tracker U.S. to
finance the exercise of Company options and the payment of related taxes by
means of loans to the participants. The Committee may also allow participants
to pay the exercise price or purchase price in installments or may authorize the
payment of a cash bonus to allow participants to exercise options and rights
under the 1994 Plan. Each loan will be evidenced by a promissory note to be
entered into by the participant in favor of Tracker U.S. Each loan, including
extensions, will be on such terms as the Committee determines. Loans or
installment payments may be authorized with or without security or collateral.
The maximum credit available will be the exercise or purchase price of the
acquired shares (less the par value of the shares) plus any related federal,
state and local income and employment tax liability, subject to any applicable
margin borrowing limitation. The Committee also has the authority to forgive
all or a portion of the borrower's indebtedness in circumstances it deems
appropriate; provided, however, that the Committee may not forgive that portion
of a loan owed to cover par value.
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.
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
<PAGE>
Compensation Committee are eligible to receive cash bonuses under the Cash Bonus
Arrangement. Tracker U.S. estimates that approximately six employees are
eligible to participate in the Cash Bonus Arrangement. Bonuses may be based on
merit, production or other individualized criteria, or may be paid based on each
Eligible Employee's (as defined in the 1994 Plan) assigned portion of a bonus
pool established in the discretion of the Compensation Committee. If bonuses
are to be paid based on a bonus pool, the Compensation Committee will determine
the criteria upon which the amount of each year's bonus pool will be based prior
to the beginning of any such year. The Committee may also divide Eligible
Employees into classes and may designate the portion of any bonus pool to be
assigned to each such class. Any bonuses will be paid not later than 45 days
after the end of the fiscal year for which the bonus is awarded. No bonuses
have been paid yet under the Cash Bonus Arrangement.
1999 STOCK WAGE AND FEE PAYMENT PLAN
The Company's Board of Directors adopted a 1999 Stock Wage and Fee Payment
Plan (the "1999 Wage Plan") on December 22, 1999. The purpose of the 1999 Wage
Plan was to retain and motivate participants in the 1999 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.
Nine employees and three consultants of the Company were eligible to, and
elected to, participate in the 1999 Wage Plan. Under the 1999 Wage Plan, the
participants agreed to receive an aggregate of 13,175,996 shares of the
Company's Common Stock in lieu of certain wage payments or fees. The number of
shares granted to the participants was based upon a price per share of Common
Stock of $.06. The Company registered the shares issued under the 1999 Wage
Plan under the Securities Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1999 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 June 30, 1999, there were approximately 355
record holders of Common Stock.
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Total Number Percentage of
Beneficial Owner Common Stock Of Shares (1) Total Number
- ---------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Bruce I. Lewis 3,415,303 3,415,303 6.65%
180 Dundas Street W., Suite 1505
Toronto, Ontario
Canada M5G 1Z8
Jay S, Stulberg 956,383 956,383 1.86%
180 Dundas Street W., Suite 1505
Toronto, Ontario
Canada M5G 1Z8
H. Joseph Greenberg, M.D. 207,122 207,122 0.4%
180 Dundas Street W., Suite 1505
Toronto, Ontario
Canada M5G 1Z8
Executive Officers and Directors 4,578,808 4,578,808 8.91%
as a group, including those named
above (five persons)
<FN>
(1) Percentage of ownership is based upon 50,378,579 issued and outstanding
shares of Common Stock beneficially owned on June 30, 1999, including
currently exercisable warrants to purchase 750,000 shares of Common Stock,
currently exercisable options to purchase 40,000 shares of Common Stock, and
200,000 shares reserved for issuance under the Toda Option.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Alternative to
Assumed Annual Rates of Stock (f) and (g)
Price Appreciation For Option Grant Date
INDIVIDUAL GRANTSTerm Value
Percent Of
Number of Total
Securities Options/
Underlying SARs Granted Exercise of Grant Date
Option/SARs To Employees Base Price Expiration Present Value
NAME Granted (#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($) $
(A) (b) (c) (d) (e) (f) (g) (h)
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce I. Lewis(1) 2,488,578 46.3% .075 2003 51,566 62,909
Jay S. Stulberg(2) 2,488,578 46.3% .075 2008 117,379 131,856
<FN>
(1) Incentive stock option granted for a five year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
(2) Incentive stock option granted for a ten year term exercisable sequentially in two annual installments
beginning January 2000, and fully vesting beginning January 2001.
</TABLE>
<PAGE>
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 , is the 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 $750,000 to support Tracker U.S.'s business operations.
Bruce I. Lewis, the Company's Chief Executive Officer, has provided Global
Tracker with approximately $600,000 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
salesSee "BUSINESS - Background - Global Tracker," and "DIRECTORS AND EXECUTIVE
OFFICERS OF REGISTRANT."
<PAGE>
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
C. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------ --------------------------------------------------------------------------------
<C> <S>
2.1++++ Reorganization Agreement Among Ultra Capital Corp. (the predecessor of the
Registrant), Jeff W. Holmes, R. Kirk Blosch and the Tracker Corporation dated
May 26, 1994, as amended by Amendment Number One dated June 16, 1994,
Amendment Number Two dated June 24, 1994, and Amendment Number Three
dated June 30, 1994, Extension of Closing dated June 23, 1994, and July 11,
1994 letter agreement.
2.2++++ Agreement and Plan of Merger dated July 1, 1994 between Ultra Capital Corp.
(the predecessor of the Registrant) and the Registrant
3.1++++ Certificate of Incorporation, as corrected by Certificate of Correction of
Certificate of Incorporation dated March 27, 1995, and as amended by
Certificate of Amendment to the Certificate of Incorporation dated November 1,
1995, and Certificate of Designation of Rights, Preferences and Privileges of
1,000.00 6% Cumulative Convertible Preferred Stock of the Registrant dated
April 19, 1996
<PAGE>
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
10.8++++ Corporate Relations Agreement dated February 24, 1994 between Corporate
Relations Group, Inc. and The Tracker Corporation, as amended by letter
agreement dated January 16, 1995 and by Amendment to Corporate Relations
and Marketing Agreement dated June 22, 1995
10.9++++ Consulting arrangement with Gregg C. Johnson effective August 12, 1995
<PAGE>
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
10.18++++ Letter agreement dated October 5, 1993 between The Tracker Corporation and
Symbol Technologies, Inc., as amended by letter from The Tracker Corporation
to Symbol Technologies Canada, Inc. dated November 23, 1995, and letter from
Symbol Technologies Canada, Inc. to The Tracker Corporation dated November
27, 1995
10.19++++ Assignment World-Wide dated May 12, 1994 from I. Bruce Lewis to the
Tracker Corporation
10.20++++ Exchange Agency and Trust Agreement dated July 12, 1994 among Ultra
Capital Corp. (the predecessor of the Registrant), The Tracker Corporation and
Montreal Trust Company of Canada
10.21++++ Guarantee Agreement dated July 12, 1994 between Ultra Capital Corp. (the
predecessor of the Registrant) and The Tracker Corporation
10.22++++ 1995 Stock Wage and Fee Payment Agreement
10.23++++ Agreement dated August 10, 1995 between The L.L. Knickerbocker Company,
Inc. and the Registrant
10.24+++ Share Purchase Agreement dated July 29, 1994 among The Tracker
Corporation, Page-Direct Ltd., Marc Bombenon, Marc Bombenon Enterprises
Ltd. and 614593 Alberta Ltd.
10.25++++ General Release dated June 15, 1995 among The Tracker Corporation, 614593
Alberta Ltd., 1069232 Ontario Inc., Gowling, Strathy & Henderson, Page-Direct
Ltd., Marc Bombenon Enterprises Ltd. and Mark Bombenon.
10.26+++++ Agreement Between The International Association of Chiefs of Police and The
Tracker Corporation dated February 13, 1996
<PAGE>
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
10.33+++++ Services Agreement and Registration Rights Agreement and Options
Agreement dated July 10, 1996 between the Registrant and Merchant Partners,
L.P.
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.
10.41 Employment Agreement dated December 18, 1998 between Bruce I. Lewis and
The Tracker Corporation of America
10.42 Employment Agreement dated December 18, 1998 between Jay S. Stulberg and
The Tracker Corporation of America
10.43 Letter Agreement dated May 18, 1999 between Symbol Technologies, Inc. and
The Tracker Corporation of America
21.1++++ List of subsidiaries of the Registrant
<PAGE>
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
27.3 Financial Data Schedule, Fiscal Year Ended March 31, 1999
+ 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).
+++++++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
dated March 31, 1998 (filed November 4, 1998).
</TABLE>
<PAGE>
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 and Chief
Executive Officer
Dated: July 15, 1999
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: July 15, 1999 By: /s/ Bruce I. Lewis
---------------------
Bruce I. Lewis
Chairman of the Board and
Chief Executive 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, 1999. 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.
<PAGE>
THE TRACKER CORPORATION
OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1999 and 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
------------------------------
To the Board of Directors and Stockholders of
The Tracker Corporation of America
We have audited the accompanying consolidated balance sheet of The Tracker
Corporation of America, Inc. and Subsidiary as of March 31, 1999 and 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 from inception at May 6, 1993 through 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 Notes 1 and 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, 1999 and
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 and outside 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.
Hirsch Silberstein & Subelsky, P.C.
Farmington Hills, Michigan
July 8, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Report of Independent Accountants consent is being prepared by the
former accountants and will be filed as an amendment to this Form 10-K as soon
as it is received.
F-2
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED BALANCE SHEET
-------------------------------------
ASSETS
MARCH 31, MARCH 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,843 $ -
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . 120,000 -
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,405 1,187,699
------------- -------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 332,248 1,187,699
DUE FROM SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,072 14,072
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,600 275,043
PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . . . - -
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487,920 $ 1,476,814
============= =============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 458,352 $ 440,835
ACCRUED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,823 528,399
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,602 1,798,727
DEBENTURE PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,809 31,809
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . 475,790 475,790
------------- -------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 1,748,376 3,275,560
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,244 412,846
COMMITMENTS (NOTE 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
SHAREHOLDERS' DEFICIENCY
COMMON STOCK, $.001PAR VALUE, 50,000,000 SHARES AUTHORIZED,
50,388,579 (26,705,053 - MARCH 31, 1998) SHARES ISSUED AND OUTSTANDING. 50,389 19,718
CONVERTIBLE SENIOR PREFERRED STOCK, $.001 PAR VALUE, 6,500,000 SHARES
AUTHORIZED, NIL ISSUED AND OUTSTANDING. . . . . . . . . . . . . . . . . - -
CLASS B VOTING COMMON STOCK, $0.00000007 PAR VALUE, 20,000,000
SHARES AUTHORIZED, NIL (2,622,484 - MARCH 31, 1998) ISSUED
AND OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
PAID-IN CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,777,482 15,371,641
OTHER CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (424,267) (356,002)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE. . . . . . . . . . . . . (17,753,037) (17,001,283)
CUMULATIVE TRANSLATION ADJUSTMENT . . . . . . . . . . . . . . . . . . . . (126,263) (245,665)
------------- -------------
TOTAL SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . . . . . . . . . (1,475,700) (2,211,591)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . $ 487,920 $ 1,476,814
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
( A DEVELOPMENT STAGE COMPANY)
-------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (MAY 6, 1993) FOR THE
THROUGH MARCH 31, YEAR ENDED MARCH 31,
1999 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
REVENUE . . . . . . . . . . . . . . . . . $ 433,596 $ 126,875 $ 51,551
COST OF SALES . . . . . . . . . . . . . . 171,924 71,630 20,660
------------- ------------ ------------
GROSS PROFIT. . . . . . . . . . . . . . . 261,672 55,245 30,891
------------- ------------ ------------
DEVELOPMENT COSTS
OPERATIONAL . . . . . . . . . . . . . . 1,845,420 323,560 53,647
INFORMATION SYSTEMS . . . . . . . . . . 930,032 45,181 26,613
SALES AND MARKETING . . . . . . . . . . 3,563,645 126,601 7,928
GENERAL AND ADMINISTRATIVE. . . . . . . 8,427,111 590,881 95,221
------------- ------------ ------------
TOTAL DEVELOPMENT COSTS . . . . . . . . . $ 14,766,209 $ 1,086,223 $ 183,408
LOSS FROM CONTINUING OPERATIONS . . . . . (14,504,536) (1,030,979) (152,517)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (3,203,320) 279,225 62,050
------------- ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK . . . $(17,707,856) $ (751,754) $ (90,467)
============= ============ ============
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
LOSS FROM CONTINUING OPERATIONS . . . . . $ (1.1175) $ (0.0258) $ (0.0042)
GAIN (LOSS) FROM DISCONTINUED OPERATION . (0.2468) 0.0070 0.0029
------------- ------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . $ (1.3643) $ (0.0188) $ (0.0013)
============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING. . . . . . . . . . . . . . 12,979,364 39,929,638 21,480,767
============= ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
----------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------
FROM INCEPTION
(MAY 6, 1993) YEAR ENDED YEAR ENDED
THROUGH MARCH 31 MARCH 31 MARCH 31
1998 1999 1998
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (17,753,037) $ (751,754) ($90,467)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
DEPRECIATION. . . . . . . . . . . . . . . . . . . . . . . . . 380,019 - 12,893
LOSS ON SALE OF LONG-TERM INVESTMENT. . . . . . . . . . . . . 13,414 - -
RENT, CONSULTING AND MARKETING SERVICES, EMPLOYEE . . . . . . 691,901 691,901
COMPENSATION SETTLED VIA THE ISSUANCE OF COMPANY
SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,284,144 - 165,870
CHANGES IN ASSETS AND LIABILITIES:
PREPAID EXPENSES AND DEPOSITS . . . . . . . . . . . . . . (137,273) (120,000) 359,526
ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . (97,843) (97,843) 133,613
SHORT-TERM INVESTMENT . . . . . . . . . . . . . . . . . . - - -
INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . - - 24,338
DEFERRED CHARGES. . . . . . . . . . . . . . . . . . . . . (256,005) 1,206,737 1,673,159
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . 412,846 (1,798,727) (2,910,959)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. . . . . . . . . 1,057,820 73,941 126,783
------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . (10,404,014) (795,745) (505,244)
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
ACQUISITION OF FIXED ASSETS . . . . . . . . . . . . . . . . . . 6,028 - 790,661
LOAN TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . (370,484) - 47,415
REPAYMENT OF LOANS TO SHAREHOLDERS. . . . . . . . . . . . . . . 356,412 - -
NOTE RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . (200,317) - -
REPAYMENT OF NOTE RECEIVABLE. . . . . . . . . . . . . . . . . . 200,317 - -
LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . . . . . . (2,301,372) - -
UNWIND OF LONG-TERM INVESTMENT. . . . . . . . . . . . . . . . . 2,287,958 - -
------------------ ------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES. . . . . . . . . . (21,458) - 838,076
------------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF COMMON SHARES . . . . . . . . . . . . . . . . . . . 9,748,275 795,745 30,000
ISSUANCE OF PREFERRED SHARES. . . . . . . . . . . . . . . . . . 1,050,000 - -
ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURES . . . . . . . . 2,189,529 - -
REPAYMENT OF DEBENTURES AND CONVERTIBLE SUBORDINATED DEBENTURES (297,401) - (167,138)
SHARE ISSUE COSTS . . . . . . . . . . . . . . . . . . . . . . . (1,684,735) - -
------------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES. . . . . . . . . . 11,005,668 795,745 (137,138)
------------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES . . . . . . . . . . . . . . . . . (580,196) 0 (300,907)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING . . . . . 1 1 (105,213)
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . - - 105,213
------------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . 1 $ 1 $ 0
================== ============ ============
<FN>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
THE COMPANY ISSUED CERTAIN SHARES OF ITS CLASS B VOTING COMMON STOCK FOR
SERVICE AND FOR NOMINAL VALUES.
SEE CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
-----------------------------------------------
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
--------- ---------- --------- ---------- -------- ------------
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>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
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 $ - $ - $ 819,459
MADE BEFORE MARCH 31, 1995 (CASH - $225,280)
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
--------- ---------- ----------- ---------- -------- ------------
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>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
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
---------- ----------- ----------- ----------- -------- ------------
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>
<TABLE>
<CAPTION>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
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
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
--------- ----------- ----------- ---------- -------- ------------
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL) 1,549,490 (2,622,484) $ 1,549 $ (1,549)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) 672,096 $ 672
SHARES ISSUED FOR CONSULTING SERVICES 2,427,478 $ 2,428 $ 72,257
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) 14,244,063 $14,244 $ 781,501
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 13,175,996 $13,176 553,633
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (2,000,000) $(2,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601,312 $ 601
TRANSLATION ADJUSTMENT
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999
BALANCE AS AT MARCH 31, 1999 - 50,388,579 0 $ - $50,389 $16,777,482
========= =========== =========== ========== ======== ============
AMOUNTS
--------------------------------------------------------------
DEFICIT ACCUMULATED
CUMULATIVE DURING
OTHER TRANSLATION DEVELOPMENT
CAPITAL ADJUSTMENT STAGE TOTAL
---------- ------------- --------------------- ------------
<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
$ 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)
---------- ------------- --------------------- ------------
SHARES EXCHANGED AS PER
EXCHANGE AGREEMENT (CASH - $NIL)
SHARES ISSUED FOR OFFICE RENTAL
EXPENSE ( NOTE 9-X) ( CASH $NIL) $ 49,735 $ 50,407
SHARES ISSUED FOR CONSULTING SERVICES $ 74,685
SHARE PROCEEDS RECEIVED FROM
PRIVATE PLACEMENTS (CASH - $867,215) $ 795,745
SHARES ISSUED PURSUANT TO S-8 FOR EMPLOYEES 566,809
AND CONSULTANTS (CASH - $NIL)
LESS: EMPLOYMENT AND CONSULTING
SERVICES NOT YET RECEIVED (118,000) (120,000)
SHARES ISSUED IN PRIOR YEARS AS PREPAYMENT
OF RENT AND CONSULTING SERVICES,
WRITTEN-OFF IN YEAR ENDED MARCH 31, 1998 601
TRANSLATION ADJUSTMENT 119,398 119,398
NET PROFIT (LOSS) FROM APRIL 1, 1998 TO MARCH 31, 1999 (751,754) (751,754)
--------------------- ------------
BALANCE AS AT MARCH 31, 1999 $(424,267) $ (126,267) $ (17,753,037) $(1,475,700)
========== ============= ===================== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-9
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(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 primarily
markets, sells and operates a personal property marking and monitoring system
(the "Tracker(TM) System") developed by the Company 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.
On July 28, 1998, the Company settled a lawsuit initiated by the U.S. Federal
Trade Commission (the "FTC") alleging the Company's violation of Section 5 of
the Federal Trade Commission Act and the FTC Trade Regulator Telemarketing Sales
Rule. Following initiation of the lawsuit, four of the Company's five Board
members and its Chief Financial Officer resigned. The settlement, among other
things, permanently barred the Company, and its Chief Executive Officer 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
resulted in the insolvency and dissolution of Tracker Canada. The liquidation
and dissolution occurred in February 1998.
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 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.
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 report of its former independent accountant as
of and for the year ended March 31, 1997, and its current independent accountant
as of and for each of the years ended March 31, 1999 and 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.
F-10
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its former wholly owned subsidiary, Tracker Canada. All significant
intercompany accounts and transactions have been eliminated.
DEVELOPMENT COSTS
Development costs are expensed as incurred.
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.
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.
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-11
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(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:
- ------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Other $ 120,000 $ NIL
---------- ----------
$ 120,000 $ NIL
========== ==========
</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:
- -----------------------------
<TABLE>
<CAPTION>
Deferred charges consist of the following:
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Current: . . . . . . . . . . . . . . . . . . . . . . . . $ 80,309 $ 776,055
Deferred sales commission (net of cancellation reserve)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 34,096 411,644
---------- ----------
Long term . . . . . . . . . . . . . . . . . . . . . . . $ 114,405 $1,187,699
---------- ----------
Deferred sales' commission (net of cancellation reserve) $ 52,192 $ 183,041
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 89,408 92,002
---------- ----------
$ 141,600 $ 275,043
---------- ----------
</TABLE>
NOTE 7 - PROPERTY AND EQUIPMENT:
- -------------------------------------
The Company currently leases all of its equipment from Global Tracker under
short term agreements classified as operating leases. Lease payments are
expensed as incurred. See Note 1.
F-12
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 8 - ACCRUED LIABILITIES:
- ---------------------------------
Accrued liabilities comprise the following:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Directors fees. . . . . . . . . . . . . . . $ 24,432 $ 24,432
Interest expense for convertible debentures 115,209 58,785
Others. . . . . . . . . . . . . . . . . . . 445,182 445,182
---------- ----------
$ 584,823 $ 528,399
========== ==========
</TABLE>
NOTE 9 - CAPITAL STOCK:
- ---------------------------
(i) 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. Following the liquidation of the
Canadian subsidiary, all Class B Stock converted to Common Stock.
(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 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. To
secure registration rights of the restricted shares, KGI must exercise the
warrants on a 1:1 basis with the common shares.
(iv) 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.
(v) During the year ended March 31, 1999, the Company amended and restated
the Plan and increased the number of shares reserved for issuance thereunder.
(vi) During the year ended March 31, 1999, the Company adopted a plan
allowing for the issuance of options to outside directors.
(vii) The Company has issued the following options and warrants:
F-13
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1999 PRICE 1998 PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPTIONS:
Opening (*). . . . . . . . . . . . 1,890,000 40,000 $ 7.95
Granted during the period (*) 50,000 $ 0.13
Granted during the period (**) 300,000 $ 0.50
Granted during the period (**) 2,400,000 $ 0.75
Granted during the period (***). 5,286,968 $ 0.07
Granted during the period (****) 400,000 $ 0.10
Expired/cancelled during period 900,000
Closing. . . . . . . . . . . . . . 7,176,968 1,890,000
<FN>
(*) 40,000 options were issued in July 1994 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
(***) 5,286,968 options were issued in December 1998 to management at
various terms from 5 to 10 years
(****) 400,000 options were issued in January 1999, vesting proportionately
over four years, to management.
</TABLE>
<TABLE>
<CAPTION>
FOR YEAR FOR YEAR
ENDED ENDED
MARCH 31, EXERCISE MARCH 31, EXERCISE
1999 PRICE 1998 PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
WARRANTS (COMMON STOCK ):
Opening . . . . . . . . . . . 750,000 N/A 750,000 N/A
Issued during the period. . 200,000 $ 0.40 0
Exercised during the period 0 0
Expired during the period . 0 0 Cdn$14.00
Closing . . . . . . . . . . . 950,000 750,000
--------- ---------
</TABLE>
(viii) 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.
(ix) 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.
(x) 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.
(xi) In November 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.
(xii) In December 1998, at its annual general meeting, the shareholders
approved the increase of the authorized number of common shares from 30,000,000
to 50,000,000 shares and the authorization of 6,500,000 shares of blank check
Preferred Stock.
(xiii) In January 1999, the Company issued 13,175,995 shares to employees
and consultants.
F-14
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(xiv) Other capital
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,
1999 1998 1999
----- -------- ----------
<S> <C> <C> <C>
OPENING,
Marketing services not yet received. . . . . $ 0 $ 0 $ 0
Deferred compensation costs. . . . . . . . . 0 0 0
Deferred consulting costs 262,500 0
Rent 93,502 0
356,00 0
----- -------- ----------
SHARES SUBSCRIBED BUT NOT ISSUED,
Marketing services not yet received. . . . . 0 0 999,600
Deferred compensation costs. . . . . . . . . 0 0 2,222,174
Deferred consulting costs. . . . . . . . . . 0 0 1,809,224
Rent . . . . . . . . . . . . . . . . . . . . 0 0 507,794
0 0 5,538,792
----- -------- ----------
CHARGED TO EXPENSE AS SERVICES ARE RECEIVED,
Marketing services not yet received. . . . . 0 0 999,600
Deferred compensation costs. . . . . . . . . 0 0 2,222,174
Deferred consulting costs. . . . . . . . . . 0 0 1,546,724
Rent . . . . . . . . . . . . . . . . . . . . 0 0 410,515
0 0 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
Rent 93,502 93,502
$356,002 $ 356,002
</TABLE>
(xv) 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, 1999 there remains
outstanding $475,790 ($475,790 at March 31, 1998) in convertible subordinated
debentures with a maturity date of June 1, 1997. The remaining balance of $
31,809 ($31,809 at March 31, 1998) has been reclassified as debentures which had
a repayment maturity term of December 1997 at a 4.75% interest rate. Conversion
rights under the convertible subordinated debentures have expired.
F-15
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(xvi) 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.
(xvii) 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.
(xviii) 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.
(xix) 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 employees and five outside (non-employee) directors as
payment in lieu of salaries and consulting fees.
(xx) In October 1996, the Company entered into a one-year consulting
agreement (the "Consulting Agreement") to obtain advice concerning the Company's
growth strategy, financial public relations obligations and future capital
structure. Under the terms of the Consulting Agreement, the Company agreed to
pay the Consultant 100,000 shares of the Company's common stock. The Company's
obligations with respect to options issued to the Consultant for the purchase of
900,000 additional shares expired in 1999.
(xxi) During the year ended March 31, 1999, the Company issued 13,175,996
shares of common stock amounting to $1,600,883 pursuant to the registration
statement on S-8 to eight employees and two consultants as payment in lieu of
salaries and consulting fees.
NOTE 10 - COMMITMENTS:
- -------------------------
LEASES
The Company leased space in Smyrna, Georgia 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, 1999 amounted to $ 64,132 and
$120,196 for the year ended March 31, 1998.
MARKETING AGREEMENT
On March 15, 1995, the Company entered into an agreement with The L.L.
Knickerbocker Company, Inc., of California ("Knickerbocker"), which provided for
a television and radio marketing campaign to be initially launched in the
California marketplace. As 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. On December 11,
1996, the Company ended its relationship with Knickerbocker and received 400,000
of the 800,000 restricted common shares back from Knickerbocker. These shares
were immediately cancelled in treasury.
F-16
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THE IACP ENDORSEMENT
The Company entered into an agreement with the International Association of
Chiefs of Police ("IACP") in February 1996 that ran through February
1999. Under the agreement, the Company 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. At March 31, 1999, the Company had
defaulted in its payment obligations under the agreement.
NOTE 11 - RELATED PARTY TRANSACTIONS:
- ------------------------------------------
Prior to the date of incorporation (May 6, 1993), the founder and other key
members of management received 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 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 years ended March 31, 1999 and 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.
The Company's President, Chief Operating Officer and Chief Financial Officer is
the sole shareholder of Global Tracker Corporation. Global Tracker acquired
Tracker Canada's assets at arms' length in an insolvency proceeding. Global
Tracker leases all of such assets to the Company.
NOTE 12 - INCOME TAXES:
- ---------------------------
The estimated deferred tax asset of $3,987,000 and $3,724,000, representing
benefit for the income tax effects of the accumulated losses for the period from
inception (May 6, 1993) to March 31, 1999 and March 31, 1998 respectively, has
not been recognized due to the uncertainty of future realization of such
benefits. Estimated net operating losses aggregating $11,433,000 ($10,681,000
as at March 31,1998) expire starting in 2001; the benefit of these losses has
not been reflected in these consolidated financial statements.
F-17
<PAGE>
THE TRACKER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred tax liabilities $ 0 $ 0
Deferred tax assets
Net operating losses . 3,987,000 3,724,000
------------- ------------
3,987,000 3,724,000
Valuation allowance. . ( 3,987,000) (3,724,000)
------------- ------------
$ 0 $ 0
============= ============
</TABLE>
The valuation allowance did increase by $263,000 during the year.
NOTE 13 - CONVERTIBLE SUBORDINATED DEBENTURES:
- ---------------------------------------------------
The Company has outstanding at March 31, 1999 subordinated debentures in the
amount of $475,790 ($ 475,790 as at March 31, 1998) bearing interest at 15%
annually, which are repayable within one year.
Total interest incurred and included in general and administrative expenses is $
72,879 and $42,330 for year ended March 31, 1999 and 1998 respectively.
F-18
<PAGE>
Exhibit 10.41
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 18th day of December 1998, between The Tracker Corporation of America, a
Delaware corporation (the "Company") and Bruce I. Lewis (the "Executive").
RECITALS
--------
A. The Company desires to retain the services of the Chief Executive Officer
and the Executive desires and is willing to be employed by the Company in
those capacities.
B. 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 Chief Executive 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 Chief Executive 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.
(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 January 1, 1999 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, 2000 and April 1, 2001 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, which increased
salary shall then become the Base Salary. 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. 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-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.
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 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;
(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:
(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's 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 fifty percent (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.
(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
reduce the dignity, responsibility and importance of the Executive's position
with the Company in comparison to his functions, duties or responsibilities
theretofore, 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
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 at 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;
(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.
(c) 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, 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
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 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
limitation, 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.
(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 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, to such 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.
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 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 (10) 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 of similar or dissimilar provisions or conditions at
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
- --- -
Georgia without regard to its conflicts of law principles.
- ---
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:
Its: Chairman and Chief Executive
Officer
THE EXECUTIVE:
Witness:
Bruce I. Lewis
<PAGE>
Exhibit 10.42
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 18th day of December 1998, between The Tracker Corporation of America, a
Delaware corporation (the "Company") and Jay S. Stulberg (the "Executive").
RECITALS
--------
A. The Company desires to retain the services of the Executive as its
President, Chief Operating Officer, Chief Financial Officer and Secretary, and
the Executive desires and is willing to be employed by the Company in those
capacities.
B. 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
---------------
1.4 Employment
- --- ----------
(a) The Executive is employed as the President, Chief Operating Officer,
Chief Financial Officer and Secretary 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, Chief Operating Officer, Chief Financial
Officer and Secretary 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.
(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.
1.5 Term. The term of this Agreement shall commence on January 1, 1999 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."
1.6 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
2.7 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 Twenty-Five Thousand Dollars ($125,000)(United
States currency) (the "Base Salary"). The Base Salary shall be increased
on April 1, 2000 and April 1, 2001 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, which increased salary shall
then become the Base Salary. 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. 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-monthly.
2.8 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.
2.9 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.
2.10 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.
2.11 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.
2.12 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 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
3.4 Death or Retirement of Executive. This Agreement shall automatically
- --- -----------------------------------
terminate upon the death or Retirement (as defined in Section 3.4) of the
- --
Executive.
- --
3.5 By the Executive. The Executive shall be entitled to terminate this
- --- ------------------
Agreement by giving written notice to the Company.
- ---
(d) at least ninety (90) days prior to the end of the Initial Term of any
Renewal Term of this Agreement;
(e) for Good Reason (as defined in Section 3.4) prior to a Change of Control
(as defined in Section 3.4); and
(f) 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:
(d) at least ninety (90) days prior to the end of the Initial Term of any
Renewal Term of this Agreement;
(e) in the event of the Executive's Disability (as defined in Section 3.4);
and
(f) for Cause (as defined in Section 3.4).
3.6 Definitions. For purposes of this Agreement, the following terms shall
- --- -----------
have the following meanings:
(e) "Cause" shall mean any of the following:
- --- ------
(j) 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;
(iii) 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;
(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;
(w) 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.
(f) "Change of Control" shall mean a change in ownership or control of the
- --- --------------------
Company effected through any of the following transactions:
(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's 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 fifty percent (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.
(g) "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).
(h) "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
reduce the dignity, responsibility and importance of the Executive's position
with the Company in comparison to his functions, duties or responsibilities
theretofore, 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
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:
-
(f) 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");
(g) 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");
(h) 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");
(i) 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
(j) 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.
4.2 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:
(h) pay the Executive the Accrued Base Salary;
(i) pay the Executive the Accrued Reimbursable Expenses;
(j) 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;
(k) pay the Executive the Accrued Bonus;
(l) 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;
(m) 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
(n) 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.
---------------------------------------------------
(d) 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.
(e) 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.
(f) 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, 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
5.3 Confidentiality.
- --- ---------------
(e) 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.
(f) 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
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.
(g) 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.
(h) 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.
5.4 Competition.
- --- -----------
(c) 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"):
(iv) 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
(v) 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
(vi) 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 affiliates on the termination date of his
employment hereunder for employment by the Executive or others.
(d) The Executive expressly agrees and acknowledges that:
(v) 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;
(vi) the general public will not be harmed as a result of enforcement of
this covenant not to compete;
(vii) his personal legal counsel has reviewed this covenant not to compete;
and
(viii) 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
limitation, 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.
(c) 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 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.
(d) 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, to such 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.
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.
6.12 Amendments or Additions. No amendments or additions to this Agreement
- ---- ------------------------
shall be binding unless in writing and signed by each of the parties hereto.
6.13 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.
6.14 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 duration shall be deemed reduced to the extent
- --
necessary to permit the enforcement of such covenants or agreements.
6.15 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.
6.16 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 (10) 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.
6.17 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 of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
6.18 Governing Law. The validity, interpretation, construction and
- ---- --------------
performance of this Agreement shall be governed by the laws of the State of
- ----
Georgia without regard to its conflicts of law principles.
- ----
6.19 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.
6.20 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:
Its: Chairman and Chief Executive
Officer
THE EXECUTIVE:
Witness:
Jay S. Stulberg
<PAGE>
Exhibit 10.43
May 17, 1999
Mr. Tomo Razmilovic
President and COO
Symbol Technologies, Inc.
One Symbol Plaza
Holtsville, NY 11742-1300
Dear Tomo:
This letter expresses our understanding regarding the basis of an ongoing
relationship between Symbol Technologies, Inc. ("Symbol") and The Tracker
Corporation of America, Inc. and any current and future affiliates thereof
("hereinafter referred to as "Tracker"), to wit:
1. Tracker desires to use Symbol's bar code products and technology on
an exclusive basis.
2. Symbol desires to assist Tracker to market and sell systems,
utilizing exclusively Symbol's bar code technology (the "Systems").
3. Symbol agrees to extend for a period of two years following execution of
this letter Tracker's exclusivity rights for the particular application, as
described in Mr. Tomo Razmilovic's letter of September 30, 1993 (attached),
provided Tracker maintains an annual minimum volume purchases from Symbol of
5000 laser scanner units, having a purchase price effect of, or greater than,
ten million dollars ($10,000,000).
4. Symbol will offer performance guaranty as described in Section 5
below, to potential customers of Tracker, approved by Symbol from time to time
on a case by case basis. This performance guaranty will be granted to the
respective customer, upon Tracker's issuance and Symbol's acceptance of a
Purchase Order for Symbol's products, reflecting the customer's corresponding
order from Tracker.
5. The performance guaranty will provide that if any proceeding in bankruptcy
or in reorganization, or for the appointment of a receiver or trustee shall be
instituted against Tracker, and such proceeding is not dismissed within sixty
(60) days of the date filed, and Tracker is unable to fulfill its warranty and
support obligations to its customers as a result thereof, Symbol will do the
following:
a. Assume Tracker's limited warranty obligations to the respective
customer(s) regarding Symbol products and only Symbol products, to the extent
corresponding to the limited warranty provided to Tracker by Symbol for the
particular products.
b. Assume that portion of Tracker's obligations, representing post warranty
support of Symbol's products and only Symbol products, under service contracts
Tracker enters into with the respective customer(s), provided the service fees
have not been prepaid and are payable to Symbol on a monthly basis for the
remainder of the term of such service contracts.
6. Symbol will designate support personnel (as it deems appropriate) to
familiarize itself with the Systems (technologies, products and mode of
operation) and provide Tracker with pre sale technical support (as deemed
appropriate by Symbol) to assist Tracker with the attainment of potentially
large orders.
7. As a collateral for Symbol's undertaking hereunder, Tracker will provide
Symbol with the following:
a. Specific assignments of its rights to receive support fees under
contract(s) with each the respective customer(s).
b. Tracker's business / trade relational database, updated on a quarterly
basis.
c. The System's software source code and any updates and enhancements
thereto, will be placed with an independent escrow agent concurrently with the
placement of the first Purchase Order with Symbol or when available,
respectively.
If you are in agreement with the terms of this letter, please indicate by
signing below.
Sincerely yours,
/s/ Bruce I. Lewis
Bruce I. Lewis,
Chairman and CEO
AGREED TO this 18th day of
May, 1999.
SYMBOL TECHNOLOGIES, INC.
By: /s/ Tomo Razmilovic
---- ----------------
Tomo Razmilovic
President and COO
<PAGE>
