<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1998
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ALL-TECH INVESTMENT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7372 13-2581640
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
160 SUMMIT AVENUE
MONTVALE, NEW JERSEY 07645
(201) 782-0200
(Address and Telephone Number of Registrant's Principal Executive Offices)
HARVEY I. HOUTKIN
CHIEF EXECUTIVE OFFICER
ALL-TECH INVESTMENT GROUP, INC.
160 SUMMIT AVENUE
MONTVALE, NEW JERSEY 07645
(201) 782-0200
(Name, Address, Telephone Number of Agent for Service)
---------------------
Copies to:
RICHARD A. FRIEDMAN, ESQ. LAWRENCE B. FISHER, ESQ.
SICHENZIA, ROSS & FRIEDMAN LLP. ORRICK, HERRINGTON & SUTCLIFFE LLP
135 WEST 50TH STREET 666 FIFTH AVENUE
NEW YORK, NEW YORK 10020 NEW YORK, NEW YORK 10103
Telephone No.: (212) 664-1200 Telephone No.: (212) 506-5000
Facsimile No.: (212) 664-7329 Facsimile No.: (212) 506-5151
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following
box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OF DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
Class of Amount Maximum Maximum
Securities Title of Each to to be Offering Price Aggregate Registration
be Registered Registered Per Security(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
(2) .............................. 7,187,500 $ 8.00 $ 57,500,000 $ 16,962.50
- -----------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants (3) ............ 3,593,750 $ .10 $ 359,375 $ 106.02
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
per share (4) .................... 3,593,750 $ 12.00 $ 43,125,000 $ 12,721.88
- -----------------------------------------------------------------------------------------------------------
Representative's Warrants (5) ..... 625,000 $ .0001 $ 62.50 (6)
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value
(7) .............................. 625,000 $ 9.60 $ 6,000,000 $ 1,770.00
- -----------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants
(8) .............................. 312,500 $ .12 $ 37,500 $ 11.06
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value
(9) .............................. 312,500 $ 12.00 $ 3,750,000 $ 1,106.25
- -----------------------------------------------------------------------------------------------------------
Totals ........................................................... $ 110,771,937.50 $ 32,677.71
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to rule 457(a) of the Securities Act of 1933, as amended.
(2) Includes 937,500 shares of Common Stock subject to sale upon exercise of the
Underwriters' Over-allotment Option granted to the Underwriters.
(3) Includes 468,750 redeemable Common Stock purchase warrants (the "Warrants")
subject to sale upon exercise of the Underwriters' Over-Allotment Option
granted to the Underwriters.
(4) Issuable upon exercise of the Warrants, together with such indeterminate
number of securities as may be issuable by reason of anti-dilution
provisions contained therein.
(5) Represents warrants to be issued to the Representative of the several
Underwriters to purchase 625,000 shares of Common Stock and/or 312,500
Warrants (the "Representative's Warrants"). See "Underwriting."
(6) No fee due pursuant to Rule 457(g).
(7) Represents shares of Common Stock issuable upon the exercise of the
Representative's Warrants, together with such indeterminate number of
securities as may be issuable by reason of anti-dilution provisions
contained therein.
(8) Represents Warrants issuable upon exercise of the Representative's Warrants.
(9) Represents shares of Common Stock issuable upon the exercise of Warrants
issuable upon exercise of the Representative's Warrants, together with such
indeterminate number of securities as may be issuable by reason of
anti-dilution provisions contained therein.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 22, 1998
PROSPECTUS
[GRAPHIC OMITTED]
ALL-TECH INVESTMENT GROUP, INC.
6,250,000 Shares of Common Stock
3,125,000 Redeemable Common Stock Purchase Warrants (as units,
each consisting of two shares of Common Stock and
one Redeemable Common Stock Purchase Warrant)
Of the 6,250,000 shares of Common Stock, $.001 par value (the "Common
Stock") of All-Tech Investment Group, Inc., a Delaware corporation ("All-Tech"
or the "Company") offered hereby, 5,625,000 shares of Common Stock are being
issued and sold by All-Tech and 625,000 shares of Common Stock are being sold by
certain shareholders (the "Selling Shareholders") of All-Tech. All-Tech will not
receive any of the proceeds from the sale of Common Stock by the Selling
Shareholders. See "Use of Proceeds." All of the 3,125,000 Warrants (the
"Warrants") offered hereby are being issued and sold by All-Tech. The shares of
Common stock and the Warrants will initially be sold as units, each unit
consisting of two shares of Common Stock and one Warrant. The shares of Common
Stock and the Warrants are sometimes hereinafter collectively referred to as the
"Securities." Until the completion of this offering (the "Offering"), the Common
Stock and Warrants may only be purchased together on the basis of two shares of
Common Stock and one Warrant, but will be transferable separately immediately
following completion of this Offering. Each Warrant entitles the holder thereof
to purchase one share of Common Stock at an exercise price of $12.00, subject to
adjustment, at any time from , 1998 (six months after the date of this
Prospectus) until , 2000 (30 months after the date of this Prospectus) and from
such date until , 2003 (60 months after the date of this Prospectus) at an
exercise price of $14.00 per share, subject to adjustment. Commencing , 1999,
the Warrants will be subject to redemption by the Company, in whole but not in
part, at $0.10 per Warrant on 30 days prior written notice, provided that the
average closing sale price of the Common Stock as reported on the American Stock
Exchange (the "Amex") equals or exceeds $20.00 per share of Common Stock,
subject to adjustment, for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. See "Description of Capital Stock-Warrants."
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants and there can be no assurance that such a market will develop
after the Offering or, if developed, that it will be sustained. It is currently
anticipated that the initial public offering price of the shares of Common Stock
and Warrants will be $8.00 per share and $.10 per Warrant. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering prices of the Securities and the terms of the Warrants. All-Tech
intends to apply to include the Common Stock and Warrants on the Amex under the
symbols "ATN" and "ATNW," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders(3)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Per Share of Common Stock $ $ $ $
- ------------------------------------------------------------------------------------------
Per Warrant .............. $ $ $ $
- ------------------------------------------------------------------------------------------
Total (4) ................ $ $ $ $
==========================================================================================
</TABLE>
<PAGE>
(1) Does not include additional compensation payable to Security Capital
Trading, Inc., the representative (the "Representative") of the several
underwriters (the "Underwriters"), consisting of (i) a non-accountable
expense allowance and (ii) warrants ("Representative's Warrants") to be sold
to the Representative for nominal consideration to purchase up to 625,000
shares of Common Stock and/or 312,500 Warrants, at a price of $9.60 per
share of Common Stock and $.12 per Warrant, subject to anti-dilution
provisions thereof, exercisable during the four year period commencing one
year after the effective date of this Offering. In addition, see
"Underwriting" for information concerning indemnification and contribution
arrangements with the several Underwriters and other compensation payable to
the Representative.
(2) After deducting Underwriting discounts and commissions, but before deducting
estimated expenses payable by the Company of $1,054,688, including the
Representative's non-accountable expense allowance on the shares of Common
Stock and the Warrants being sold by the Company.
(3) After deducting Underwriting discounts and commissions, but before deducting
the non-accountable expense allowance upon the shares sold by the Selling
Shareholders payable by the Selling Shareholders to the Representative.
(4) The Company and the Selling Shareholders have granted the Underwriters an
option (the "Over-Allotment Option") exercisable for a period of 45 days
after the date of this Prospectus to purchase an aggregate of up to an
additional 937,500 shares of Common Stock and 468,750 Warrants upon the same
terms and conditions set forth above, solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ , $ , and $ ,
respectively.
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Securities offered hereby will be made against payment at
the offices of Security Capital Trading, Inc., New York, New York on or about ,
1998.
Security Capital Trading, Inc.
The date of this Prospectus is , 1998
<PAGE>
INSIDE COVER OF PROSPECTUS-EDGAR VERSION ONLY
[Trading Room and ATTAIN Screen]
[Map Showing Location of All-Tech's
Principal and Branch Offices and Remote Customers]
[Picture of Harvey I. Houtkin and Mark D. Shefts]
ATTAIN(R) is a registered trademark of All-Tech. This Prospectus also contains
trademarks and trade names of other companies.
- --------------------------------------------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AND WARRANTS AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, INCLUDING ENTERING
STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY
BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
INFORMATION ON THE COMPANY'S WEBSITE SHALL NOT BE DEEMED TO BE PART OF THIS
PROSPECTUS.
------------
The Company intends to mail to all of its shareholders an annual report
containing financial statements audited by its independent accountants for each
fiscal year and shall make available to all of its shareholders quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including "Risk Factors" and
the financial statements and Notes thereto, appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results suggested by the forward-looking statements and from the results
historically experienced. Factors that may cause or contribute to such
differences include, but are not limited to, those discussed under "Risk
Factors" and elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus gives effect to a 68.75 for 1 forward stock split
of the outstanding shares of Common Stock to be effected in May 1998 as part of
the Company's reincorporation into Delaware and assumes (i) no exercise of the
Underwriters' Over-Allotment Option, (ii) no exercise of the Warrants, (iii) no
exercise of the Representative's Warrants and (iv) no exercise of any
outstanding options.
The Company
All-Tech Investment Group, Inc. ("All-Tech" or the "Company"), through its
proprietary ATTAIN(R) trading system software, provides its customers with
real-time computerized access to comprehensive price information for
over-the-counter ("OTC") securities traded on The Nasdaq Stock Market ("Nasdaq")
and securities traded on various national and regional exchanges, and enables
its customers to instantaneously transmit buy and sell orders for execution.
All-Tech also provides its customers with discounted commissions, electronic
reports regarding the customer's orders and account status, customizable display
screens, analytical modeling tools and news media reports. The Company has also
developed and commenced operation of its ATTAIN(R) ECN (the "ATTAIN ECN"), an
electronic communications network ("ECN"). ECNs provide investors an alternative
trading system to traditional Nasdaq trading. Through the ATTAIN trading system,
subscribers can directly place buy and sell orders for Nasdaq traded stocks.
Matching orders are paired off and the trade is executed by the ATTAIN ECN.
Additionally, the best bid and offer in each security which is placed on the
ATTAIN ECN will be displayed automatically and dynamically on a real-time basis
on Nasdaq along with market maker quotations. The ATTAIN trading system permits
the customer to eliminate the need to have the customer's order placed through a
market maker, therefore eliminating the market maker and the costs associated
with such market maker.
The Company's services are primarily utilized by self-directed "day
traders." Day traders actively engage in the buying and selling of securities,
based on short-term price volatility, many times during the course of a day.
They typically close out all open positions by the end of the day in order to
manage risk when the markets are closed. Frequently, a position may be closed
within minutes of the initial purchase or sale. All-Tech has over 1,500 active
customers. The Company's average aggregate customer transaction volume has
ranged between 2,500 and 3,000 trades per trading day for the last 12 months.
All-Tech's customers can access All-Tech's ATTAIN trading system at All-Tech's
main office, at one of its 18 branch offices or in their homes or offices
through a computer connected to the ATTAIN trading system via dedicated
telephone lines or the Internet.
All-Tech's objectives are to become the leading provider of electronic
brokerage services to self-directed traders and investors and to expand the
range of services and business activities engaged in by the Company. The
Company's strategy to accomplish its objectives includes (i) enhancing awareness
of the Company's ATTAIN trading system and ATTAIN ECN through marketing and
advertising, (ii) expanding its customer base through an aggressive marketing
campaign, opening additional branch offices and expanding services to attract
less active traders, (iii) analyzing and exploring opportunities to commence new
business activities, including self-clearing, electronic trading of financial
instruments other than stocks and options, underwriting securities offerings,
and other traditional investment banking and merchant banking activities, (iv)
expanding proprietary trading and (v) pursuing opportunities to offer the
Company's services internationally through use of the Internet and
telecommunications systems.
3
<PAGE>
All-Tech was incorporated in New York under the name Concord Capital Corp.
in 1981. The Company changed its name to All-State Investment Group, Inc. in
March 1988 and changed its name to All- Tech Investment Group, Inc. in December
1988. In May 1998 the Company is reincorporating in the State of Delaware. Its
principal executive offices are located at 160 Summit Avenue, Montvale, New
Jersey 07645. The Company's telephone number is (201) 782-0200; its world-wide
website is located at www. attain.com. Information contained in the Company's
website shall not be deemed to be part of this Prospectus.
The Offering
<TABLE>
<S> <C>
Securities offered by the Company ...................... 5,625,000 shares of Common Stock and 3,125,000
Warrants. The Common Stock and the Warrants will
be separately tradeable immediately following
completion of this Offering.
Securities offered by the Selling Shareholders ......... 625,000 shares of Common Stock.
Terms of Warrants ...................................... Each Warrant entitles the holder thereof to
purchase one share of Common Stock at an
exercise price of $12.00, subject to
adjustment, at any time from , 1998 (six
months after the date of this Pro- spectus)
until , 2000 (30 months after the date of this
Prospectus) and from such date until , 2003
(60 months after the date of this Prospectus)
at an exercise price of $14.00 per share.
Commencing , 1999 (18 months after the date of
this Prospectus), the Warrants will be subject
to redemption by the Company, in whole but not
in part, at $0.10 per Warrant on 30 days prior
written notice, provided that the average
closing sale price of the Common Stock as
reported on the Amex equals or exceeds $20.00
per share of Common Stock, subject to
adjustment, for any 20 trading days within a
period of 30 consecutive trading days ending
on the fifth trading day prior to the date of
the notice of redemption. See "Description of
Capital Stock-Warrants."
Securities Outstanding after the Offering: (1)
Common Stock ......................................... 21,093,750
Warrants ............................................. 3,125,000
Use of Proceeds ........................................ For working capital and other general corporate pur-
poses, development or acquisition of new areas of
brokerage business, marketing and proprietary trad-
ing. See "Use of Proceeds." The Company will not
receive any proceeds from the sale of shares of Com-
mon Stock by the Selling Shareholders. See "Use of
Proceeds."
Proposed Amex symbols .................................. Common Stock ATN
Warrants ATNW
</TABLE>
- -------------
(1) Excludes (i) 1,500,000 shares of Common Stock issuable upon exercise of
options pursuant to grants effective on the effective date of this Offering
under the Company's 1998 Stock Option Plan (the "Plan") at an exercise price
equal to the initial public offering price of the Common Stock and (ii)
750,000 shares of Common Stock issuable pursuant to options which may be
granted under the Plan. See "Management-1998 Stock Option Plan."
4
<PAGE>
Summary Financial Data
The following summary financial data is qualified by the more detailed
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus and should be read in conjunction with such financial statements
and notes thereto and the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- -------------- ---------------- -------------- --------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Total revenues ............ $ 11,268 $ 14,738 $ 2,962 $ 11,075 $ 16,064
Total costs and
expenses ................. 10,707 14,968 2,973 9,714 14,462
Pre-tax income (loss) ..... 561 (230) (11) 1,361 1,602
Net income (loss) ......... 286 (230) (3) 751 937
Pro forma data(1):
Pro forma earnings
(loss) per com-
mon share .............. .02 (.02) (.00) .05 .06
Weighted average
shares outstanding 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750
Nine Months Ended March 31,
------------------------------
1997 1998
-------------- --------------
Statement of
Operations Data:
Total revenues ............ $ 11,887 $ 13,149
Total costs and
expenses ................. 9,551 12,784
Pre-tax income (loss) ..... 2,336 365
Net income (loss) ......... 1,727 281
Pro forma data(1):
Pro forma earnings
(loss) per com-
mon share .............. .11 .02
Weighted average
shares outstanding 15,468,750 15,468,750
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1998 March 31, 1998
Actual Actual As Adjusted(2)
--------------- ---------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ......... $ 641 $ 604 $41,966
Total assets ...................... 3,799 3,182 44,494
Shareholders' equity .............. 1,855 1,964 43,277
</TABLE>
- -------------
(1) Pro forma data gives effect to the 68.75 for 1 forward split as part of the
Company's reincorporation in Delaware.
(2) As adjusted to give effect to the sale of 5,625,000 shares of Common Stock
and 3,125,000 Warrants offered by the Company hereby at an assumed initial
public offering price of $8.00 per share of Common Stock and $.10 per
Warrant and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Words or phrases such as "should result, are expected to, we
anticipate, we estimate, we project" or similar expressions are intended to
identify forward-looking statements. These statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the Company's historical experience and its present expectations or
projections. Caution should be taken not to place undue reliance on any such
forward-looking statements, since such statements speak only as of the date of
the making of such statements. Actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus. The following
risk factors should be considered carefully in addition to the other information
contained in this Prospectus before purchasing the Common Stock and Warrants
offered hereby.
Risks Associated with Securities Business
The Company, like other securities firms, is directly affected by national
and international economic and political conditions, broad trends in business
and finance, the level and volatility of interest rates, legislative and
regulatory changes, tax law changes, currency fluctuations, inflation, flows of
funds into and out of mutual and pension funds, the availability of short-term
and long-term funding and capital and substantial fluctuations in volume of
securities transactions, all of which may negatively affect trading volume
levels generally and by the Company's customers specifically. In recent months,
the U.S. securities markets have established record levels of trading which, the
Company believes, has favorably impacted its business. A general decrease in
trading activity on these markets could adversely affect the level of individual
trading activity by All-Tech's customers, which would materially adversely
affect the Company's operating results because certain expenses, consisting
primarily of salaries and benefits, computer hardware and software costs and
occupancy expenses, remain relatively fixed. Certain of the Company's
competitors with more diverse product and service offerings may be better
positioned to withstand decreased volatility in the securities markets. See
"Risk Factors--Competition." Since 1988, the U.S. equity markets have generally
risen and have not experienced an extended bear market. There can be no
assurance that volume of trading and volatility will not substantially diminish,
thereby negatively affecting the Company's commission income.
All-Tech's brokerage business, by its nature, is subject to various other
risks, including customer default, fraud, employees' misconduct and errors,
failures in connection with the processing of securities transactions and
litigation. The Company guarantees all customer transactions to its clearing
broker, which extends margin credit to the Company's customers. To the extent
All-Tech's customers purchase securities on margin, the Company is subject to
risks inherent in the extension of credit, especially during periods of rapidly
declining markets in which the value of the collateral held by the clearing firm
could fall below the amount of a customer's indebtedness. Failure of customers
to maintain cash deposit levels at all times at least equal to the value of the
related securities could subject All-Tech to risk of loss, should the parties to
the borrowing and lending transactions fail to honor their commitments. Risk can
be increased dramatically during periods of volatility. Any such losses could
have a material adverse effect on the Company's business, financial condition
and operating results.
Concentration of Services
Substantially all of the Company's revenues since inception have been
derived from commissions on the intraday trading activity of the Company's
customers through the Company's electronic brokerage services. The Company
expects that a substantial portion of its future revenues will continue to be
derived from customers' day trading activity. As a result, any factor resulting
in reductions in commissions received by the Company or declines in demand for
the Company's electronic brokerage services would have a material adverse effect
on the Company's business, financial condition and results of operations. There
can be no assurance that the Company will continue to be successful in marketing
its electronic brokerage services offered through its ATTAIN trading system or
any new or enhanced versions thereof. Competitive pressures or other factors in
the day trading area of the securities industry may result in significant
declines in the Company's commissions, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
6
<PAGE>
Policy of Regulating Authorities
"Day trading" involves the buying and selling of securities based upon
short-term volatility in the price of a security and closing out that position
on the same trading day, perhaps within minutes of the initial purchase or sale.
To the extent there is a lack of intra-day volatility, the opportunities to
profit from day trading will be diminished. The Securities and Exchange
Commission ("SEC") and the National Association of Securities Dealers, Inc.
("NASD") generally seek opportunities to adopt rules which tend to decrease
volatility in the securities markets. To the extent that new rules or
regulations or market conditions generally decrease volatility, opportunities
for the Company's customers to profit from day trading will decline.
Additionally, any regulatory change which limits the ability of individual
investors to engage in active day trading or which disadvantages investors who
participate in day trading would materially adversely affect the Company's
business and results of operations.
Lack of liquidity could also affect volatility. A Nasdaq proposal presently
before the SEC could reduce the liquidity available from market makers to order
entry firms such as All-Tech by allowing market makers to reduce the number of
shares they are obligated to trade from 1,000 to 100 in all Nasdaq quoted
stocks. If the proposal is approved in its present form by the SEC, such
potential reduction in liquidity could be substantial. A substantial decrease in
overall liquidity in the OTC market could materially adversely affect All-Tech's
customers' ability to obtain execution of their orders and therefore could
result in a decline in the Company's commission revenues. In addition, any
decrease in trading activities of individual investors in equity securities due
to tax law changes, recession, depression, increased interest rates on fixed
income investments or otherwise could have a material adverse effect on the
Company's business, financial condition or results of operations.
Management of Growth and Changing Business
Over the past several years, the Company has experienced significant growth
and change in its business activities and operations. The Company also commenced
operating the ATTAIN ECN in February 1998. The Company is still assessing the
full demands of the ATTAIN ECN on the Company's management and the Company's
financial and management systems and controls. The Company's growth has
required, and will continue to require, increased investment in management
personnel, financial and management systems and controls and facilities. The
Company's past expansion has placed, and any future expansion would place,
significant demands on the Company's administrative, operational, financial and
other resources. The Company intends to continue to expand its business and
operations, including entry into new markets, that will place additional strain
on the Company's management and operations. The Company's future operating
results will depend, in part, on its ability to continue to broaden the
Company's senior management group and administrative infrastructure, and its
ability to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve the Company's operational and financial control systems
and to expand, train and manage its employee base. In addition, the Company's
future operating results will depend on its ability to expand its sales and
marketing capabilities and expand its customer support operations commensurate
with its growth, should such growth occur. If the Company's revenues do not
increase in proportion to its operating expenses, the Company's management
systems do not expand to meet increasing demands, the Company fails to attract,
assimilate and retain qualified personnel, or the Company's management otherwise
fails to manage the Company's expansion effectively, there would be a material
adverse effect on the Company's business, financial condition and operating
results.
Dependence on Third Party Vendors
The Company's viability depends on its ability to obtain for itself and its
customers access to a breadth of quality and comprehensive real-time and
historical financial market data from third party vendors whose products are
technically compatible with the Company's ATTAIN software and its future
products and services. The Company currently depends substantially upon
relationships with third-party data vendors to ensure such access, including PC
Quote, Inc. ("PC Quote"), Dow Jones & Company, Inc., the Nasdaq Stock Market,
Inc., and other trading systems or ECNs, including Datek Securities Corp.'s
Island system and Terra Nova Trading LLC's Archipelago system. Although the
Company has written agreements with each of such third party vendors, if the
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Company's access to or use of the data provided by any of these third party
vendors were interrupted or terminated, the Company would have to make
alternative arrangements, either to produce such data itself or with a third
party or to obtain comparable data from a different third party. There can be no
assurance that such arrangements could be accomplished in a timely and cost
effective manner, if at all, or that alternative sources would be available on
commercially reasonable terms, if at all. To the extent the Company experiences
disruptions, its customers will be inconvenienced and may be adversely affected.
As a result, the Company's relationship with such customers would be adversely
affected. It has been publicly reported that PC Quote is experiencing severe
financial difficulties. There is also the risk that such contractual
relationships will not be renewed on terms favorable to the Company, if at all.
Vendors may also strengthen their alliances with the Company's competitors,
discontinue their relationships with the Company, or develop strategic
initiatives which involve eliminating or limiting compatibility between the
Company's services and the vendor's services. There can be no assurance that the
Company will be able to increase the number of compatible data vendors available
to it or encourage other trading systems to become compatible with the ATTAIN
ECN, or that the Company's existing data sources will continue to exist or
cooperate in maintaining technical compatibility with the Company's ATTAIN
trading system or the ATTAIN ECN. If the Company were unable to secure
additional key data sources and compatibility with other trading systems, or
were to lose access to significant amounts of data or to significant trading
systems or ECNs, the Company's business, financial condition and results of
operations would be materially adversely affected. To the extent third party
vendor trading systems do not timely program their trading systems to be
compatible with the ATTAIN ECN, the Company's business opportunities would be
adversely affected. See "Business--All-Tech's Strategy" and "--Competition."
Lack of Access to Instinet ECN
Instinet Corporation currently operates the largest ECN ("Instinet"), which
is responsible for over 15% of all Nasdaq trading and a substantially more
significant portion of trading in the 100 most actively traded Nasdaq stocks.
Historically, Instinet has offered and continues to offer its subscribers access
to better stock prices than are available on Nasdaq. Instinet's customers'
orders are not displayed by Instinet on Nasdaq unless the Instinet subscriber
affirmatively requests that its order be displayed on Nasdaq. Additionally, only
the best bid and asked quotations with respect to a specific Nasdaq traded
security and for which Nasdaq display is requested by the Instinet subscriber
are accessible to non-subscribers on Nasdaq. Moreover, the comprehensive list of
bid and ask orders of all Instinet subscribers at any time may be viewed only by
Instinet subscribers. This lack of access results in better prices for Instinet
subscribers and limits the ability of individual investors, including the
Company's customers, to discover trends or the magnitude of trends. Finally,
Instinet subscribers are offered price improvement, while non-subscribers who
access Instinet through Nasdaq do not receive price improvement. All-Tech has
applied to Instinet for subscriber privileges in order to provide access to
Instinet to the Company's customers, but Instinet has refused to grant
privileges to All-Tech, severely limiting All-Tech's ability to offer these
better execution prices to its customers. All-Tech has instituted an arbitration
proceeding against Instinet, seeking to become an Instinet subscriber, as well
as monetary damages, claiming that Instinet's denial of access was illegal and
violates state and federal laws as well as NASD rules. Although the Company
believes it has meritorious claims, there can be no assurance as to the outcome
of such arbitration.
Competition
The marketplace for electronic trading brokerage firms is intensely
competitive and rapidly changing. All-Tech believes that due to anticipated
growth of the market for electronic brokerage services, active stock trading
facilities and other factors, competition will substantially increase and
intensify in the future. The Company believes its ability to compete will depend
upon many factors both within and outside its control, including the timing and
market acceptance of new services, products and enhancements developed by the
Company and its competitors, functionality of such services and products, data
availability, ease of use, pricing, reliability, customer service and support
and sales and marketing efforts.
The Company faces direct competition from a number of publicly-traded and
privately-held companies. It competes directly with other firms whose customers
engage in active electronic day trading, other ECN systems, large Wall Street
securities firms, securities subsidiaries of major commercial bank holding
companies, major regional firms and smaller niche players. This competition is
based primarily on the quality of services offered
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and price. The Company's principal competitors in providing electronic brokerage
services to day traders currently include such firms as Datek Securities Corp.,
Terra Nova Trading, LLC. and Block Trading Corp. The Company's ATTAIN ECN
competes principally with market makers, Instinet, Datek Securities Corp.'s
Island ECN, Terra Nova Trading, LLC's Archipelago ECN, Bloomberg Tradebook LLC's
Tradebook System ECN, Spear, Leeds & Kellogg's REDI ECN and Brass Utility Inc.'s
BRUTE ECN. The Company also competes with on-line trading systems available on
the Internet, such as Charles Schwab & Co., Inc., E*Trade Capital Inc. and
Accutrade Inc. In addition, the Company faces competition from data vendors,
which offer investment analysis software, news quotations and other securities
industry products.
Nasdaq has recently filed a new rule proposal with the SEC to operate a
limit order file (essentially an ECN). Should this proposal be adopted and
Nasdaq offers a low-cost alternative to privately operated ECNs on which
substantial numbers of limit orders are reflected, this could have a negative
competitive impact on the ATTAIN ECN, which could materially adversely affect
the Company's business, financial condition and results of operations. There can
be no assurance whether such proposal will be approved and, if approved, when
Nasdaq's ECN might become operational.
Many of the Company's existing and potential competitors have longer
operating histories, significantly greater financial, technical and market
resources, greater name recognition and a larger installed customer base than
the Company.
One or more of these competitors may be able to respond more quickly to new
or emerging technologies or changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their services and
products than the Company. There can be no assurance that the Company's existing
or potential competitors will not develop services and products comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing customer
requirements. Larger competitors are also able to advertise their products and
services on a national or regional basis and may have a greater number and
variety of distribution outlets for their services. On-line discount brokerage
firms market their services through aggressive pricing and promotional efforts.
Increased competition could result in price reductions, reduced margins or
loss of market share, any one of which could materially adversely affect the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to compete successfully against
current or future competitors, or that competitive pressures faced by the
Company will not have a material adverse effect on its business, financial
condition and results of operations.
Competition from commercial banks may increase because of recent
acquisitions of securities firms by commercial banks, as well as internal
expansion by commercial banks into the securities business. In addition, the
Company expects competition from domestic and international banks to increase as
a result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve certain restrictions on commercial banks. See
"Business--Competition."
Competition for Retaining and Recruiting Personnel
The Company's business is dependent on the highly skilled, and often highly
specialized, individuals it employs. Retention of sales, trading, management and
administrative professionals is particularly important to the Company's
prospects. From time to time, other companies in the securities industry have
experienced losses of sales and trading personnel as well as management and
administrative professionals. The level of competition for key personnel is
expected to increase due to the increasing number of companies offering
electronic brokerage services and ECNs. There can be no assurance that losses of
key personnel due to such competition or otherwise will not occur in the future.
The loss of such professionals, particularly a senior professional, could
adversely affect the Company's growth and operating results.
The Company expects further growth in the number of its personnel.
Additionally, the Company expects that continuing competition will cause its
compensation costs to increase in the future. There can be no assurance that the
Company will be able to recruit a sufficient number of new employees with the
desired qualifications in a timely manner. The failure to recruit new employees
could materially and adversely affect the Company's future operating results.
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While the Company generally does not have employment agreements with its
employees, it attempts to retain its employees with incentives, such as bonuses.
Additionally the Company intends to issue options to buy Company stock that vest
over a number of years of employment. These incentives, however, may be
insufficient in light of the increasing competition for experienced
professionals in the securities industry, particularly if the value of the
Company's stock declines or fails to appreciate sufficiently to be a competitive
incentive for professional compensation. See "Business--Employees" and
"Management."
Dependence on Key Personnel
The Company is substantially dependent upon the efforts and skills of its
executive officers, particularly Harvey I. Houtkin and Mark D. Shefts, the
Company's Chairman of the Board and Chief Executive Officer, and its President,
Chief Operating Officer and Chief Financial Officer, respectively. The loss of
the services of either of these executive officers would have a material adverse
effect on the Company. The Company has entered into employment agreements with
both Messrs. Houtkin and Shefts and has applied for key man life insurance on
the lives of Messrs. Houtkin and Shefts in the amount of $1,000,000 each,
payable to the Company. The benefits received under these policies would not be
sufficient to compensate the Company for the loss of the services of Mr. Houtkin
or Mr. Shefts should suitable replacements not be employed. There can be no
assurance that key man insurance will be obtained in such amount, if at all. See
"Management--Employment Agreements; Key Man Insurance."
Significant Fluctuations in Quarterly Operating Results
The Company's revenues and operating results may fluctuate from quarter to
quarter and from year to year due to a combination of factors, including access
to public markets, fluctuations in the valuation of securities in which the
Company has invested as a principal, the level of retail and institutional
brokerage transactions, variations in expenditures for personnel, litigation
expenses and expenses of establishing new business units. In addition, the
timing of the Company's recognition of revenue from a significant transaction
can materially affect the Company's quarterly operating results. Due to the
foregoing and other factors, there can be no assurance that the Company will be
able to sustain profitability on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Securities Regulation in General
The securities business is subject to extensive regulation under federal
and state laws in the United States and the rules and regulations of self
regulatory organizations ("SROs"), such as the NASD and the various exchanges,
and also will be subject to regulation in the foreign countries in which
All-Tech may wish to conduct its activities. One of the most important
regulations with which the Company must continually comply is Rule 15c3-1 under
the Securities Exchange Act of 1934, as amended (the "Net Capital Rule"), which
requires the Company to maintain a minimum amount of net capital, as defined
under such Rule.
Compliance with many of the regulations applicable to the Company involves
a number of risks, particularly in areas where applicable regulations may be
subject to interpretation. In the event of non-compliance with an applicable
regulation, governmental regulators and the NASD may institute administrative or
judicial proceedings that may result in censure, fine, civil penalties
(including treble damages in the case of insider trading violations), issuance
of cease-and-desist orders, deregistration or suspension of the non-compliant
broker-dealer or investment adviser, suspension or disqualification of the
broker-dealer's officers or employees or other adverse consequences. The
imposition of any such penalties or orders on the Company could have a material
adverse effect on the Company's operating results and financial condition.
The Company's ability to engage in business is regulated by the terms of
its NASD membership agreement. To the extent new business activities are not
already permitted under that agreement, the Company is required to seek
modification of the agreement. There can be no assurance that any such
modification will be made on a timely basis, if at all. The failure to obtain
such modification would prohibit the Company from engaging in the activity at
issue and could impair the Company's ability to grow or to expand into other
areas or business.
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Underwriting commitments, should the Company engage in underwriting and
they be incurred, require a charge against net capital and, accordingly, the
Company's ability to make underwriting commitments in the future, should it
determine to do so, may be limited by the requirement that it must at all times
be in compliance with the applicable net capital regulations. See
"Business--Government Regulation."
The regulatory environment in which the Company operates is subject to
change. The Company may be adversely affected as a result of new or revised
legislation or regulations imposed by the SEC, other United States or foreign
governmental regulatory authorities or SROs. The Company also may be adversely
affected by changes in the interpretation or enforcement of existing laws and
rules by these governmental authorities and the NASD. Furthermore, the Company's
businesses may be materially affected not only by regulations applicable to it
as a financial market intermediary, but also by regulations of general
application.
Potential Conflicts of Interest
The Company engages in proprietary trading and acts as a market maker.
Therefore, the Company may be competing with its own customers with respect to
certain trades. In addition, executive officers, directors and employees of the
Company invest in public companies in which the Company is an investor or for
which the Company acts as a market maker. Accordingly, there are certain risks
that, as a result of such investment or profits interest, a director, officer or
employee may take actions which would conflict with the best interests of the
Company. All-Tech Training Group, Inc. ("ATTG") trains potential customers of
the Company. The Company, if these trainees open All-Tech accounts, offers them
per trade rebates up to, in the aggregate, the amount a customer paid for his or
her training. ATTG is owned by a company, Rushmore Financial Services, Inc.
("Rushmore"), which is wholly owned by Harvey I. Houtkin and Mark D. Shefts,
officers and directors of the Company. Messrs. Houtkin and Shefts perform duties
for other companies directly or indirectly owned by them, such as ATTG and
various real estate companies, as well as trade for accounts owned or controlled
by them. Although neither Mr. Houtkin nor Mr. Shefts spends a substantial amount
of time on such activities at the present time, there can be no assurance that
their duties as directors or officers of such other entities will not present
conflicts of interest with their duties to the Company in the future. See
"Business--Proprietary Trading" and "Certain Transactions."
Growth of ECN; Risks of Collection of ECN Accounts Receivable
All-Tech has recently developed and commenced operation of its ATTAIN ECN.
The ATTAIN ECN began to generate revenues in February 1998 and is expected to
become a significant source of revenues. All-Tech engages in trading for its own
account, primarily utilizing the ATTAIN ECN. Any discontinuance of trading on
the ATTAIN ECN by All-Tech, whether voluntarily or as a result of government
regulation, could have a material adverse effect on the Company's business,
financial condition and operating results.
Revenues are recognized by the Company with respect to its ATTAIN ECN at
the time of billing. The Company's accounts receivable have dramatically
increased since the commencement of the operation of its ATTAIN ECN, which bills
users monthly. There has been a great deal of discussion in the industry
regarding the amount of fees non-subscribers are charged to utilize ECNs and the
fact that such fees are charged upon usage and not pursuant to a contract. The
Company has denied access to several former ATTAIN ECN users because they have
stated to the Company that they would not pay their future ATTAIN ECN bills. The
Company believes that it maintains adequate reserves to account for the
non-collection of its accounts receivable. However, the Company has only
recently commenced billing users of the ATTAIN ECN and has very limited actual
experience on which to base the amount of doubtful accounts receivable relating
to revenues from the ATTAIN ECN. There can be no assurance that the rate of
non-collection of accounts receivable will not increase as the level of usage of
the ATTAIN ECN increases. Such an increase could materially adversely affect the
Company's business, financial condition and results of operations. Although the
Company intends to vigorously pursue its legal remedies to recover unpaid
accounts receivable, there can be no assurance that such efforts will be
successful. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Risk Associated with Increased Trading
The Company has entered into agreements with its clearing firm which will
permit All-Tech to trade the Company's proprietary account utilizing 10 to 1
margin, rather than its current margin rate of 2 to 1. Such
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increased leverage will permit the Company to greatly increase the amount of
proprietary trading it engages in. Proprietary trading subjects the Company to
risk of loss of the capital invested; trading at such a highly leveraged rate
increases the risk of loss proportionately. Any losses, if significant, would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Risks Associated with Entry into Institutional Market
The Company has historically sold its services primarily to individuals and
has little experience in marketing its services directly to institutions. The
Company believes its future success will depend in part on its ability to move
beyond its traditional customer base and market its services to institutions,
including brokerage firms with whom the Company currently competes. There can be
no assurance that the Company's services will be accepted by institutional
investors, which could have a material adverse effect on the Company's business
growth. See "Business--All-Tech's Strategy."
Rapid Technological Change and Dependence on New Services
Electronic stock trading is characterized by rapidly changing technology,
evolving industry standards in computer hardware, programming tools, programming
languages, operating systems, database technology and information delivery
systems, changes in customer requirements and frequent new service introductions
and enhancements. The Company's future success will depend upon its ability to
maintain and develop competitive technologies, to continue to enhance its
current services and to develop and introduce new services in a timely and
cost-effective manner that meets changing conditions such as evolving customer
needs, new competitive service offerings, emerging industry standards and
changing technology. Any failure by the Company to anticipate or to respond
quickly to changing market conditions, or any significant delays in development
or introduction of new services, could cause potential customers to delay or
decide against utilizing the Company's services and existing customers to
conduct their trading at competitors of the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--All-Tech's Strategy" and "--Future Growth and
Development."
Risks Associated with Future Reliance on the Internet
The Company believes that future development of its service and customer
base, and the future growth of the Company, particularly outside of the United
States, depends in part upon the utilization of the Internet as a widely used
medium for communication of trading information and the delivery of high-quality
financial market data, orders, account status information and customer support.
The Company currently has a limited number of customers who communicate with the
Company via the Internet. If the number of customers accessing All-Tech through
the Internet increases, the Company will have to develop additional Internet
technical compatibility and adjust its marketing and customer support approaches
accordingly. There can be no assurance that the Company will accomplish any of
such tasks on a timely, cost-effective basis, if at all. The Internet has
experienced, and is expected to continue to experience, significant growth in
the number of users and amount of traffic. There can be no assurance that the
Internet infrastructure will continue to be able to support the demands placed
on it by this continued growth. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of Internet activity, or due to
governmental regulation. Global commerce and online exchange of information on
the Internet and other similar open wide area networks are new and evolving;
therefore, it is difficult to predict whether Internet technology developments
will keep pace with the demand for Internet services. If the necessary
infrastructure or complementary services do not continue to be developed, or if
the Internet does not continue as a viable commercial marketplace, or if the
Company does not adequately and timely develop the necessary technical
compatibility and adjust its marketing and customer support approaches
accordingly, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business--Regulatory
Background and Development of Active Electronic Trading" and "--All-Tech's
Strategy."
Risk of Software Defects
As a result of their complexity, all software products, including the
Company's software, may contain errors. Despite testing by the Company and
initial use by customers, when new services and products are introduced or new
versions of services and products are released, there can be no assurance that
errors will not be
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found and persist after commencement of use, resulting in loss of revenues,
delay in market acceptance or damage to the Company's reputation, any of which
could have a material adverse effect upon the Company's business, financial
condition and results of operations. All software is inherently limited by the
accuracy of the data utilized. The monitoring, collection, storage and delivery
of financial market data by data vendors and by the Company's software is
inherently complex; therefore, it is subject to delay and to containing errors.
The effectiveness of the Company's services is limited by the accuracy of such
data. See "Business--Services--ATTAIN Trading System."
Risk of Litigation; Limited Insurance Coverage
There has been substantial litigation in the software industry involving
intellectual property rights. Although the Company does not believe that it is
infringing the intellectual property rights of others, or that others are
infringing on its intellectual property rights, there can be no assurance that
infringement claims, if asserted against the Company, would not have a material
adverse effect on the Company's business, financial condition and results of
operations, or that any infringement claim asserted by the Company would be
successfully resolved.
As the Company's services are designed to enable investors to make improved
investment and trading decisions, an investor who uses the Company's services
and sustains losses or fails to make profits in the securities or financial
markets may allege that the Company's services contributed to or resulted in
such losses or lost profits and that the Company should be held liable to the
investor for such losses. While the Company's account documentation contains
certain warnings and disclaimers, they may not be effective in certain
jurisdictions or under certain circumstances. The Company currently has a
limited amount of errors and omissions insurance which may cover such liability
risks, but there can be no assurance that such insurance would be adequate to
cover the amount of such liabilities, if imposed on the Company, or that such
insurance would cover the types of claims which might be asserted against the
Company. While the Company has never had such a claim successfully asserted
against it, there can be no assurance that such claims will not be asserted and
that, if asserted, the results will not materially adversely affect the
Company's business, financial condition and results of operations. See
"Business--Services."
Risks Associated with International Expansion
A component of the Company's strategy is its planned expansion into
international markets. This strategy is dependent, in part, on international
customers having access to the appropriate financial market data and on the
Company's ability to provide such potential customers with brokerage services
under the laws of that jurisdiction. To date, the Company has only limited
experience in marketing, selling and delivering its services internationally.
There can be no assurance that the Company will be able to successfully market,
sell and deliver its services in international markets. In addition, there are
certain risks inherent in doing business on an international level, including
unexpected changes in regulatory requirements, difficulties in staffing and
managing foreign operations, dependence upon strategic partners needed to
succeed in certain countries, difficulties in protecting intellectual property
rights, longer payment cycles, problems in collecting accounts receivable,
political instability, unfamiliarity with local laws and customs, fluctuations
in currency exchange rates, and potentially adverse tax consequences. There can
be no assurance that one or more of such or other factors will not have a
material adverse effect on the Company's ability to expand into international
markets or on the Company's future international operations if any, and,
consequently, on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will expand into
international markets. See "Business--Sales and Marketing."
Dependence upon Microsoft's Windows Operating System
The Company's services are currently designed for use on computers using
Microsoft's 32-bit Windows operating system, requiring Windows 95 and Windows
NT. Upon release of later versions of the Windows operating system, such as
Windows 98, by Microsoft, the Company will attempt to modify its software to
take advantage of such developments. To the extent any such later version is not
compatible with Windows 95, All-Tech's customers trading from their own
locations ("remote customers") would be required to purchase such new version or
All-Tech would have to purchase it for them. Any factor adversely affecting the
demand for, or the current trends of increasing and expanding use of, the
current Windows operating system could have an impact on demand for the
Company's services, causing a material adverse effect on the Company's business,
financial
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condition and results of operations. Additionally, changes to the underlying
components of the Windows operating system may require changes to the Company's
ATTAIN trading system and ECN software. If the Company is not able to
successfully develop or implement appropriate modifications to its ATTAIN
trading system and ECN software in a timely fashion, the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Business--Services--The ATTAIN Trading System."
Emerging Market for Electronic Trading
The market for computer-automated investment and trading on personal
computers is relatively new and will be subject to frequent and continuing
changes. Any future growth of this market depends upon continued customer
acceptance of this type of trading as a viable method of implementing trading
strategies. Historically, the Company's policy has been that prospective
customers be educated as to the potential advantages of the Company's services
and be trained in the trading strategies appropriate for this type of trading.
The Company expects that the need for such education will continue for the
foreseeable future. There can be no assurance that the Company will be
successful in obtaining a sufficient number of educated customers or that the
Company will be able to respond effectively to changing customer preferences in
this market. If the size of the market is substantially smaller than the Company
believes, or if the market for electronic trading fails to grow or grows more
slowly than the Company currently anticipates, or if the Company fails to
respond effectively to the evolving requirements of this market, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "Business--Overview."
The education of prospective customers in electronic day trading strategies
is conducted almost wholly by ATTG, a wholly-owned subsidiary of Rushmore, a
company which is wholly owned by Messrs. Harvey Houtkin and Mark Shefts,
Chairman of the Board, Chief Executive Officer and Secretary and President,
Chief Operating Officer, Chief Financial Officer and Treasurer, respectively, of
the Company. Should they determine to discontinue this business, the Company
would have to develop its own educational capabilities or purchase ATTG's
operations. The Company has no current intention of developing its own training
capabilities. See "Certain Transactions."
Protection of Intellectual Property
The Company's success is heavily dependent upon its proprietary technology.
The Company relies primar-ily on a combination of copyright, trade secret and
trademark laws, non-disclosure and other contractual provisions and technical
measures to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials through trade secret and
copyright laws, which provide only limited protection. As part of its
confidentiality procedures, the Company enters into non-disclosure agreements
with its employees, consultants and third party vendors. The Company uses
agreements with its customers and ATTAIN ECN subscribers in order to protect its
copyrights and trade secrets and to prevent such users from commercially
exploiting such copyrights and trade secrets for their own gain. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
copy or otherwise obtain, use or exploit the Company's products or technology
independently. Policing unauthorized use of the Company's products is difficult,
and the Company is unable to determine the extent to which unauthorized use, if
any, of its software products exists. Piracy can be expected to be a persistent
problem, particularly in international markets and as a result of the growing
use of the Internet. In addition, effective protection of intellectual property
rights may be unavailable or limited in certain countries, including some in
which the Company may attempt to expand its sales efforts. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies or products, either of which could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
There has been substantial litigation in the software industry involving
intellectual property rights. The Company does not believe that it is infringing
the intellectual property rights of others. There can be no assurance that
infringement claims would not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, to the
extent that the Company acquires or licenses a portion of the software or data
included in its software from third parties, its exposure to infringement
actions may increase
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because the Company must rely upon such third parties for information as to the
origin and ownership of such acquired or licensed software or data. In the
future, litigation may be necessary to establish, enforce and protect trade
secrets, copyrights, trademarks and other intellectual property rights of the
Company. The Company may also be subject to litigation to defend against claimed
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. Any such litigation could be costly
and divert management's attention, either of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Adverse determinations in such litigation could result in the loss of
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties, which could be expensive, or
prevent the Company from selling its services or using its trademarks, any one
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Intellectual
Property and Other Proprietary Rights."
Risks Associated with Possible Acquisitions
The Company may acquire businesses, assets, products and technologies that
the Company believes could complement or expand the Company's business. The
Company currently has no specific plan, commitments or agreements with respect
to any acquisitions and there can be no assurance that the Company will be able
to identify any appropriate acquisition candidates. If the Company identifies an
acquisition candidate, there can be no assurance that the Company will be able
to successfully negotiate the terms of any such acquisition, finance such
acquisition or integrate such acquired business, assets, products or
technologies into the Company's existing business. Furthermore, the negotiation
of potential acquisitions as well as the integration of an acquired business
could cause diversion of management's time and resources, and require the
Company to use proceeds from this Offering to consummate a potential
acquisition. See "Business--All-Tech's Strategy."
Possibility of Losses Associated with Principal and Trading Activities
The Company's securities trading and market-making activities as principal
subject the Company's capital to significant risks, including market, credit,
leverage, counter-party and liquidity risks. Sudden sharp declines in market
values of securities can result in illiquid markets and the failure of issuers
and counterparties to perform their obligations, as well as increases in claims
and litigation. In such markets, the Company may incur reduced revenues or
losses in its principal trading activities. These activities often involve the
purchase, sale or short sale of securities as principal in markets that may be
characterized by relative illiquidity or that may be particularly susceptible to
rapid fluctuations in liquidity and price. The Company intends to use a portion
of the net proceeds from this Offering for its proprietary trading activities.
See "Business."
Year 2000
The Company's review of its own operating systems does not indicate any
Year 2000 problems. However, the Company is highly dependent on third party
vendors. Failures and interruptions, if any, resulting from the inability of
certain computing systems of third party vendors, including the Company's
clearing broker, to recognize the Year 2000 could have a material adverse effect
on the Company's results of operations. There can be no assurance that the Year
2000 issue can be resolved by any of such third parties prior to the upcoming
change in the century. Although the Company may incur substantial costs,
particularly costs resulting from charges by its third party service providers,
in correcting Year 2000 issues, such costs are not sufficiently certain to
estimate at this time.
Lack of Off-Site Disaster Recovery Facility
The Company's principal disaster recovery system is located at the
Company's principal offices. No off-site disaster recovery system exists at this
time. There can be no assurance that the Company will not suffer any systems
failure or interruption, including one caused by a fire, other natural disaster,
power or telecommunications failure, act of God, act of war or otherwise, or
that the Company's back-up procedures and capabilities in the event of any such
failure or interruption, in light of the fact that they are not off-site, will
be adequate.
Dependence upon Availability of Capital and Funding
The Company's business is dependent upon the availability of adequate
required capital under applicable regulatory requirements. Historically, the
Company has satisfied these needs from internally generated funds.
15
<PAGE>
While the proceeds of the Offering can be expected to satisfy the Company's
funding and capital needs for the next 12 months, there can be no assurance that
any, or sufficient, funding or regulatory capital will continue to be available
to the Company thereafter on terms that are acceptable to it. The Company's
ability to expand and grow its business in accordance with its current plan, to
make acquisitions and to meet its long-term capital requirements beyond any such
12-month period will depend on many factors, including, but not limited to, the
receipt of the net proceeds of this Offering, the rate, if any, at which the
Company's cash flow increases, the ability and willingness of the Company to
accomplish acquisitions and develop new business areas with its capital stock,
and the availability to the Company of additional public and private
subordinated debt and/or equity financing. No assurance can be given that
additional financing will be available or that, if available, it will be
available on terms favorable to the Company. See "Use of Proceeds,"
"Business--Government Regulation," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Broad Discretion of Management in Use of Proceeds
The Company has not made specific allocations for the use of the net
proceeds from the sale by the Company of the Common Stock and Warrants offered
hereby. Rather, the Company intends to use the net proceeds primarily for
general corporate purposes, including principal investments and working capital.
Accordingly, management will have significant discretion in applying the net
proceeds of the Offering. See "Use of Proceeds."
Control by Insiders
Prior to this Offering, all of the outstanding shares of Common Stock are
held by Harvey I. Houtkin, Chairman, Chief Executive Officer and Secretary of
the Company, Mark D. Shefts, President, Chief Operating Officer, Chief Financial
Officer and Treasurer of the Company, and Rushmore, a company wholly owned by
Messrs. Houtkin and Shefts. Upon completion of the Offering, Messrs. Houtkin and
Shefts will beneficially own in the aggregate 70.4% of the outstanding Common
Stock (and 66.7% of the Common Stock if the Over-Allotment Option is exercised
in full) and therefore will be able to control the outcome of all corporate
actions requiring shareholder approval. Therefore, investors' ownership of
Common Stock will not provide them with any ability to determine the outcome of
matters requiring a shareholder vote, including the election of directors, and
any merger, consolidation or sale of all or substantially all of the Company's
assets. Additionally Messrs. Houtkin and Shefts shall effectively retain control
over the management and affairs of the Company through their significant stock
ownership. Such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company or a merger,
consolidation, takeover or other business combination involving the Company or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company. See "Management" and "Principal and
Selling Shareholders."
Speculative Nature of the Warrants
The Warrants do not confer any rights of Common Stock ownership on their
holders, such as voting rights or the right to receive dividends, but rather
merely represent the right to acquire shares of Common Stock at a fixed price
for a limited period of time. Specifically, commencing , 1998 (six months after
the date of this Prospectus), through , 2000 (30 months after the date of this
Prospectus), holders of the Warrants may exercise their right to acquire Common
Stock at an exercise price of $12.00 per share (150% of the initial public
offering price of the Common Stock), and commencing , 2000 (30 months after the
date of this Prospectus), holders of Warrants may exercise their right to
acquire Common Stock at an exercise price of $14.00 per share (175% of the
initial public offering price of the Common Stock), subject to adjustment upon
the occurrence of certain dilutive events, until , 2003 (60 months after the
date of this Prospectus), after which date any unexercised Warrants will expire
and have no further value. Moreover, following the completion of the Offering,
the market value of the Warrants will be uncertain and there can be no assurance
that the market value of the Warrants will equal or exceed their initial public
offering price. There can be no assurance that the market price of the Common
Stock will ever equal or exceed the exercise price of the Warrants and,
consequently, whether it will ever be profitable for holders of the Warrants to
exercise the Warrants.
16
<PAGE>
Potential Adverse Effect of Redemption of Warrants
Commencing , 1999 (18 months after the date of this Prospectus), the
Warrants will be subject to redemption by the Company at $.10 per Warrant on
thirty days prior written notice to the warrantholders if the average closing
sale price of the Common Stock as reported on the Amex equals or exceeds $20.00
per share of Common Stock for any 20 trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. If the Warrants are redeemed, holders of the Warrants
will lose their right to exercise the Warrants after the expiration of the
30-day notice of redemption period. Upon receipt of a notice of redemption,
holders would be required to: (i) exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for them to do so, (ii) sell the
Warrants at the current market price, if any, when they might otherwise wish to
hold the Warrants or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Capital Stock--Warrants."
Legal Restrictions on Sale of Shares Underlying the Warrants
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company has agreed to use
its best efforts to keep a registration statement covering the shares of Common
Stock issuable upon the exercise of the Warrants effective for the term of the
Warrants, if it fails to do so for any reason, the Warrants may be deprived of
value.
The Shares and Warrants are detachable and separately transferable
immediately following completion of the Offering. Purchasers may buy Warrants in
the aftermarket in or may move to jurisdictions in which the shares underlying
the Warrants are not so registered or qualified during the period that the
Warrants are exercisable. In this event the Company would be unable to issue
shares of Common Stock underlying the Warrants. Holders of Warrants would have
no choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised. See "Description of Capital
Stock."
Possible Issuance of Preferred Stock; Barriers to Takeover
The Company's Certificate of Incorporation and By-Laws, as well as Delaware
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. The Company's Certificate of Incorporation
also authorizes the Board of Directors to issue, without shareholder approval,
5,000,000 shares of Preferred Stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. Following the Offering, no shares of Preferred Stock of
the Company will be outstanding. Any issuances of Preferred Stock could be used
for anti-takeover purposes or to discourage, delay or prevent a change of
control of the Company. See "Description of Capital Stock."
Absence of Prior Market; Possible Volatility of Securities Prices; Arbitrary
Determination of Offering Prices
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that an active public market will
develop or, if developed, will be sustained following the Offering. Certain
factors, such as sales of the Securities into the market by existing
shareholders, fluctuations in operating results of the Company or its
competitors, market conditions for similar stocks, and market conditions
generally for other companies in the investment banking industry or in the
financial services or technology industries, could cause the market price of the
Common Stock and the Warrants to fluctuate substantially. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of companies and
that have often been unrelated to the operating performance of such companies.
Accordingly, the market price of the Securities may decline even if the
Company's operating results or prospects have not changed. The initial public
offering prices of the Securities and
17
<PAGE>
the terms of the Warrants will be determined through negotiations among the
Company, the Selling Shareholders and the Representative and shall not
necessarily bear any relationship to the Company's book value, assets, past
operating results, financial condition or any other established criteria of
value. There can be no assurance that the Securities offered by this Prospectus
will trade at market prices in excess of the initial public offering prices.
See "Underwriting."
Potential Decreases in the Market Price of Securities Resulting from Future
Sales of Securities
Sales of a substantial number of shares of Common Stock and Warrants in the
public market, whether by purchasers in the Offering or other shareholders of
the Company, could adversely affect the prevailing market price of the
Securities and could impair the Company's future ability to raise capital
through an offering of its equity securities. Without giving effect to exercise
of the Underwriters' Over-Allotment Option, there will be 21,093,750 shares of
Common Stock and 3,125,000 Warrants outstanding immediately after completion of
the Offering, of which 6,250,000 shares of Common Stock and all of the Warrants
will be freely tradeable in the public markets, subject, if purchased by
"affiliates", to the volume and other limitations set forth in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The remaining 14,843,750 shares of Common Stock outstanding immediately
following the Offering will be "restricted" securities, as that term is defined
under Rule 144. Under lock-up agreements (the "Lockup Agreements") each existing
shareholder has agreed that such shareholder will not directly or indirectly
sell, assign or otherwise transfer any shares of Common Stock for a period of
twelve (12) months after the effective date of the Offering, unless released by
the Representative. Any shares subject to the Lockup Agreements may be released
by the Representative at any time without notice to the public. All of such
14,843,750 shares of Common Stock would be eligible for sale, subject to
compliance with the volume limitations of Rule 144 by the holders of these
shares commencing upon the later of (i) ninety (90) days after the effective
date of the Offering or (ii) the expiration or waiver of the Lockup Agreements.
See "Shares Eligible for Future Sale" and "Underwriting."
Immediate and Substantial Dilution
Purchasers of Common Stock in the Offering will experience immediate
substantial dilution of $5.95 based on the net tangible book value of the
Company at March 31, 1998, and on an initial public offering price of $8.00 per
share and $.10 per Warrant. See "Dilution."
Lack of Experience of Representative
Security Capital Trading, Inc., the Representative, commenced operations in
June 1995. The Representative has only co-managed two recent public offerings of
securities; therefore, the Representative does not have extensive experience as
a co-manager or underwriter of public offerings of securities.
See "Underwriting."
Limited Marketing Capabilities
The Company's operating results will depend to a large extent on its
ability to successfully market the ATTAIN trading system, the ATTAIN ECN and
other services to public customers who are active traders and who require
real-time market information. In addition, the Company also hopes to market its
services to institutions, including brokerage firms. The Company currently has
limited marketing capability. The Company intends to use a portion of the
proceeds of the Offering to hire additional sales and marketing personnel and
conduct additional advertising. There can be no assurance that any marketing
efforts undertaken by the Company will be successful or will result in any
significant increase in usage of the ATTAIN trading system, the ATTAIN ECN or
other services of the Company. See "Business--All-Tech's Strategy."
No Dividends and None Anticipated
Although the Company has paid dividends on the Common Stock in the past,
it is anticipated that income received from operations, if any, will be
retained for the Company's future operations. Accordingly, no dividends are
anticipated in the future. See "Dividend Policy."
Limitation on Liability of Directors
The Company's Certificate of Incorporation limits personal liability of
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware. See "Description of Capital Stock."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
5,625,000 of the shares of the Common Stock and 3,125,000 Warrants offered
hereby by the Company, based on an assumed initial public offering price of
$8.00 per share and $.10 per Warrant, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be $41,312,500 ($44,805,600 assuming exercise of the Over-Allotment
Option in full). The net proceeds will be used for general corporate purposes,
the development or acquisition of new areas of the brokerage business,
advertising and marketing, principal investments and working capital. The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company has declared and paid cash dividends on its capital stock in
the past. The Company currently intends to retain all of its earnings, if any,
for use in its business and does not anticipate paying any dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon a number of
factors, including future earnings, the success of the Company's business
activities, regulatory capital requirements, the general financial condition and
future prospects of the Company, general business conditions and such other
factors as the Board of Directors may deem relevant.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
(after giving effect to the Company's Delaware reincorporation and 68.75 for 1
forward stock split occurring in May 1998), was approximately $1,914,000 or $.12
per share of Common Stock. Pro forma net tangible book value per share
represents the Company's pro forma tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding as of March 31,
1998. Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the Offering made hereby and the
pro forma net tangible book value per share of Common Stock immediately after
completion of the Offering. Without taking into account any changes in such pro
forma net tangible book value after March 31, 1998, other than to give effect to
the sale of 5,625,000 shares of Common Stock and 3,125,000 Warrants (but not the
Underwriters' Over-Allotment Option) by the Company in this Offering at an
assumed initial pubic offering price of $8.00 per share and $.10 per Warrant and
the application of the estimated net proceeds therefrom (after deducting the
underwriting discount and commissions and estimated Offering expenses), the pro
forma as adjusted net tangible book value of the Company as of March 31, 1998,
would have been approximately $43,227,000, or $2.05 per share assuming no value
is attributed to the Warrants. This represents an immediate increase an pro
forma net tangible book value of $1.93 per share to existing shareholders and an
immediate dilution in pro forma as adjusted net tangible book value of $5.95 per
share to new investors. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C>
Assumed initial public offering price per share ............................. $ 8.00
Pro forma net tangible book value per share as of March 31, 1998 ......... $ .12
Increase per share attributable to Offering .............................. 1.93
Pro forma as adjusted net tangible book value per share after the Offering .. 2.05
------
Dilution per share to new investors ......................................... $ 5.95
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the difference between the total consideration paid for the number of shares of
Common Stock purchased from the Company and the average price per share paid by
existing shareholders and by new investors purchasing shares of Common Stock
pursuant to this Offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ------------------------- Average Price
Number Percent Amount Percent Per Share
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders ......... 15,468,750 73.3% $ 1,682,595 3.6% $ .11
New Investors ................. 5,625,000 26.7 45,000,000 96.4 $ 8.00
---------- ---- ----------- ----
Total ...................... 21,093,750 100% $46,682,595 100%
========== ==== =========== ====
</TABLE>
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on an actual basis and (ii) as adjusted to reflect the sale
by the Company of 5,625,000 shares of Common Stock and 3,125,000 Warrants
offered hereby at an assumed initial public offering price of $8.00 per share
and $.10 per Warrant, and the receipt of the estimated net proceeds therefrom,
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company. This table should be read in conjunction with
the financial statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------
Actual As Adjusted
------------ --------------
<S> <C> <C>
Shareholders' equity:(1) ..........................................
Preferred Stock, $.01 par value, 5,000,000 shares authorized, none
outstanding .................................................... $ -- $ --
Common Stock, $.001 par value, 55,000,000 shares authorized,
15,468,750 shares outstanding, actual; and 21,093,750 shares
outstanding, as adjusted(2) .................................... 15,469 21,094
Additional paid-in capital ....................................... 1,548,299 42,855,174
Retained earnings ................................................ 400,460 400,460
---------- -----------
Shareholders' equity ........................................... 1,964,228 43,276,728
---------- -----------
Total capitalization ........................................ $1,964,228 $43,276,728
========== ===========
</TABLE>
- ------------
(1) After giving effect to the Delaware reincorporation and the
recapitalization.
(2) Excludes as of March 31, 1998: 2,250,000 shares of Common Stock reserved for
issuance under the Company's 1998 Stock Option Plan, none of which had been
granted. The Company intends to grant 1,500,000 of such options, such grant
to be effective upon the effective date of this Offering. See
"Management--1998 Stock Option Plan" and Note 11 of Notes to financial
statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial information with respect
to the Company as of and for the periods indicated. The financial information as
of and for the years ended June 30, 1993, June 30, 1994, 1995, 1996 and 1997,
has been derived from the audited financial statements of the Company. The
financial information as of and for the nine months ended March 31, 1997 and
1998 has been derived from unaudited financial statements of the Company, which
in the opinion of Management have been prepared on the same basis as the audited
financial statements and contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. The results of operations for the nine months ended
March 31, 1998, are not necessarily indicative of results to be expected for the
full fiscal year. This selected financial information should be read in
conjunction with the financial statements and Notes thereto and the discussion
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- ---------------- ---------------- -------------- --------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues:
Brokerage ................. $ 12,524 $ 15,113 $ 2,826 $ 10,789 $ 15,544
Trading ................... (1,256) (377) 115 64 132
ECN ....................... -- -- -- -- --
Other ..................... -- 2 21 222 388
------------ ----------- ----------- ------------ ------------
Total revenues ........... 11,268 14,738 2,962 11,075 16,064
------------ ----------- ----------- ------------ ------------
Costs and Expenses:
Cost of services .......... 4,659 6,925 1,494 5,218 7,307
Technology
development .............. 86 38 43 209 366
Selling, general and
administrative
expenses ................. 5,962 8,005 1,436 4,287 6,789
------------ ----------- ----------- ------------ ------------
Total costs and
expenses ................ 10,707 14,968 2,973 9,714 14,462
------------ ----------- ----------- ------------ ------------
Income (loss) before
provision for income
taxes ..................... 561 (230) (11) 1,361 1,602
Provision (benefit)
for income taxes .......... 275 (0) (8) 610 665
------------ -------------- -------------- ------------ ------------
Net income (loss) .......... $ 286 $ (230) $ (3) $ 751 $ 937
============ ============= ============= ============ ============
Pro forma data(1):
Earnings (loss) per share $ .02 $ (.02) $ (.00) $ .05 $ .06
============ ============= ============= ============ ============
Weighted average shares
outstanding ............... 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750
============ ============= ============= ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues:
Brokerage ................. $ 11,267 $ 12,423
Trading ................... 139 (147)
ECN ....................... -- 434
Other ..................... 481 439
------------ ------------
Total revenues ........... 11,887 13,149
------------ ------------
Costs and Expenses:
Cost of services .......... 5,118 5,585
Technology
development .............. 232 344
Selling, general and
administrative
expenses ................. 4,201 6,855
------------ ------------
Total costs and
expenses ................ 9,551 12,784
------------ ------------
Income (loss) before
provision for income
taxes ..................... 2,336 365
Provision (benefit)
for income taxes .......... 609 84
------------ ------------
Net income (loss) .......... $ 1,727 $ 281
============ ============
Pro forma data(1):
Earnings (loss) per share $ .11 $ .02
============ ============
Weighted average shares
outstanding ............... 15,468,750 15,468,750
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
1993 1994 1995 1996 1997 March 31, 1998
-------- -------- -------- -------- -------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......... $ 106 $ 84 $ 37 $ 177 $ 641 $ 604
Total assets ...................... 2,906 1,716 1,657 3,263 3,799 3,182
Total liabilities ................. 1,157 197 141 996 1,944 1,218
Shareholders' equity .............. 1,749 1,519 1,516 2,267 1,855 1,964
</TABLE>
- ------------
(1) Pro forma data gives effect to the 68.75 for 1 forward stock split as part
of the Company's reincorporation in Delaware.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements. Words or phrases such as "should
result, are expected to, we anticipate, we estimate, we project" or similar
expressions are intended to identify forward-looking statements. These
statements are subject to certain risks and uncertainties including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
Prospectus that could cause actual results to differ materially from the
Company's historical experience and its present expectations or projections.
Caution should be taken not to place undue reliance on any such forward-looking
statements, since such statements speak only as of the date of the making of
such statements.
General
The Company is a registered securities broker/dealer which provides its
customers with computerized access to securities price information and enables
its customers to transmit buy and sell orders for execution. The Company also
operates an electronic communications network, the ATTAIN ECN, on which
subscribers may post bids and offers for OTC securities. Substantially all of
the Company's revenues to date have been derived from commissions on customer
transactions. In fiscal 1995, the Company temporarily substantially discontinued
dealing with retail customers and its principals concentrated on market making
activities in an affiliated company, Domestic Securities, Inc. ("DSI"), due to
regulatory changes. DSI competed on the basis of price rather than the more
traditional practice of buying order flow. In fiscal 1996, the Company's
principals returned their focus to All-Tech and its brokerage business. The
Company's ATTAIN ECN began to generate revenues in February 1998 and is expected
to become a significant source of revenues.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of revenues represented by the items reflected in the Company's Statement of
Operations.
<TABLE>
<CAPTION>
Nine Months Ended March
Years Ended June 30, 31,
-------------------------------------- -----------------------
1995 1996 1997 1997 1998
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Brokerage commissions and fees .............. 95.4% 97.4% 96.8% 94.8% 94.5%
Trading gains (losses) ...................... 3.9 0.6 0.8 1.2 ( 1.1)
ECN fees .................................... 0.0 0.0 0.0 0.0 3.3
Other ....................................... 0.7 2.0 2.4 4.0 3.3
----- ----- ----- ----- -----
Total Revenues ............................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and Expenses:
Cost of services ............................ 50.4 47.1 45.5 43.0 42.5
Technology development ...................... 1.5 1.9 2.3 2.0 2.6
Selling, general and
administrative expenses ................... 48.5 38.7 42.2 35.3 52.1
----- ----- ----- ----- -----
Total Costs and Expenses ..................... 100.4 87.7 90.0 80.3 97.2
----- ----- ----- ----- -----
Income (loss) before
provision for income taxes .................. ( 0.4) 12.3 10.0 19.7 2.8
Provision (benefit) for income taxes ......... ( 0.3) 5.5 4.2 5.1 .7
----- ----- ----- ----- -----
Net income (loss) ............................ ( 0.1)% 6.8% 5.8% 14.6% 2.1%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Revenues. Total revenues increased approximately $1.2 million or 10.1% to
$13.1 million for the nine months ended March 31, 1998 from $11.9 million for
the nine months ended March 31, 1997. This increase resulted primarily from an
increase in brokerage commissions and fees and fees of approximately $.4 million
23
<PAGE>
from the Company's ATTAIN ECN which the Company commenced operating on February
17, 1998, offset by trading losses of approximately $.3 million. The Company
believes that it has established adequate doubtful account reserves for
non-collection of ECN fees receivable. Since the Company has very limited actual
experience on which to base the amount of doubtful account reserve, there can be
no assurance that such reserve will be sufficient. Brokerage commissions and
fees increased approximately $1.1 million or 10% to $12.4 million for the nine
months ended March 31, 1998, from $11.3 million for the same period in fiscal
1997. The increase in brokerage commissions and fees resulted primarily from an
increase in the number of customer transactions processed by the Company.
Customer transactions for the nine months ended March 31, 1998 were
approximately 539,000 compared to 472,000 for the comparable period in fiscal
1997, an increase of 14%. Average commissions per transaction declined from
$23.88 for the nine months ended March 31, 1997, to $ 23.05 for the same period
in fiscal 1998. Trading revenue declined approximately $286,000 or 206% from
$139,000 for the nine months ended March 31, 1997 to $(147,000) for the nine
months ended March 31, 1998.
Cost of Services. Cost of services increased approximately $.5 million or
10% to $5.6 million for the nine months ended March 31, 1998 from $5.1 million
for the comparable period in fiscal 1997. This increase is primarily
attributable to the increase in customer transactions processed in the nine
months ended March 31, 1998 and to the increase in lower margin customer
transactions generated by the branch offices.
Technology Development. Technology development costs increased
approximately $112,000 or 48% to $344,000 for the nine months ended March 31,
1998, from $232,000 for the comparable period in fiscal 1997. This increase is
primarily attributable to the hiring of additional personnel to enhance, improve
and maintain the Company's extensive data processing activities and the ATTAIN
trading system and ECN software.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.6 million or 62% to $6.8
million for the nine months ended March 31, 1998 from $4.2 million for the
comparable period in fiscal 1997. The increase was attributable to increases in
salaries and related costs, communication expenses, data processing costs,
professional fees, marketing, and other general office, occupancy and operating
expenses including expenses resulting from the opening of additional branch
offices. These increases in selling, general and administrative expenses were a
result of the Company's continuing efforts to enable itself to handle increases
in volume and future increased growth.
Provision for Income Taxes. Provision for income taxes represents the
expense recognized by the Company for federal and state income taxes at an
effective rate of 23% for the nine months ended March 31, 1998, and 26% for the
comparable period in fiscal 1997. Provision for income taxes decreased
approximately $526,000 or 86% to $84,000 for the nine months ended March 31,
1998 from $610,000 for the nine months ended March 31, 1997.
Net Income. Net income decreased approximately $1.4 million or 82% to $.3
million for the nine months ended March 31, 1998 from $1.7 million for the nine
months ended March 31, 1997.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenues. Total revenues increased approximately $5.0 million or 45% to
$16.1 million for the year ended June 30, 1997 from $11.1 million for the year
ended June 30, 1996. Brokerage commissions and fees increased 44% to $15.5
million for the year ended June 30, 1997 from $10.8 million for fiscal 1996. The
increase in brokerage commissions and fees resulted primarily from an increase
in the number of customer transactions processed by the Company. The Company
processed approximately 653,000 customer transactions for the year ended June
30, 1997, compared to 444,000 for fiscal 1996, or an increase of 47%. Average
commissions per transaction declined from $24.32 for the year ended June 30,
1996, to $23.79 for fiscal 1997.
Cost of Services. Cost of services increased approximately $2.1 million or
40% to $7.3 million in fiscal 1997 from $5.2 million in fiscal 1996. The
increase in cost of services is attributable to an increase in customer
transactions processed by the Company.
Technology Development. Technology development costs increased
approximately $157,000 or 75% to $366,000 in fiscal 1997 from $209,000 in fiscal
1996. This increase is primarily attributable to the hiring of additional
personnel to enhance, improve and maintain the Company's data processing
activities and ATTAIN trading system and ECN software.
24
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.5 million or 58% to $6.8
million in fiscal 1997 from $4.3 million in fiscal 1996. This increase was
attributable to increases in general salaries and related costs, officers'
salaries, communication expenses, data processing costs, professional fees,
marketing, and other general office, occupancy and operating expenses and
expenses related to additional branch offices.
Provision for Income Taxes. Provision for income taxes represents the
expense recognized by the Company for federal and state income taxes at an
effective rate of 41% for fiscal 1997 and 45% for fiscal 1996. Provision for
income taxes increased approximately $55,000 or 9.0% to $665,000 for the year
ended June 30, 1997 from $610,000 for the year ended June 30, 1996.
Net Income. Net income increased approximately $186,000 or 25% to $937,000
for fiscal 1997 from $751,000 for fiscal 1996.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues. Total revenues increased approximately $8.1 million to $11.1
million for the year ended June 30, 1996 from $3.0 million for the year ended
June 30, 1995. Brokerage commissions and fees increased approximately $8.0
million to $10.8 million in fiscal 1996 from $2.8 million in fiscal 1995. This
increase in brokerage commissions and fees in fiscal 1996 is primarily
attributable to the resumption of active retail brokerage services. In fiscal
1995 the Company temporarily discontinued its retail brokerage business due to
regulatory changes in the rules governing SOES trading.
Cost of Services. Cost of services increased approximately $3.7 million or
247% to $5.2 million in fiscal 1996 from $1.5 million in fiscal 1995. The
increase in cost of services is attributable to an overall increase in customer
transactions processed by the Company due to the resumption of active retail
brokerage activities in fiscal 1996.
Technology Development. Technology development costs increased
approximately $166,000 or 386% to $209,000 in fiscal 1996 from $43,000 in fiscal
1995. This increase was primarily attributable to the hiring of additional
personnel to enhance, improve and maintain the Company's continuously expanding
data processing operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.9 million or 207% to $4.3
million in fiscal 1996 from $1.4 million in fiscal 1995. The increase was
attributable to increases in general salaries and related costs, officers'
salaries, communication expenses, data processing costs, professional fees and
other general office and operating expenses. These increases in selling, general
and administrative expenses were the result of the resumption of retail
brokerage activities in fiscal 1996.
Provision (Benefit) for Income Taxes. Provision for income taxes represents
the expense recognized by the Company for federal and state income taxes at an
effective rate of 45% for fiscal 1996 and 0% for fiscal 1995. Provision
(benefit) for income taxes increased approximately $617,000 to $610,000 for the
year ended June 30, 1996 from ($7,000) for the year ended June 30, 1995.
Net Income (Loss). Net income (loss) increased approximately $754,000 to
$751,000 for fiscal 1996 from ($3,000) for fiscal 1995.
25
<PAGE>
Quarterly Results
The following table sets forth certain unaudited quarterly financial data
for the seven quarters ended March 31, 1998. In the opinion of the Company's
management, this unaudited information has been prepared on the same basis as
the audited financial statements contained herein and includes all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
information set forth therein when read in conjunction with the Financial
Statements and Notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
September 30, December 31, March 31,
1996 1996 1997
--------------- -------------- -----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Brokerage commissions
and fees .................... $ 3,152 $ 3,946 $ 4,168
Trading gains (losses) ....... 77 204 (142)
ECN fees ..................... -- -- --
Other ........................ 79 225 177
-------- -------- -------
Total revenues .............. 3,308 4,375 4,203
-------- -------- -------
Costs and expenses:
Cost of services ............. 1,420 1,857 1,840
Technology
development ................. 77 78 76
Selling, general and
administrative expenses 728 1,398 2,075
-------- -------- -------
Total costs and expenses 2,225 3,333 3,991
-------- -------- -------
Income (loss) before
provision for income
taxes ........................ 1,083 1,042 212
Provision (benefit) for
income taxes ................. 305 305 --
-------- -------- -------
Net income (loss) ............. $ 778 $ 737 $ 212
======== ======== =======
As a Percentage of Total Revenues
----------------------------------------------
Revenues:
Brokerage commissions
and fees .................... 95.3% 90.2% 99.2%
Trading gains (losses) ....... 2.3 4.7 ( 3.4)
ECN fees ..................... -- -- --
Other ........................ 2.4 5.1 4.2
----------- -------- -------
Total revenues .............. 100.0 100.0 100.0
----------- -------- -------
Costs and expenses:
Cost of services ............. 42.9 42.4 43.8
Technology development ....... 2.4 1.8 1.8
Selling, general and
administrative expenses 22.0 32.0 49.4
----------- -------- -------
Total costs and expenses 67.3 76.2 95.0
----------- -------- -------
Income (loss) before
provision for income
taxes ........................ 32.7 23.8 5.0
Provision (benefit) for
income taxes ................. 9.2 7.0 --
----------- -------- -------
Net income (loss) ............. 23.5% 16.8% 5.0%
=========== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, September 30, December 31, March 31,
1997 1997 1997 1998
------------ --------------- -------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Brokerage commissions
and fees .................... $ 4,277 $ 4,041 $ 4,518 $ 3,864
Trading gains (losses) ....... (6) 68 (34) (181)
ECN fees ..................... -- -- -- 434
Other ........................ (94) 176 260 3
---------- -------- ------- --------
Total revenues .............. 4,177 4,285 4,744 4,120
---------- -------- ------- --------
Costs and expenses:
Cost of services ............. 2,190 1,755 1,705 2,125
Technology
development ................. 134 121 129 95
Selling, general and
administrative expenses 2,588 2,074 2,457 2,324
---------- -------- ------- --------
Total costs and expenses 4,912 3,950 4,291 4,544
---------- -------- ------- --------
Income (loss) before
provision for income
taxes ........................ (735) 335 453 (424)
Provision (benefit) for
income taxes ................. 55 80 92 (88)
---------- -------- ------- --------
Net income (loss) ............. $ (790) $ 255 $ 361 $ (336)
========== ======== ======= ========
Revenues:
Brokerage commissions
and fees .................... 102.4% 94.3% 95.2% 93.8%
Trading gains (losses) ....... ( 0.2) 1.6 ( 0.7) ( 4.4)
ECN fees ..................... -- -- -- 10.5
Other ........................ ( 2.2) 4.1 5.5 .1
---------- -------- ------- --------
Total revenues .............. 100.0 100.0 100.0 100.0
---------- -------- ------- --------
Costs and expenses:
Cost of services ............. 52.4 41.0 35.9 51.6
Technology development ....... 3.2 2.8 2.7 2.3
Selling, general and
administrative expenses 62.0 48.4 51.8 56.4
---------- -------- ------- --------
Total costs and expenses 117.6 92.2 90.4 110.3
---------- -------- ------- --------
Income (loss) before
provision for income
taxes ........................ (17.6) 7.8 9.6 (10.3)
Provision (benefit) for
income taxes ................. 1.3 1.9 2.0 ( 2.1)
---------- -------- ------- --------
Net income (loss) ............. (18.9)% 5.9% 7.6% ( 8.2)%
========== ======== ======= ========
</TABLE>
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including, but
not limited to, the timing of introductions of enhancements to financial
services and products offered by the Company or its
26
<PAGE>
competitors; market acceptance of financial services and products; changes in
transaction volume on the securities markets; trends in the securities markets;
domestic and international regulation of the brokerage industry; changes in
pricing policies by the Company or its competitors; changes in strategy; the
success of or costs associated with acquisitions or other strategic
relationships; changes in key personnel; seasonal trends; the extent of
expansion; the mix of sales; changes in the level of operating expenses to
support projected growth; and general economic conditions. Due to the foregoing
factors, quarterly revenues and operating results are difficult to forecast, and
the Company believes that period-to-period comparisons of its operating results
will not necessarily be meaningful and should not be relied upon as an
indication of future performance. It is likely that the Company's future
quarterly operating results from time to time will not meet the expectations of
securities analysts or investors, which may have an adverse effect on the market
price of the Company's Common Stock and the Warrants.
The securities industry is subject to extensive regulation under federal,
state and applicable international laws. As a result, the Company is required to
comply with many complex laws and rules and its ability to do so is dependent in
large part upon the establishment and maintenance of a qualified compliance
system. See "Risk Factors--Securities Regulation in General."
Liquidity and Capital Resources
The Company has financed its activities in the periods discussed above from
cash provided by operations. The Company currently anticipates that its
available cash resources from operations and the net proceeds of this Offering
will be sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months.
Cash provided by operating activities was $257,000 for the nine months
ended March 31, 1998, compared to $2,185,000 for the nine months ended March 31,
1997. This decrease in cash provided by operating activities of $1,928,000 was
primarily attributable to a decrease in net income of $1,446,000, and a net
increase in operating assets over liabilities of $621,000, offset by an increase
in depreciation of $139,000.
Cash provided by operating activities was $1,312,000 for the year ended
June 30, 1997, compared to $195,000 for the year ended June 30, 1996. This
increase in cash provided by operating activities of $1,117,000 was primarily
attributable to an increase in net income of $187,000, a net decrease in
operating assets over liabilities of $851,000, an increase in depreciation of
$35,000 and a non-cash charge for abandoned equipment of $44,000.
Cash provided by operating activities was $195,000 for the year ended June
30, 1996 compared to $1,000 for the year ended June 30, 1995. This increase in
cash provided by operating activities of $194,000 was primar-ily attributable to
an increase in net income of $754,000 and an increase in operating assets over
liabilities of $569,000, offset by an increase in depreciation of $9,000.
Cash used by investing activities was $283,000 for the nine months ended
March 31, 1998, compared to $243,000 for the nine months ended March 31, 1997.
Cash used in investing activities for the years ended June 30, 1997, 1996 and
1995 was $381,000, $43,000 and $97,000, respectively. Cash used in investing
activities is attributable to purchases of property and equipment.
Cash used by financing activities was $12,000 for the nine months ended
March 31, 1998, compared to $694,000 for the nine months ended March 31, 1997.
This decrease in cash used is primarily attributable to decreased loan
activities with the Company's parent, affiliate and related parties during 1998,
offset by deferred offering costs in 1998.
Cash used in financing activities was $466,000 in fiscal 1997, an increase
from $12,000 in fiscal 1996. This increase is primarily attributable to
dividends paid of $1,350,000 and a net repayment of a loan to the parent in the
amount of $900,000.
Cash used in financing activities was $12,000 in fiscal 1996, an increase
from cash provided of $49,000 in fiscal 1995. This increase is primarily
attributable to decreased loan activity.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
27
<PAGE>
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Since the Company
intends to set the exercise price of the Company's employee stock options to be
granted prior to this Offering equal to the market price of the underlying stock
on the date of grant, no compensation expense will be recognized.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The new
rules are effective for both interim and annual financial statements for the
periods ending after December 15, 1997. SFAS 128 supersedes APB No. 15 to
conform earnings per share with international standards as well as to simplify
the complexity of the computation under APB No. 15. The previous primary
earnings per share ("EPS") calculation is replaced with a basic EPS calculation.
The basic EPS differs from the primary EPS calculation in that the basic EPS
does not include any potentially dilutive securities. Fully dilutive EPS is
replaced with diluted EPS and should be disclosed regardless of dilutive impact
to basic EPS. Accordingly, the Company has adopted SFAS 128 effective December
31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement, which is effective for fiscal years beginning after December 15,
1997, expands or modifies disclosures and should have no impact on the Company's
financial position, results of operations or cash flows.
Year 2000
The Company's review of its own operating systems does not indicate any
Year 2000 problems. However, the Company is highly dependent on third party
vendors. Failures and interruptions, if any, resulting from the inability of
certain computing systems of third party vendors, including the Company's
clearing broker to recognize the Year 2000 could have material adverse effect on
the Company's results of operations. There can be no assurance that the Year
2000 issue can be resolved by any of such third parties prior to the upcoming
change in the century. Although the Company may incur substantial costs,
particularly costs resulting from charges by its third party service providers,
in correcting Year 2000 issues, such costs are not sufficiently certain to
estimate at this time.
Trends
The Company anticipates that its average commission per customer
transaction will continue to decline in order to remain competitive.
28
<PAGE>
BUSINESS
The following discussion of the Company's business contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this Prospectus.
Overview
All-Tech, through its proprietary ATTAIN trading system software, provides
its customers with real-time computerized access to comprehensive price
information for OTC securities traded on Nasdaq and securities traded on various
national and regional exchanges, and enables its customers to instantaneously
transmit buy and sell orders for execution. All-Tech also provides its customers
with discounted commissions, electronic reports regarding the customer's orders
and account status, customizable display screens, analytical modeling tools and
news media reports. The Company has also developed and commenced operation of
its ATTAIN ECN, an electronic communications network ("ECN"). ECNs provide
investors an alternative trading system to traditional Nasdaq trading. Through
the ATTAIN trading system, subscribers can directly place buy and sell orders
for Nasdaq traded stocks. Matching orders are paired off and the trade is
executed by the ATTAIN ECN. Additionally, the best bid and offer in each
Security which is placed on the ATTAIN ECN will be displayed automatically and
dynamically on a real-time basis on Nasdaq along with market maker quotations.
The ATTAIN trading system permits the customer to eliminate the need to have the
customer's order placed through a market maker, therefore eliminating the market
maker and the costs associated with such market maker.
The Company's services are primarily utilized by self-directed traders who
engage in "day trading." Day traders engage in the buying and selling of
securities many times during the course of a day based on short-term price
volatility. They typically close out all open positions by the end of the day in
order to manage risk when the markets are closed. Frequently, a position may be
closed within minutes of the initial purchase or sale. All-Tech has over 1,500
active customers. The Company's average aggregate customer transaction volume
has ranged between 2,500 and 3,000 trades per trading day for the last 12
months. All-Tech's customers can access All-Tech's ATTAIN trading system at
All-Tech's main office, at one of its 18 branch offices or in their homes or
offices through a computer connected to the ATTAIN trading system via dedicated
telephone lines or the Internet.
All-Tech's objectives are to become the leading provider of electronic
brokerage services to self-directed traders and investors and to expand the
range of services and business activities engaged in by the Company. The
Company's strategy to accomplish its objectives includes (i) enhancing awareness
of the Company's ATTAIN trading system and ATTAIN ECN through marketing and
advertising, (ii) expanding its customer base through an aggressive marketing
campaign, opening additional branch offices and expanding services to attract
less active traders, (iii) analyzing and exploring opportunities to commence new
business activities, including self-clearing, electronic trading of financial
instruments other than stocks and options, underwriting securities offerings,
and other traditional investment banking and merchant banking activities, and
(iv) pursuing opportunities to offer the Company's services internationally
through use of the Internet and telecommunications systems.
Regulatory Background and Development of Active Electronic Trading
The National Association of Securities Dealers Automated Quotations System
was developed by Harris Corporation and commenced operating in the early 1970s.
For the first time there was a uniform public display of over-the-counter
securities prices. This ability to discover prices is called transparency.
Several years later the National Association of Securities Dealers, Inc. (the
"NASD") purchased this system from Harris. Today, Nasdaq provides a dynamic
display of quotes from both market makers (broker/dealers which agree to
continuously buy and sell securities at their posted prices) and ECNs
(electronic trading systems which display bids to buy and offers to sell Nasdaq
securities received from subscribers of the ECN and which match bids and offers
for the same security at the same price).
29
<PAGE>
In 1984, Nasdaq developed the Small Order Execution System ("SOES"). SOES
is a computerized, order execution system which automatically executes small
retail orders to buy or sell securities against market makers quoting the best
price available. Each market maker is required to execute orders received, up to
the size of its quotation, while that quotation is outstanding (the "Firm Quote
Rule", a violation of which is called "backing away"). During the market break
of October 1987, many Nasdaq market makers informally withdrew from their
markets by refusing to answer the telephone. In the illiquid Nasdaq market which
resulted, prices then declined precipitously as customers were left with no way
to obtain execution of their orders.
Following a number of governmental studies of the problem, the NASD
required market maker participation in SOES. Market makers could no longer back
away because they would receive up to five automatic executions of up to 1,000
shares each. At about the same time All-Tech began to utilize SOES to execute
customer orders. The sudden receipt by market makers of these executed orders
upset them because they could no longer engage in backing away. The market
makers pressured the NASD to eliminate SOES trading, and for several years the
Company and other firms utilizing SOES in this manner were subjected to the
highest level of scrutiny by the NASD. As a result, the NASD found that the
Company had violated certain SOES rules and imposed fines and the NASD suspended
the Company from utilizing SOES for seven months in 1988. Additionally, as a
result of market maker pressure, the NASD adopted rules designed to severely
curtail active trading on SOES. These rules negatively impacted the Company's
earnings in the fiscal years ended June 30, 1992 through 1994 by causing the
Company to incur significant legal expenditures in connection with its legal
battles with the NASD and in the fiscal year ended June 30, 1995, by
substantially reducing the number of shares which could be traded via SOES.
The Company and its principals opposed entrenched industry interests and
undertook to enhance the Company's business outlook by bringing pressure to bear
to level the playing field for public investors, which the Company believed
would encourage them to risk becoming active traders. In 1996, the United States
Department of Justice ("DOJ") and the SEC entered into agreements with 24 major
market makers and with the NASD, respectively. The DOJ and SEC concluded that
these market makers had colluded to fix prices and maintain artificially wide
spreads in the over-the-counter market and found that the NASD had, at the
urging of market makers, subjected firms such as the Company to disparate
treatment, to their detriment.
In 1996, the SEC adopted rules which brought about sweeping changes in the
structure of the over-the-counter market and were very beneficial for the
Company and its customers, as well as to public companies and their
shareholders. These rules, known as the Order Handling Rules, permitted the
creation and operation of electronic communication networks (ECNs). The Order
Handling Rules require market makers to display certain limit orders in their
quotations or to send those orders to an ECN for display. The increased
regulatory emphasis on enforcing compliance with the duty of brokers to obtain
the best execution for their customers has fostered the growing importance of
ECNs, which provide an ever-increasing source of liquidity (having a ready
market to buy or sell stock) in the over-the-counter market. See "--Government
Regulation."
The growth in importance of the ECNs reduces the reliance of the market on
quotes from market makers, who continue to lobby the NASD, the SEC and the
Congress for ways to reduce their Firm Quote Rule obligations.
Applicable Nasdaq Rules
Active trading is dependent upon liquidity -- the ability to buy or sell
stock at any given time. Until recently, this liquidity was primarily provided
by Nasdaq and an alternative trading system called Instinet. Both systems
display quoted bid and ask prices for stock and have automatic execution
capacity. However, the liquidity on Instinet is available only to institutional
customers and certain brokerage firms. In addition, until recently, liquidity on
Nasdaq was defined by certain SOES rules, and was either 1,000, 500 or 200
shares, depending on the trading characteristics of each particular stock. Thus,
active electronic traders generally traded the most highly capitalized stocks
with high trading volume, the Nasdaq 100, trading at least 1,000 shares at a
time (the maximum permitted by applicable SOES rules). When active electronic
trading was first popularized, each market maker was obligated for five trades
of 1,000 shares each at its posted bid or ask quote (the number regulatory
officials thought necessary after the 1987 market break). As a result of
pressure by market makers, that number of trades has been brought down to two
trades of 1,000 shares each, and for 150 Nasdaq selected stocks, market makers
are obligated to trade only 100 shares at their posted quote before being given
17 seconds
30
<PAGE>
to change that quote. Since the adoption of the Order Handling Rules, ECNs have
provided an increasing share of liquidity to the public, lessening, to a certain
extent, dependence on market maker quotations. Simultaneously, market makers
have continued to press their case to be able to quote all stocks for as little
as 100 shares and at their urging the NASD has submitted a rule proposal to the
SEC for its approval to accomplish this goal.
Services
The Company's services are offered to its customers through its proprietary
trading system, ATTAIN, which was designed to serve the person actively trading
his or her own account. Customers can trade securities at All- Tech's main
office, at one of its 18 nationwide branch offices, or from their home or office
"remotely."
The ATTAIN Trading System
Trading. The Company's proprietary ATTAIN trading system is a fully
automated system by which a customer can transmit an order for exchange listed
or OTC stocks and for equity and index options to the Company for execution.
Through the ATTAIN trading system, the customer can place a long or short,
market or limit order (good til canceled, day or limited time period). The
Company then, through the ATTAIN trading system, instantaneously reviews the
order for compliance with regulatory, margin and risk management guidelines,
transmits the order to the customer selected marketplace for execution and
immediately and dynamically notifies the customer of the status of that order,
as well as of the customer's account generally.
With just three mouse clicks a customer can place an order to buy or sell a
security. In a fraction of a second the order is sent to the marketplace chosen
by the customer--a Nasdaq electronic trading system, an ECN such as ATTAIN or a
stock exchange. Because All-Tech's customers generally choose a marketplace with
automatic execution capacity, the execution frequently takes place within
several seconds. The customer electronically receives immediate confirmation of
the trade execution.
Executions through the ATTAIN trading system always take place at the price
and on the market the customer, not the Company, deems best. The Company does
not participate in payment for order flow arrangements. Broker/dealers that
participate in payment for order flow arrangements receive a per share fee for
all orders sent to a particular market maker. The Company believes that the sale
of its customers' orders for a fee would represent a conflict of interest and
influence the choice of where these orders are sent, perhaps not in the
customer's best interest. All-Tech's customers therefore frequently receive
price improvement (executions at better than the National Best Bid/Offer ("NBBO"
or "inside price")).
The ATTAIN trading system was developed for the active, self-directed
trader. However, the Company intends to adapt the ATTAIN trading system for use
by less active investors who wish to avail themselves of a point and click
system for their occasional trades. All-Tech can provide an easy to use
graphical interface used via the Internet. Although active traders generally
purchase dedicated telecommunications service for the communication of their
orders, the service is available through the Internet as well.
All-Tech continually makes improvements to its ATTAIN trading system,
adding features and additional instruments to trade, such as exchange traded
index options, and additional information to assist them with their trading
decisions. All-Tech's goal is to enable investors everywhere to trade any
instrument traded on any marketplace in the world and to make the financial
markets readily accessible anywhere, anytime they are open.
Market Information. The Company currently purchases quotation information
and news through PC Quote and other vendors. All on-site customers receive, free
of charge, real-time, dynamically updated information regarding the inside
prices for all securities. Some of the Company's well-known on-line competitors
require the customer to wait until an order is placed to receive such
information. All-Tech believes the customer cannot intelligently place an order
without this information. Customers who trade at All-Tech's main office or one
of its branch offices receive at no charge, on ATTAIN's easy to use point and
click system, detailed real-time, dynamically updated information regarding all
quotations of all market makers in OTC securities, as well as trade data, a
ticker of trades effected by All-Tech for its customers, all bid and offer
quotations in the ATTAIN ECN, news, and real-time analytic charts and graphs.
Remote customers must pay $250 monthly for such service plus an additional
charge for news, but high volume traders receive rebates which can eliminate
such charge.
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Account Information. Through the ATTAIN trading system, each All-Tech
customer can receive, on a continuous basis, account information setting forth
all open positions and, on an intra-day basis, realized and unrealized profit
and loss. In addition to screen displays of account activity and profit and
loss, active customers receive a daily printout of trade confirmations and
buying power, and receive detailed monthly statements.
Account Security. All-Tech utilizes a combination of proprietary and
industry standard security measures to protect customers assets. Customers are
assigned unique account numbers and user identifications and select their own
passwords that must be used each time they log on to the ATTAIN trading system.
The Company relies on encryption and authentication technology, including
technology licensed from Check Point Software Technologies Ltd., to provide the
security and authentication necessary to effect the secure exchange of
information. In addition, the Company uses secure socket layer technology for
data encryption (the system will permit communications only from recognized
account sources) to protect the ATTAIN trading system. A second level of
password protection must be used prior to order placement. Telephone
transactions are secured through a personal identification number.
The ATTAIN ECN
All-Tech's proprietary ATTAIN ECN is a system by which subscribers
(broker/dealers) can post bids and offers expressing their customer's trading
interest in a particular over-the-counter security. The best bid and offer for
each security is posted on Nasdaq. Customers frequently utilize the ATTAIN ECN
to post a new "inside" buy or sell order (at a price better than the current
NBBO) on Nasdaq and thereby attract any party interested in buying or selling at
that price. All-Tech attracts customers by offering its ATTAIN ECN service free
of charge to All-Tech accounts. Subscribers of the ATTAIN ECN are charged from
$1.00 per transaction to $.015 per share for using the ATTAIN ECN.
Non-subscribers who access the ATTAIN ECN through Nasdaq are charged $.015 per
share for each executed order. All-Tech has recognized approximately $434,000 in
revenues through March 31, 1998, from the operation of the ATTAIN ECN since it
commenced operating in February 1998.
Controversy as well as competitive pressures exist regarding the fees
charged by various ECNs to non-subscribers and All-Tech may not continue to
charge its current rates. The Company has experienced some resistance and delay
in collecting these fees. All-Tech intends to pursue vigorously its legal
remedies to enforce such collection. A reduction in rates unaccompanied by a
rise in non-subscriber usage would negatively impact ATTAIN ECN revenues.
Additionally, Nasdaq itself has proposed that it be permitted to operate a limit
order book (essentially an ECN). Should this proposal be adopted and Nasdaq
offer a low-cost alternative to privately operated ECNs on which substantial
numbers of limit orders were reflected, this could have a negative competitive
impact on the ATTAIN ECN. There can be no assurance whether such proposal will
be approved and, if approved, when Nasdaq' s ECN might become operational. This
proposal is vigorously opposed by a number of industry participants, including
All-Tech, as potentially anti-competitive. There can be no assurance as to when,
if at all, such proposal will be approved by the SEC.
See "--Government Regulation."
Branch Offices
The Company conducts retail business at its 18 branch offices located
throughout the United States. Each branch office is managed by one or more
branch managers, who are employees of the Company. In general, branch managers
pay a one-time, non-refundable, negotiated fee for the opportunity to manage a
branch.
Proprietary Trading
All-Tech engages in trading for its own account, primarily utilizing the
ATTAIN ECN. All-Tech has recently entered into a joint back office arrangement
with Southwest Securities, Inc. ("Southwest"), its clearing firm, pursuant to
which All-Tech has become a shareholder of Southwest and is therefore entitled
to utilize the capital of Southwest in its trading operations. The agreements
with Southwest will permit All-Tech to trade the Company's proprietary account
utilizing 10 to 1 margin, rather than the 2 to 1 margin generally mandated by
federal regulation. All-Tech also acts as a market maker in a limited number of
securities.
All-Tech's Strategy
The Company's objective is to maintain a leadership position in the
electronic trading industry and to increase the range of the Company's business
activities. The key elements of the Company's strategy to accomplish this
objective include:
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(1) Enhancing awareness of the Company's identity and its ATTAIN trading
system and ATTAIN ECN services through a significant advertising and
marketing campaign;
(2) Expanding the customer base through an aggressive marketing campaign,
the opening of additional branch offices and attracting less active
traders through aggressive promotion of the Company as an electronic
trading company which provides many additional profit enhancing features
for average investors;
(3) Broadening the range of the Company's activities. The Company is
analyzing a number of business options which it could pursue, such as
self-clearing (which would substantially reduce the cost of effecting
trades for customers as well as enable the Company to earn interest on
the customer funds deposited with it), underwriting, investment banking,
merchant banking, entering additional domestic and foreign markets and
promoting electronic trading on exchanges and in instruments other than
stocks, general retail business, market data vending and market making;
and
(4) Expanding internationally by obtaining permission to offer brokerage
services around the world, utilizing Internet or private
telecommunications systems.
The Company's strategy will require substantial investment of time and
money by the Company. The Company's ability to engage in business is regulated
by the terms of its NASD membership agreement. There can be no assurance that
the Company will obtain any necessary NASD, SEC or other regulatory approvals to
engage in new activities or undertake any new activities or that any new
activities can be accomplished or will be successful.
Future Growth and Development
The Company is considering engaging in a number of new financial
activities. The Company is currently having discussions with various parties
regarding alternative trading systems for instruments other than corporate
securities. It is All-Tech's view that there is a need on the part of traders to
trade instruments which are not popular trading vehicles at present, to mine a
new resource.
The Company is also considering self-clearing, an activity from which the
Company would expect to earn interest revenues from margin borrowing.
Significant start-up expenses would be incurred in commencing any of such
activities. There can be no assurance that any of such activities will be
commenced or, if commenced, will be operated profitably.
Strategic Relationships
The Company has a number of relationships with third party vendors which
are essential to the operation of its business. All-Tech clears on a fully
disclosed basis through Southwest, a large regional brokerage firm, pursuant to
a written clearing agreement. The Company enjoys a good relationship with
Southwest, which also offers its correspondents connection to All-Tech's ATTAIN
ECN. While alternative clearing firms are available at competitive rates, there
can be no assurance that All-Tech would achieve the same level of credit
availability, financial security or service with another firm.
The Company obtains quotation information from PC Quote, which in turn
obtains its quotations from exchanges and Nasdaq. While the Company is satisfied
with its service from PC Quote, it has been publicly reported that PC Quote has
been experiencing severe financing difficulties. Any interruption in quotation
service would materially adversely affect the Company. There can be no assurance
that PC Quote will not continue to experience such difficulties or that they
will continue to offer their quotation service. The Company has arranged back-up
quotation service from Standard & Poor's Comstock, and is developing its own
back-up service directly from Nasdaq.
The Company utilizes the news service of Dow Jones & Company, Inc. ("Dow
Jones"), which recently has been offered for sale by its current owner. If Dow
Jones is sold there can be no assurance that service prices and/or reliability
will remain the same for service currently provided by Dow Jones. The Company
also utilizes the services of Nasdaq. Nasdaq has experienced operating problems
in the past and there can be no assurance that such problems will not worsen or
that rates will not be increased. The Company's success also depends on its
ability to obtain for itself and its customers access to a breadth of quality
and comprehensive real-time and
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historical financial market data from vendors whose products are technically
compatible with the Company's ATTAIN trading system software and its future
products and services. The Company believes that satisfactory alternative
arrangements are available from other firms, but there can be no assurance that
the terms or level of service would be as satisfactory.
The Company subscribes to the Island and Archipelago ECNs. Instinet has not
permitted the Company to subscribe to its services. Instinet is currently the
largest ECN (responsible for over 15% of Nasdaq trading and a greater percentage
of trading in the largest, most actively traded Nasdaq stocks). Instinet
executions can be more economically advantageous to its subscribers than to
non-subscribers who access Instinet through Nasdaq's SelectNet system. The
Company's business has been negatively affected by the inability to offer
Instinet to its subscribers; therefore, the Company has commenced, together with
an affiliated company, an arbitration against Instinet for wrongful denial of
service in violation of federal and state law and NASD rules. The Company is
seeking access to Instinet service, as well as monetary damages. There can be no
assurance that the Company will be successful in its arbitration or that it will
obtain Instinet service. A failure to obtain such service would continue to have
a material adverse effect on the Company's business, financial condition and
results of operations.
Risk Management
The Company has established various policies and procedures to manage its
exposure to risk. The Company closely monitors its core business, which consists
of servicing active day traders and operating its ATTAIN ECN. Specifically, the
Company requires each day trading customer to open his or her day trading
account with a minimum balance of $50,000. In addition, the Company monitors
each of its customers via computer analysis to assess the risk of each trade and
the customer's overall account position. The Company takes appropriate steps
with respect to customers who appear to hold overly concentrated or risky
positions, including limiting or rejecting undercapitalized trades or requiring
a customer to close out a position or liquidate securities.
Although the Company has established certain risk policies and procedures,
there can be no assurance that such procedures will prevent or substantially
limit all losses to the Company. In addition, if the Company diversifies its
activities following completion of the Offering, as it intends to do, the
Company will become subject to new risk management concerns. The Company may be
required to incur substantial expenditures and to implement significant
management controls to address such new risk management concerns.
Similar to other broker/dealers, the Company faces operating, principal and
credit risks. Operating risk arises out of the daily conduct of the Company's
business and relates to the possibility that one or more of the Company's
personnel could cause the Company to engage in imprudent business activities.
Principal risk relates to the fact that the Company holds securities that are
subject to changes in value and could result in the Company incurring material
losses. Credit risk occurs because the Company guarantees credit extended
through its clearing broker to various of its customers in the form of margin
loans, activities which constitute normal industry practice.
All-Tech also engages in trading for its own account, primarily utilizing
the ATTAIN ECN. Pursuant to a joint back office arrangement, the Company is
permitted to utilize the capital of Southwest, its clearing firm, in its trading
operations. The monetary risks associated with proprietary trading are managed
through real-time monitoring of the amount and types of securities held from
time to time by the Company and limiting the exposure to any one investment or
type of investment. These risks are monitored both by the Company's own
operations personnel and by the Company's clearing broker. See
"Business--Proprietary Trading."
Sales and Marketing
The Company markets its services directly, through its own sales personnel,
and on its Website at www.attain.com. All-Tech advertises in national and
regional print and radio and television media. The Company intends to increase
its sales and marketing expenditures and efforts following the completion of the
Offering.
The most significant source of customers for the Company has been the
All-Tech Training Group, Inc. ("ATTG") day trading training program. ATTG is an
affiliate of the Company and a wholly-owned subsidiary of Rushmore. Rushmore, a
principal shareholder of the Company and a Selling Shareholder in this
Offering, is owned by Harvey I. Houtkin, the Chairman, Chief Executive Officer
and Secretary of the Company, and Mark
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D. Shefts, the President, Chief Operating Officer, Chief Financial Officer and
Treasurer of the Company. See "Certain Transactions" and "Principal and Selling
Shareholders." ATTG students are not required to become customers of All-Tech,
but the majority of them do so. All-Tech offers ATTG students a discounted
commission equal, in the aggregate, up to the amount of their tuition. All-Tech
strongly encourages all of its customers to take training at ATTG or elsewhere
if they are not experienced traders, but no training is required. ATTG attracts
its students through national and local advertising. ATTG offers an intensive
three week training course in electronic day trading on All-Tech's ATTAIN
trading system and the ATTAIN ECN adjacent to the Company's offices in Montvale,
New Jersey and Seattle, Washington. ATTG also offers two-day weekend courses
from time to time at each of the Company's branch office locations. ATTG does
not charge All-Tech for offering its training course at All-Tech's facilities
and All-Tech does not charge ATTG for use of its facilities. There can be no
assurance that ATTG and the Company will continue these arrangements, or that
ATTG will continue to train people who wish to become active day traders.
Although the Company could commence its own training program, it has no plan to
do so at this time.
Competition
The marketplace for electronic trading firms is intensely competitive and
rapidly changing. All-Tech believes that due to the anticipated growth of the
market for electronic brokerage services, active stock trading facilities, and
other factors, competition will increase in the future, even if there is a
consolidation among electronic trading firms. The Company believes its ability
to compete will depend upon many factors, both within and outside its control,
including the timing and market acceptance of new services and enhancements
developed by the Company and its competitors, functionality of such services,
data availability, ease of use, customer service and support, pricing,
reliability, and sales and marketing efforts.
All-Tech faces direct competition from a number of publicly-traded and
privately-held companies. It competes directly with other firms whose customers
engage in active day trading, other ECN systems, large Wall Street securities
firms, securities subsidiaries of major commercial bank holding companies and
major regional firms, as well as small niche players. The Company's principal
competitors in providing electronic brokerage services currently include such
firms as Datek Securities Corp., Terra Nova Trading, LLC, Block Trading Corp.
and Instinet Corporation, a division of Reuters. The Company's ATTAIN ECN
competes principally with Nasdaq market makers, Instinet, Datek Securities
Corp.'s Island ECN, Terra Nova Trading, LLC's Archipelago ECN, Bloomberg
Tradebook LLC's System ECN and Spear, Leeds & Kellogg's REDI ECN. The Company
also competes with on-line trading systems available on the Internet, such as
Charles Schwab & Co. Inc., E*Trade Capital Inc. and Accutrade Inc. In addition,
the Company faces competition from data vendors which offer investment analysis
software, news, quotations and other securities industry products.
Additionally, Nasdaq recently made a rule filing with the SEC which
contains a proposal to operate an ECN. All-Tech believes the operation of an ECN
by Nasdaq represents a potential conflict of interest for Nasdaq, which is
supposed to act as a neutral operator and regulator of the OTC marketplace. The
ECN proposed to be operated by Nasdaq would substantially favor market makers
over order-entry firms such as All-Tech. All-Tech vigorously opposes Nasdaq
operation of this ECN, as do many brokerage firms, and will vigorously urge the
SEC to disapprove such proposal. This proposal is in the public comment phase.
All-Tech seeks to offer its customers low prices, quality services and
continuous innovation. Although All-Tech offers competitively discounted
commissions, it does not seek to offer the very lowest commission rates, which
at some firms can be as low as $7.50 per trade. Such low rates are generally
offered by firms that also earn revenues from directing order flow to another
broker/dealer for execution in exchange for a per share fee. The ATTAIN trading
system permits the Company's customers to decide where their orders are
displayed and executed. The Company does not direct order flow because it
believes that the practice of directing order flow interferes with the broker's
fiduciary duty to its customer to obtain the best available price for the
customer.
The general financial success of companies engaging in electronic day
trading within the securities industry over the past several years has
strengthened existing competitors and has led to the entrance into this field of
many existing and newly established brokerage firms. Management believes that
such success will continue to attract new competitors. Additionally, it is
possible that new alliances among competitors may also emerge, with such
alliances acquiring significant market share.
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Many of the Company's existing and potential competitors have longer
operating histories, significantly greater financial, technical and market
resources, greater name recognition and a larger installed customer base than
the Company. One or more of these competitors may be able to respond more
quickly to new or emerging technologies or changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
services and products than the Company. Larger and better capitalized
competitors are able to more aggressively advertise their products and services
on a national basis and many have a greater number and variety of distribution
outlets for their services. So-called on-line discount brokerage firms market
their services through aggressive pricing and promotional efforts.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to compete successfully against
current or future competitors, or that competitive pressures faced by the
Company will not have a material adverse effect on its business, financial
condition and results of operations or the Company's ability to attract and
retain highly skilled individuals.
Intellectual Property and Other Proprietary Rights
The Company's success depends to a significant extent on its proprietary
technology. The Company relies primarily on copyright, trade secret and
trademark law to protect its technology. The Company has no patents. The Company
has registered its ATTAIN trademark in the United States, but has not yet
registered it in any foreign countries. There can be no guarantee of effective
trademark protection available for the Company's trademarks, trade names or
service marks. The Company's name has not been registered except with the SEC
and the NASD. The possible inability of the Company to effectively protect its
trade name and trademarks outside the United States could have an adverse effect
on the Company but at this time such effect is not expected to be material.
The source code for the Company's proprietary software is protected both as
a trade secret and as a copyrighted work. The Company enters into
confidentiality and assignment agreements with its associates, consultants and
vendors with access to the Company's proprietary information to control access
to, and distribution of, its software, documentation and other proprietary
information. Notwithstanding the precautions taken by the Company, it may be
possible for a third party to copy or otherwise obtain and use the Company's
software or other proprietary information without authorization or to develop
similar software independently. The laws of other countries may afford the
Company little or no effective protection of its intellectual property. The
inability of the Company to protect its intellectual property rights could have
a material adverse effect on the Company's business, financial condition and
operating results.
The Company may, in the future, receive notices of claims of infringement
of other parties' proprietary rights. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources or require the Company to enter into
royalty or licensing agreements. There can be no assurance that such licenses
would be available on reasonable terms, if at all, and the assertion or
prosecution of any such claims could have a material adverse effect on the
Company's business, financial condition and operating results.
Government Regulation
Securities Industry Regulation:
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
responsible for the administration of the federal securities laws. All-Tech is
registered with the SEC as a broker/dealer. Most of the regulation of
broker/dealers has been delegated by the SEC to self-regulatory organizations
("SROs"), principally the NASD, which is the Company's primary regulator. These
SROs adopt rules (subject to SEC approval) that govern the industry. They
conduct periodic examinations of all the operations of all broker/dealers.
Pursuant to a membership agreement, the NASD sets forth activities a member firm
is permitted to engage in. Some of the new activities the Company may wish to
engage in may require modification of the Company's membership agreement, the
obtaining of a modification, if required, cannot be assured. Broker/dealers are
also subject to extensive regulation by the states and the District of Columbia.
The Company also is or will be subject to regulation by any foreign jurisdiction
or subdivision thereof where it seeks to conduct business.
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The Company is licensed as a broker/dealer to conduct business in 44 states
and is applying for licenses in most of the remainder of the states and the
District of Columbia. There can be no assurance that the balance of such
licenses will be granted. The Company, as a foreign broker/dealer, may not be
granted a license to conduct business in certain foreign jurisdictions.
Broker/dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker/dealers, use and safekeeping of customers funds and securities, capital
structure, record-keeping and the conduct of officers, directors and employees.
The Company is required to comply with many complex and evolving laws and rules,
including rules relating to electronic trading. All-Tech's operation of the
ATTAIN trading system and the ATTAIN ECN, for example, subjects the Company to
Rule 17a-23 of the Exchange Act, which regulates certain communications carried
by on-line trading systems, requiring the Company to conduct certain record
keeping and reporting activities.
Additional legislation, changes in rules promulgated by the SEC, the NASD,
other SROs or one or more states, or changes in the enforcement of existing laws
and rules, may directly affect the mode of operation and profitability of
broker/dealers in general, and electronic trading firms such as All-Tech in
particular. The SEC, the NASD, other SROs and state securities commissions may
conduct administrative proceedings, which can result in censure, fine, the
issuance of cease-and-desist orders or the suspension or expulsion of a
broker/dealer or any of its officers or employees. The Company's ability to
comply with all applicable laws and rules is dependent in large part upon the
maintenance of a compliance system reasonably designed to ensure such
compliance. The principal purpose of regulation and discipline of broker/dealers
is the protection of customers and the securities markets, rather than
protection of creditors and shareholders of broker/dealers.
The Company anticipates that it may be subject to additional regulation as
the market for online commerce evolves. Currently, the ATTAIN ECN does not
subject All-Tech to regulation as an exchange. The SEC has proposed and
published for comment a new regulatory framework for alternative trading
systems. There can be no assurance as to the effect, if any, of any rules which
may be adopted based on such proposal. However, due to operation of the ATTAIN
ECN, the Company may have to choose to register as broker-dealer with certain
additional requirements or alternatively, as an exchange. The SEC has drafted
this proposal to address certain regulatory gaps created by the growth of ECNs.
Any changes to the current regulatory structure could impose additional
compliance costs on the Company and could adversely affect the Company's
competitive position.
In addition, Congress has also held hearings on whether to regulate
providers of services and transactions in the electronic commerce market, and
federal or state authorities could enact laws, rules or regulations affecting
the Company's business or operations. The Company may be subject to federal,
state and foreign money transmitter laws and state and foreign sales and use tax
laws. If enacted or deemed applicable to the Company, such laws, rules or
regulations could be imposed on the Company's activities or its business.
Due to the increasing popularity of the Internet, it is possible that laws
and regulations may be enacted with respect to the Internet, covering issues
such as user privacy, pricing, content and quality of products and services. The
Telecommunications Act of 1996 (the "Telecommunications Act"), which was enacted
in January 1996, prohibits the transmission over the Internet of certain types
of information and content. Although certain of these prohibitions have been
held unconstitutional, the increased attention focused upon these liability
issues as a result of the Telecommunications Act could adversely affect the
growth of the Internet, private network use and electronic trading.
All-Tech is a member of Securities Investor Protection Corporation
("SIPC"), which provides, in the event of the liquidation of a broker/dealer,
protection for customers accounts held by such broker/dealer of up to $500,000
for each customer account, subject to a limitation of $100,000 for claims for
cash balances. Additionally, the Company's clearing firm, Southwest, which
carries customer funds and securities for All-Tech, has obtained additional
insurance, in the amount of $24.5 million for each customer account, in the form
of an excess securities bond from American International Group.
The Company plans to institute an aggressive marketing campaign following
the closing of this Offering. All advertising materials are subject to NASD
review and prior to use must be reviewed by All-Tech's compliance officer to
ensure that they comply with applicable rules.
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The Company currently does not solicit orders from its customers or make
investment recommendations. However, if the Company were to engage in such
activities, it would become subject to additional rules and regulations
governing, among other things, the suitability of recommendations to customers
and sales practices.
The Company intends to expand its business internationally. In order to
expand globally, the Company will be required to comply with regulations of each
specific country in which it does business. Such regulations may limit the
Company's rate of international expansion.
Net Capital Requirements:
As a registered broker/dealer and member of the NASD, All-Tech is subject
to net capital rules, which specify minimum net capital requirements for
broker/dealers and are designed to measure the general financial integrity and
liquidity of a broker/dealer. Such rules require that at least a minimum part of
its assets be kept in relatively liquid form.
As of March 31, 1998, All-Tech is required to maintain minimum net capital,
as defined in the Net Capital Rule, equal to the greater of (i) $100,000 or (ii)
$2,500 for each stock the Company posts a quote in, up to $1,000,000. Failure to
maintain the required net capital may subject a firm to suspension or revocation
of registration by the SEC and/or suspension or expulsion by the NASD and other
regulatory bodies and ultimately could require a firm's liquidation. The Net
Capital Rule prohibits payments of dividends, redemption of stock, the
prepayment of subordinated indebtedness, and the making of any unsecured advance
or loan to a shareholder, employee or affiliate, if aggregate debit items (i.e.
assets that have, as their source, transactions with customers (primarily margin
loans)) rise beyond 5% of net capital. The Net Capital Rule also provides that
the SEC may restrict, for up to 20 business days, any withdrawal of equity
capital, or unsecured loans or advances to shareholders, employees or affiliates
("capital withdrawal") if such capital withdrawal, together with all other net
capital withdrawals during a 30-day period, exceeds 30% of excess net capital
and the SEC concludes that the capital withdrawal may be detrimental to the
financial integrity of the broker/dealer.
Net capital is essentially defined as net worth (assets minus liabilities)
plus qualifying subordinated borrowing and certain discretionary liabilities,
less certain mandatory deductions that result from excluding assets that are not
readily convertible into cash and from valuing conservatively certain other
assets. Among these deductions are adjustments (called "haircuts") which reflect
the possibility of a decline in the market value of an asset prior to its
disposition.
A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those operations of the
Company that require the intensive use of capital, such as underwriting, trading
activities and the financing of customer account balances, and also could
restrict the Company's ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding stock.
The Company believes that at all times it has been in compliance in all
material respects with the applicable minimum net capital rules of the SEC and
the NASD. As of March 31, 1998, the Company had net capital of approximately
$1,044,000, or approximately $617,000 in excess of the minimum amount required.
The failure of a broker/dealer to maintain its minimum required net capital
would require it to cease executing customer transactions until it came back
into compliance, and could cause it to lose its NASD membership, its
registration with the SEC, or require its liquidation. Further, the decline in a
broker/dealer's net capital below certain "early warning levels," even though
above minimum net capital requirements, could cause material adverse
consequences to the broker/dealer.
Employees
As of April 30, 1998, the Company had a total of 114 employees. Of the
total, 43 were in management (including branch management), eight were in
technology development and service, one was in sales and marketing and 62 were
in administration and operations. None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
relations with its employees to be good. Additionally, many of the Company's
employees are required to be registered with the NASD.
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Facilities
The Company's executive offices, technology development and administrative
functions are located in Montvale, New Jersey, in approximately 12,395 feet of
space in a building owned by a company which is wholly owned by Messrs. Houtkin
and Shefts. The annual rent and maintenance for the facility are approximately
$263,394. See "Certain Transactions."
Fourteen of the Company's eighteen branch offices are leased by third
parties directly to the branch managers or companies controlled by them; the
Company sublets such branch offices on a month-to-month basis. The Company is
not liable on such leases but has a right to sublet the facility should the
branch manager not remain in his position. Three of the remaining four branch
office facilities are subleased from a subsidiary of Rushmore at an aggregate
annual rental of $80,242, and the fourth facility is located in property owned
by Mark D. Shefts, President, Chief Operating Officer, Chief Financial Officer
and Treasurer of the Company, and is utilized at no cost to the Company.
Legal Proceedings
The Company is not a party to any material legal proceedings except an
arbitration instituted by the Company and an affiliate against Instinet
Corporation for wrongful denial of service, seeking access to the Instinet ECN
as well as monetary damages. The Company has limited access to Instinet, the
largest ECN, through Nasdaq and through its clearing firm. The Company's failure
to obtain full access to Instinet could have a material adverse effect on the
Company's ability to provide the best trading opportunities to its customers and
on the Company's business, financial condition and results of operations. There
can be no assurance as to the outcome of this arbitration.
From time to time the Company has been threatened with, or named as a
defendant in, lawsuits and administrative claims. Compliance, trading and
administrative problems that are reported to the NASD, SEC or state regulators
by dissatisfied customers are investigated by such regulators and, if pursued by
such customers, may rise to the level of arbitration or disciplinary action. The
Company's management does not believe any current investigations or claims are
material. There can be no assurance that one or more future lawsuits, claims or
disciplinary actions, if decided adversely to the Company, would not have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to periodic audits and
inspections.
39
<PAGE>
MANAGEMENT
Directors and Executives Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harvey I. Houtkin ........... 49 Chairman of the Board, Chief Executive Officer,
Secretary
Mark D. Shefts .............. 40 President, Chief Operating Officer, Chief Financial
Officer, Treasurer, Director (1)
Harry M. Lefkowitz .......... 42 Senior Vice President--Operations, Director
Linda Lerner ................ 55 Executive Vice President, General Counsel
Josef A. Ross ............... 65 Director-Nominee (1)(2)
Robert D. Kashan ............ 44 Director-Nominee (1)(2)
</TABLE>
(1) To become a member of the Compensation, Audit and Option Committees upon
completion of the Offering.
(2) Appointment to become effective upon completion of the Offering.
Harvey I. Houtkin joined All-Tech in 1991 and has been the Company's
Chairman of the Board, Chief Executive Officer and Secretary since March 1993.
From September 1996 to January 1997 he also served as President of the Company
but not as Secretary. Mr. Houtkin has over 30 years experience in the securities
industry. He graduated from Baruch College of the City University of New York in
1970 with a Bachelor of Science Degree and in 1973 with a Masters Degree in
Business Administration. His masters thesis was entitled "The Impact of Nasdaq
on the Over-the-Counter Market." He is an associate member of the American Stock
Exchange. He held a seat on the New York Stock Exchange for several years and
co-owns a broker/dealer which operated a floor brokerage business on that
Exchange. He also has been a member of the New York Futures Exchange. He is the
author of The SOES Bandits' Guide-Day Trading in the 21st Century and Secrets of
the SOES Bandit.
Mark D. Shefts has been a principal of All-Tech since early 1988 and has
been its President, Chief Operating Officer, Chief Financial Officer, Treasurer
and a Director since such time. From September 1996 to January 1997 he was the
Secretary of the Company and during such period he did not hold the office of
President. Mr. Shefts has over 17 years experience in the industry. Mr. Shefts
graduated in 1979 from Brooklyn College of the City of New York with a Bachelor
of Science Degree in Accounting. He is a member of the Chicago Stock Exchange
and co-owns a broker/dealer which operated a floor brokerage business on the New
York Stock Exchange. Mr. Shefts is licensed as a Commodity Pool Operator and a
Commodity Trading Advisor by the National Futures Association. He is also a
Certified Financial Services Auditor, a Certified Fraud Examiner and an
arbitrator for the American Arbitration Association and NASD Regulation, Inc. In
the Fall of 1997, he was an Adjunct Professor of Business at Ramapo College of
the State University of New Jersey.
Harry M. Lefkowitz has over 16 years experience in the securities
industry. He has been with All-Tech since 1991. Mr. Lefkowitz is the Senior
Vice President-Operations and a Director of All-Tech. He is also the sole
officer, director and shareholder of HMS Securities, Inc., an NASD registered
broker/dealer which engages in only very limited activity at present and to
which Mr. Lefkowitz now devotes only an insubstantial amount of time. Mr.
Lefkowitz obtained as Associate Degree at Kingsborough Community College in
1977.
Linda Lerner has been General Counsel to All-Tech since January 1993. In
May 1998 she became Executive Vice President of the Company. Prior to joining
All-Tech, Ms. Lerner practiced law in various law firms from 1976 through May
1991, when she joined Home Box Office, Inc. as counsel. Ms. Lerner obtained a
Bachelor of Arts from Brandeis University in 1964, a Masters of Science from
Columbia University in 1976 and a Juris Doctor from Brooklyn Law School in
1976. Ms. Lerner is a member of the Market Operations Committee and the Trading
Rules Subcommittee of The Nasdaq Stock Market, Inc.
40
<PAGE>
Josef A. Ross is the Chairman of the Board and Chief Executive Officer of
Universal Travel Corp., a manufacturer, importer and distributor of luggage
products and fine art graphic display systems which he founded in 1963. Mr.
Ross also owns several other businesses.
Robert D. Kashan has been the Chairman and Chief Executive Officer of
Earth Color Group., Inc. and its predecessors, a printer of promotional
material for Fortune 500 companies since 1983. Mr. Kashan obtained a Bachelor
of Science degree in marketing from the University of Maryland in 1976.
All directors hold office until the next annual meeting of shareholders and
until their successors shall have been duly elected and qualified. All executive
officers of the Company are elected annually by the Board of Directors and serve
until their successors are duly elected and qualified. Other than Mr. Houtkin
and Mr. Shefts, who are brothers-in-law, there are no family relationships among
any of the directors and executive officers of the Company. Effective upon the
consummation of this Offering, the Board of Directors will have a Compensation
Committee, which will approve salaries and certain incentive compensation for
management and key employees of the Company; an Audit Committee, which will
review the results and scope of the audit and other services provided by the
Company's independent accountants; and an Option Committee, which will
administer the Company's 1998 Stock Option Plan. The Compensation, Audit and
Option Committees will be composed of Messrs. Shefts, Ross and Kashan.
Directors' Compensation
Each of the Company's independent, non-employee Directors will receive
compensation of $1,500 per meeting for each regularly scheduled meeting in which
he participates. In addition, each of the independent, non-employee members of
the Board who serve on the Audit, Compensation and/or Option Committee of the
Board of Directors will receive a $750 fee per meeting for each regularly
scheduled Committee meeting in which he participates unless such meeting is held
on the day of a regularly scheduled meeting of the Board of Directors. The
Company also will provide reimbursement to Directors for reasonable and
necessary expenses incurred in connection with attendance at meetings of the
Board of Directors or its Committees. Directors are eligible to receive stock
option grants pursuant to the Company's 1998 Stock Option Plan.
41
<PAGE>
Executive Compensation
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and each of the other executive officers of the Company whose
salary exceeded $100,000 (collectively, the "Named Executives") during the year
ended June 30, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Salary Bonus
--------------------------- ------ -----
<S> <C> <C>
Harvey I. Houtkin
Chairman, Chief Executive Officer and Secretary
Year ended June 30:
1997 ........................................... $618,093 $ 800,000
1996 ........................................... 595,000 156,000
1995 ........................................... 260,000 --
Mark D. Shefts
President, Chief Operating Officer, Chief Financial
Officer, Treasurer and Director
Year ended June 30:
1997 ........................................... 557,692 900,000
1996 ........................................... 600,000 176,000
1995 ........................................... 260,000 --
Linda Lerner
Executive Vice President and General Counsel
Year ended June 30:
1997 ........................................... 110,000 10,000
1996 ........................................... 100,000 5,000
1995 ........................................... 100,000 --
</TABLE>
1998 Stock Option Plan
The Company's 1998 Stock Option Plan (the "Plan") was adopted by the Board
of Directors and the shareholders of the Company on May 11, 1998. A total of
2,250,000 shares of Common Stock are reserved for issuance upon exercise of
options to be granted under the Plan, 1,500,000 of which will be granted as of
the effective date of this Offering. No other options have been granted under
the Plan. Those eligible to receive stock option grants under the Plan include
employees, Directors and consultants. The Plan will be administered by the
Option Committee of the Board of Directors of the Company, which will be
comprised of the two outside directors, Messrs. Ross and Kashan, and Mark D.
Shefts.
Subject to the provisions of the Plan, the Option Committee, as
administrator of the Plan, has the discretion to determine the optionees and/or
grantees, the type of options to be granted (incentive stock options ("ISOs") or
non-qualified stock options (" NQSOs")), the vesting provisions, the terms of
the option grants and such other related provisions as are consistent with the
Plan. The exercise price of an ISO may not be less than the fair market value
per share of the Common Stock on the date of grant or, in the case of an
optionee who beneficially owns 10% or more of the outstanding capital stock of
the Company, not less than 110% of the fair market value per share on the date
of grant.
The options terminate not more than ten years from the date of grant,
subject to earlier termination on the optionee's death, disability or
termination of employment with the Company, but provide that the term of any
options granted to a holder of more than 10% of the outstanding shares of Common
Stock may be no longer than five years. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution. In the
event of a merger or consolidation of the Company with or into another
corporation or the sale of all or substantially all of the Company's assets in
which the successor corporation does not assume outstanding options or issue
equivalent options, the Board of Directors of the Company is required to provide
accelerated vesting of outstanding options. The Plan terminates on May 10, 2008.
42
<PAGE>
As of April 30, 1998, no awards had been granted by the Company under the
Plan. The Company intends to grant options to purchase 1,500,000 shares of
Common stock to its employees and director-nominees, such grants to become
effective only upon the successful completion of the Offering. Such options will
be exercisable at a price per share equal to the initial public offering price
of the shares of Common Stock, will have an expiration date of May 10, 2008, and
will vest at a rate of twenty percent per year from the date of grant.
401(k) Plan
The Company currently maintains a 401(k) salary reduction plan (the "401(k)
Plan") which is intended to qualify under Section 401(a) and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Generally, all employees
who are not members of a collective bargaining group and who are 21 years of age
or older are eligible to participate in the 401(k) Plan after they complete six
months of service. All eligible executive officers other than Messrs. Houtkins,
Shefts and Waldman participate in the 401(k) Plan.
Eligible employees electing to participate in the 401(k) Plan may defer a
portion of their compensation on a pre-tax basis by contributing a percentage
thereof to the 401(k) Plan. There is no minimum contribution, and the maximum
contribution is prescribed in Section 401(k) of the Code. Such maximum for 1998
is $10,000. The Company makes matching contributions equal to 3% of the first 6%
of a participating employee's annual salary, up to $4,800. Eligible employees
who elect to participate in the Company's 401(k) Plan vest in the Company's
matching contribution as follows: less than one year of service--0%; one year of
service--20%; two years of service--40%; three years of service--60%; four years
of service--80%; and five years of service--100%.
Employment Agreements; Key-Man Insurance
On April 30, 1998, the Company entered into three-year employment
agreements with Harvey I. Houtkin Chairman, Chief Executive Officer and
Secretary of the Company, and Mark D. Shefts, President, Chief Operating
Officer, Chief Financial Officer and Treasurer of the Company. Pursuant to the
terms of these agreements, Messrs. Houtkin and Shefts are each entitled to
receive $500,000 plus 5% of net earnings before taxes per year for the terms of
the agreements, to a maximum of an additional $500,000 in the first two years
and $1,500,000 in the third year, as well as reimbursement of certain employment
related expenses. Each of the employment agreements contains a prohibition
against competing with the Company or soliciting customers or employees from the
Company for a period of two years after the termination of the agreement. Each
of the agreements permits the Company to terminate the agreement for cause or
upon the death or disability of Mr. Houtkin or Mr. Shefts. If terminated for
other than specified cause, Mr. Houtkin or Mr. Shefts or his estate will be
entitled to receive his salary and bonus plus all insurance benefits to which he
would have been entitled for the remainder of the term of the agreement.
The Company has applied for key-man insurance on the lives of Messrs.
Houtkin and Shefts in the amount of $1 million each. There can be no assurance
that such insurance can be obtained in such amount, if at all.
43
<PAGE>
CERTAIN TRANSACTIONS
Since July 1, 1995, the Company made unsecured demand loans to its parent,
Rushmore, for working capital purposes. The total amount advanced by the Company
to Rushmore since July 1, 1995 was $4,048,071. The total amount repaid to the
Company by Rushmore was $5,129,841, which included repayment of loans made prior
to July 1, 1995. At March 31, 1998, all of the loans made by the Company to
Rushmore were repaid in full.
Since July 1, 1995, the Company has made unsecured demand loans to Mark D.
Shefts and Harvey I. Houtkin, shareholders, officers and directors of the
Company. The total amount of these loans was $744,014, all of which have been
repaid in full at March 31, 1998.
Since July 1, 1995, the Company has made unsecured demand loans to certain
affiliated corporations. The total amount of these loans was $48,429, all of
which have been repaid in full at March 31, 1998.
All-Tech leases its principal office space in Montvale, New Jersey, which
consists of 12,395 square feet of space from Summit Plaza, Inc., a company
wholly owned by Messrs. Houtkin and Shefts. The annual rental is $263,394; this
lease expires on March 31, 2003. This lease was modified in May 1998. Prior to
such modification, the Company occupied 12,395 square feet of space at an annual
rental of $181,460, pursuant to both a long-term lease and a month-to-month
rental arrangement. Approximately 400 square feet of such space was subleased to
affiliates of the Company, including Rushmore and ATTG, and to a non-affiliate.
The Company believes that its lease has been and is on terms no less favorable
than could be obtained from an unaffiliated third party. Double H Management
Corp. ("Double H"), another wholly owned subsidiary of the Company's parent,
Rushmore, leases space for three branch offices of the Company. The Company
reimburses Double H for the rent due pursuant to such leases. An additional
branch office is located on property owned by Mr. Shefts, at no cost to the
Company.
ATTG, a wholly owned subsidiary of the Company's parent, operates an
electronic day trading training program. ATTG students are not required to
become customers of the Company nor does the Company require its customers to
take the ATTG program; however, ATTG is a significant source of referrals for
the Company, most of whose customers have completed this program. Students who
do open accounts at the Company are entitled to a discounted commission equal,
in the aggregate, up to the amount of their tuition. When such programs are
offered at branch locations, the Company does not charge ATTG for use of its
facilities. There can be no assurance that ATTG and the Company will continue
these arrangements or that ATTG will continue to train people who wish to become
active electronic day traders. Although the Company could commence its own
training, it has no plan to do so at this time.
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 30, 1998, and as
adjusted to reflect the sales of the shares of Common stock offered hereby, with
respect to the beneficial ownership of the Common Stock of the Company by (i)
each person known to the Company to own 5% or more of the outstanding shares of
Common Stock, (ii) each of the Company's directors and director-nominees, (iii)
each of the Named Executives, (iv) all of the directors, director-nominees and
executive officers as a group, and (v) the Selling Shareholders.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned Prior to
Offering
Name of Beneficial Owner(1)(2) Number Percent(3)
------------------------------ ------ ----------
<S> <C> <C>
Harvey I. Houtkin .......................... 15,159,375(4) 98%(4)
Mark D. Shefts ............................. 15,159,375(4) 98%(4)
Rushmore Financial Services, Inc. .......... 14,850,000 96%
Harry M. Lefkowitz ......................... -- --
Linda Lerner ............................... -- --
Robert D. Kashan(7) ........................ -- --
Josef A. Ross (7) .......................... -- --
All Directors, Director-Nominees and
executive officers as a group (6 persons) . 15,468,750 100%
<CAPTION>
Shares
Number Beneficially
Of Shares Owned After the
Being Offering
Name of Beneficial Owner(1)(2) Offered Number Percent(3)
------------------------------ --------- ------ ----------
<S> <C> <C> <C>
Harvey I. Houtkin .......................... 309,375(5) 14,843,750(4)(6) 70.4%(4)
Mark D. Shefts ............................. 309,375(5) 14,843,750(4)(6) 70.4%(4)
Rushmore Financial Services, Inc. .......... 6,250(5) 14,843,750(6) 70.4%
Harry M. Lefkowitz ......................... -- -- --
Linda Lerner ............................... -- -- --
Robert D. Kashan(7) ........................ -- -- --
Josef A. Ross (7) .......................... -- -- --
All Directors, Director-Nominees and
executive officers as a group (6 persons) . 625,000 14,843,750 70.4%
</TABLE>
- ------------
(1) The address of each beneficial owner is in care of the Company, 160 Summit
Avenue, Montvale, New Jersey 07645.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934, as amended. Generally, a person is
deemed to be the beneficial owner of a security if she/he has the right to
acquire voting or investment power within 60 days. Except as set forth in
the footnotes to this table, the persons and entity named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such shareholder.
(3) The applicable percentage of ownership is based on shares of Common Stock
outstanding on April 30, 1998, and shares of Common Stock outstanding after
the completion of this Offering.
(4) Includes shares beneficially owned by Rushmore, which is 50% owned by Mr.
Houtkin and 50% owned by Mr. Shefts.
(5) Shares of Common Stock being offered by such shareholder as a Selling
Shareholder in this Offering.
(6) Rushmore has granted the Underwriters an Over-Allotment Option to purchase
up to 468,750 shares of Common Stock solely to cover over-allotments, if
any. This table assumes that the Over-Allotment Option will not be exercised
by the Underwriters. See "Underwriting."
(7) Director-nominee.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 55,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of undesignated
Preferred Stock, $.01 par value per share. As of the date of this Prospectus,
there were 15,468,750 shares of Common Stock issued and outstanding and held of
record by three shareholders. There are no shares of Preferred Stock designated
or issued. See "Capitalization."
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement. The following summary is qualified in its entirety by
reference thereto.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the shareholders of the Company.
Subject to the rights of holders of shares of Preferred Stock, if any, holders
of shares of Common Stock will be entitled to receive dividends when, as and if
declared by the Board of Directors and to share ratably in the assets of the
Company legally available for distribution to its shareholders in the event of
the liquidation, dissolution or winding up of the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. All of
the issued and outstanding shares of Common Stock are, and all shares of Common
Stock to be sold in this Offering will be, duly authorized, validly issued,
fully paid and non-assessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, shares of any
series of Preferred Stock that the Company may designate and issue in the
future.
Preferred Stock
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of any authorized
but unissued or unreserved shares of Preferred Stock in series and may, at the
time of issuance, determine the rights preferences and limitations of each
series. The holders of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of the Common Stock. The Board
of Directors could issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could have
certain anti-takeover effects. The Company has no present plan to issue any
shares of Preferred Stock.
Warrants
The following is a brief summary of certain provisions of the Warrants but
such summary does not purport to be complete and is qualified in all respects
by reference to the actual text of the Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company (the "Warrant Agent"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time commencing , 1998 (6 months after date of this
Prospectus) until , 2000 (30 months after the date of this Prospectus) one share
of Common Stock at a price of $12.00 (150% of the initial public offering price
of the Common Stock) per share, and from such date until , 2003 (60 months after
the date of this Prospectus) one share of Common Stock at a price of $14.00
(175% of the initial public offering price of the Common Stock) per share,
subject to adjustment in accordance with the anti-dilution and other provisions
referred to below. The holder of any Warrant may exercise such Warrant by
surrendering the certificate representing the Warrant to the Warrant Agent, with
the subscription form thereon properly completed and executed, together with
payment of the exercise price. No fractional shares will be issued upon the
exercise of the Warrants. The exercise price of the Warrants bears no
relationship to any objective criteria of value and should in no event be
regarded as an indication of any future market price of the Securities offered
hereby.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock or the sale by the Company
of its Common
46
<PAGE>
Stock or other securities convertible into Common Stock at a price below the
exercise price of the Warrants. Additionally, an adjustment would be made in the
case of a reclassification or exchange of Common Stock, consolidation or merger
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company, in order to enable
warrantholders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Common Stock that might otherwise have been purchased upon the
exercise of the Warrant.
Redemption Provisions. Commencing , 1999 (18 months after date of this
Prospectus), the Warrants will be subject to redemption by the Company, in whole
but not in part, at $.10 per Warrant on thirty (30) days prior written notice to
the warrantholders, if the average closing sale price of the Common Stock as
reported on the Amex equals or exceeds $20.00 per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. In the
event the Company exercises the right to redeem the Warrants, such Warrants will
be exercisable until the close of business on the business day immediately
preceding the date for redemption fixed in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the holder will be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date sixty (60) months after the date of
this Prospectus, at which time the Warrants will become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop or, if developed, will continue.
Warrantholder not a Shareholder. The Warrants do not confer upon holders
thereof any voting, dividend or other rights as shareholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
(other than as provided in the preceding sentence) and the expiration date with
respect to any Warrant requires the consent of two-thirds of the warrantholders.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there can be no assurance that it will be able to do
so.
Although the Securities will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, investors in such jurisdictions may purchase Warrants in the secondary
market or investors may move to jurisdictions in which the shares underlying the
Warrants are not so registered or qualified during the period that the Warrants
are exercisable. In such event, the Company would be unable to issue shares to
those persons desiring to exercise their Warrants, and holders of Warrants would
have no choice but to attempt to sell the Warrants in a jurisdiction where such
sale is permissible or allow them to expire unexercised.
Registration Rights
Pursuant to the Representative's Warrant Agreement between the
Representative and the Company, for a period of five years commencing on the
effective date of this Offering the Representative may request that the Company
file a registration statement covering the sale of the 625,000 shares of Common
Stock and/or 312,500
47
<PAGE>
Warrants which may be issued upon exercise of the Representative's Warrants and
the 312,500 shares of Common Stock underlying such Warrants. In general, all
fees, costs and expenses of any such registration will be borne by the Company.
The Representative may also request that any registration statement filed by the
Company during the five year period commencing on the date of this Prospectus
cover the sale of such shares of Common Stock and Warrants, at the Company's
expense. See "Underwriting."
Limitation of Director Liability
The Certificate of Incorporation of the Company limits the liability of
directors of the Company to the Company and its shareholders to the fullest
extent permitted by Delaware law. Specifically, directors of the Company will
not be personally liable for money damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporate Law ("DGCL"),
which concerns unlawful payments of dividends, stock purchases or redemptions,
or (iv) for any transaction from which the director derived an improper personal
benefit.
Delaware Law and Certain Charter and By-Law Provisions
Delaware Law:
The Company is subject to the provisions of Section 203 ("Section 203") of
the DGCL. In general, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an "interested stockholder's" percentage ownership of stock. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, in certain cases, within three years prior, did own) 15%
or more of the corporation s outstanding voting stock. Under Section 203, a
business combination between the Company and an "interested stockholder" is
prohibited unless it satisfies one of the following conditions: (i) the
Company's Board of Directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming an
"interested stockholder," or (ii) upon consummation of the transaction that
resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the Company
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by (a) persons who
are directors and also officers and (b) employee stock plans, in certain
instances); or (iii) the business combination is approved by the Board of
Directors and authorized at an annual or special meeting of the shareholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the "interested stockholder."
Special Meetings:
The By-Laws provide that special meetings of shareholders for any purpose
or purposes can be called only upon the request of the Chairman of the Board or
the written consent of three-quarters of the entire Board.
Number of Directors; Removal; Filling Vacancies
Subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, the By-laws provide that the number of
directors shall be not less than two nor more than 12; provided, however, that
no decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Directors are elected to staggered terms of
three years. Any vacancy occurring in the Board caused by death, resignation,
removal or otherwise, and any newly created directorship resulting from an
increase in the number of directors, may be filled only by the affirmative vote
of at least a majority of the directors then in office, although such directors
are less than a quorum, or by the sole remaining director. Furthermore, the
ByLaws provide that any one or more of the directors of the Company may be
removed from office only for cause and only by the affirmative vote of
three-quarters of the entire Board of Directors or by the affirmative vote of
two-thirds of the votes represented by the issued and outstanding shares of the
Company entitled to vote at a meeting called for such purpose.
48
<PAGE>
The provisions of the By-Laws governing terms of office and removal may
have the effect of discouraging a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of the Company, or
of attempting to change the composition or policies of the Board of Directors,
even though such attempt might be beneficial to the Company or its shareholders.
These provisions of the By-Laws could thus increase the likelihood that
incumbent directors will retain their positions.
Amendment of Company By-Laws:
In order to adopt, repeal, alter or amend the provisions set forth therein,
the By-Laws require the unanimous written consent of all directors or the
affirmative vote of a majority of the entire Board of Directors acting at a
regular or special meeting called by written notice, which written notice shall
include notice of the proposed action to amend the By-Laws, or by the
affirmative vote of a majority of votes represented by the issued and
outstanding shares of the Company entitled to vote at a meeting called for such
purpose.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of this Offering there will be
21,093,750 shares of Common Stock and 3,125,000 Warrants issued and outstanding.
Of these Securities, the 6,250,000 shares of Common Stock and 3,125,000 Warrants
sold in this Offering will be freely transferable and tradeable in the United
States (except for shares held by affiliates of the Company) without restriction
or further registration under the Securities Act. An additional 2,250,000 shares
of Common Stock are reserved for issuance under the Company's 1998 Stock Option
Plan. The remaining 14,843,750 shares of Common Stock outstanding will be
"restricted securities" for purposes of Rule 144 under the Securities Act and
may not be sold in the absence of registration under the Securities Act unless
an exemption from registration is available, including the exemption afforded by
Rule 144. Additionally, each officer, director and holder of Common Stock of the
Company and all holders of options to acquire shares of Common Stock have agreed
not to, directly or indirectly, offer, sell, transfer, pledge, assign,
hypothecate or otherwise encumber or dispose of any securities of the Company
for a period of 12 months following the date of this Prospectus without the
prior written consent of the Representative. All of such shares of Common Stock
will be eligible for resale in the public market without registration, subject
to certain volume and other limitations, pursuant to Rule 144 upon the later to
occur of (i) 90 days after the effective date of this Offering or (ii)
expiration or waiver of the Lockup Agreements.
In general, under Rule 144(e), as currently in effect, a shareholder (or
shareholders whose shares are aggregated), including an affiliate, who has
beneficially owned for at least one year shares of Common Stock that are treated
as "restricted securities," would be entitled to sell publicly, within any
three-month period, up to the greater of 1% of the then outstanding shares of
Common Stock (210,937 shares immediately after the completion of this Offering)
or the average weekly reported trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of sale is given,
provided certain requirements are satisfied. In addition, affiliates of the
Company must comply with additional requirements of Rule 144 in order to sell
shares of Common Stock (including shares acquired by affiliates in this
Offering). Under Rule 144, a shareholder deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale by him or her, and
who has beneficially owned for at least two years shares of Common Stock that
are treated as "restricted securities," would be entitled to sell those shares
without regard to the foregoing requirements.
No predictions can be made as to the effect, if any, that sales of
securities or the availability of securities for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Risk Factors--Potential Decreases in the Market
Price of Common Stock Resulting from Future Sale of Common Stock."
49
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Security
Capital Trading, Inc. is acting as Representative, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement (the
"Underwriting Agreement"), to purchase from the Company and the Selling
Shareholders, and the Company and the Selling Shareholders have agreed to sell
to the Underwriters on a firm commitment basis, the respective number of shares
of Common Stock and number of Warrants set forth opposite their names:
Number of Number of
Underwriter Shares Warrants
----------- ---------- ---------
Security Capital Trading, Inc. .........
Total .................................. 6,250,000 3,125,000
========= =========
The Underwriters are committed to purchase all of the Securities offered
hereby, if any of the Securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Company and the Selling Shareholders have been advised by the
Representative that the Underwriters initially propose to offer the shares of
Common Stock and the Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus and to certain dealers at such prices
less concessions not in excess of $ per share and $ per Warrant. Such dealers
may re-allow a concession not in excess of $ per share and $ per Warrant to
certain other dealers. After the commencement of the Offering, the public
offering prices, concessions and re-allowances may be changed by the
Representative. The Representative has informed the Company that the
Underwriters do not expect sales to discretionary accounts by the Underwriters
to exceed five percent of the shares of Common Stock or Warrants offered by the
Company and the Selling Shareholders hereby.
The Company and the Selling Shareholders have granted to the Underwriters
the Over-Allotment Option, exercisable during the 45-day period from the date of
this Prospectus, to purchase from the Company and the Selling Shareholders up to
an additional 937,500 shares of Common Stock and/or 468,750 Warrants in the
aggregate at the initial public offering prices, less underwriting discounts and
the non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the Common
Stock and Warrants offered hereby. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the number of the additional Securities
proportionate to its initial commitment.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make. The Company and the Selling Shareholders have agreed to pay to the
Representative a non-accountable expense allowance equal to 1 1/2% of the gross
proceeds derived from the sale of the Securities underwritten, of which $50,000
has been paid to date by the Company.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Common Stock and/or the Warrants for the purpose of stabilizing
market prices. The Underwriters also may create a short position for the account
of the Underwriters by selling more Securities in connection with the Offering
than they are committed to purchase from the Company and the Selling
Shareholders, and in such case may purchase Securities in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 937,500 shares of Common Stock and 468,750 Warrants by
exercising the Over-Allotment Option referred to above. In addition, the
Representative may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriters, the selling concession
with respect to
50
<PAGE>
the Securities that are distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the prices of the
Securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
All directors, officers and holders of shares of Common Stock, options,
warrants or other securities convertible, exercisable or exchangeable for Common
Stock have, pursuant to certain lock-up agreements, agreed not to offer, sell or
otherwise dispose of any securities of the Company for a period of 12 months
following the date of this Prospectus without the prior written consent of the
Representative and the Company. An appropriate legend shall be placed on the
certificates representing such securities. The Representative has no general
policy with respect to the release of such securities prior to the expiration of
the lock-up period and no present intention to waive or modify any of these
restrictions on the sale of Company securities.
In connection with this Offering, the Company has agreed to sell to the
Representative, and/or its designees, for nominal consideration,
Representative's Warrants to purchase from the Company up to 625,000 shares of
Common Stock and/or 312,500 Warrants. The Representative's Warrants are
initially exercisable at any time during a period of four (4) years commencing
at the beginning of the second year after their issuance and sale at a price of
$ (120% of the public offering price of the Common Stock) per share of Common
Stock and $ (120% of the public offering price of the Warrants) per Warrant. The
Warrants are initially exercisable at a price of $ (100% of the initial exercise
price of the Warrants) per share. The Representative's Warrants provide for
adjustment in the number of securities issuable upon the exercise thereof as a
result of certain subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof. In addition, the
Representative's Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one year from the
date of this Prospectus except to officers of the Representative.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering price of the
Common Stock, the initial offering price of the Warrants and the terms of the
Warrants have been determined by negotiation between the Company, the Selling
Shareholders and the Representative and do not necessarily bear any relationship
to the Company's asset value, net worth or other established criteria of value.
The factors considered in such negotiations, in addition to prevailing market
conditions, included the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, its capital structure and such other factors as were deemed
relevant.
Security Capital Trading, Inc., the Representative, commenced operations in
June 1995. The Representative has only co-managed two recent public offerings of
securities; therefore, the Representative does not have extensive experience as
a co-manager or underwriter of public offerings of securities.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
51
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Stock and Warrants offered
hereby will be passed upon for the Company by Sichenzia, Ross & Friedman LLP,
located in New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New
York, has acted as counsel for the Underwriters in connection with the Offering.
EXPERTS
The financial statements of All-Tech Investment Group, Inc. have been
audited by Wolinetz, Gottlieb & Lafazan, P.C., independent auditors, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares of Common Stock and Warrants offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits included with the Registration Statement. Statements contained
in this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and with respect to any contract or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement is qualified in its entirety by this reference. For further
information about the Company and the Securities offered by this Prospectus,
reference is hereby made to the Registration Statement and exhibits included
with the Registration Statement. A copy of the Registration Statement, including
exhibits, may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain prescribed rates.
Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith, will
file reports and other information with the Securities and Exchange Commission
in accordance with its rules. These reports and other information concerning the
Company may be inspected and copied at the public reference facilities referred
to above as well as certain regional offices of the Securities and Exchange
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511.
The Securities and Exchange Commission also maintains a Web Site which
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission (such as the Company) at http:\\www.sec.gov.
52
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report ............................................................. F-2
Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ........................... F-3
Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997 and for the Nine
Months Ended March 31, 1997 and 1998 .................................................... F-4
Statement of Changes in Shareholders' Equity for the Years Ended June 30, 1995, 1996, and
1997 and for the Nine Months Ended March 31, 1998 ...................................... F-5
Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997 and for the Nine
Months Ended March 31, 1997 and 1998 .................................................... F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Officers and Directors
All-Tech Investment Group, Inc.
Montvale, New Jersey
We have audited the accompanying balance sheets of All-Tech Investment Group,
Inc. as of June 30, 1996 and 1997, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of All-Tech Investment Group, Inc.
as of June 30, 1996 and 1997, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
August 12, 1997
F-2
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31, 1998
----------------------------- ---------------
1996 1997 (Unaudited)
------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ......................... $ 176,667 $ 641,414 $ 603,586
Receivable from brokers ........................... 722,852 98,033 560,088
Securities owned -- at market value ............... 1,099,371 2,243,007 1,350,841
Other receivables ................................. 34,289 195,870 108,747
Property and equipment -- net ..................... 137,260 411,322 508,510
Loan receivable -- parent ......................... 1,086,818 199,941 --
Loans receivable -- affiliates .................... 5,966 9,000 --
Deferred offering costs ........................... -- -- 50,000
---------- ---------- ----------
Total Assets ....................................... $3,263,223 $3,798,587 $3,181,772
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Payable to clearing broker ........................ $ 257,876 $1,027,113 $ --
Accounts payable .................................. 92,834 501,766 644,118
Securities sold, not yet purchased -- at market
value ........................................... 35,291 368,800 434,242
Income taxes payable .............................. 610,000 46,250 112,184
Deferred tax liabilities .......................... -- -- 27,000
---------- ---------- ----------
Total Liabilities ............................... 996,001 1,943,929 1,217,544
---------- ---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, Class A, $.001 par value;
authorized 5,000,000 shares, issued and
outstanding 225,000 shares ...................... 225 225 225
Common stock, Class B, $.001 par value;
authorized 10,000,000 shares, issued and
outstanding -0- shares .......................... -- -- --
Additional paid-in capital ........................ 1,563,543 1,563,543 1,563,543
Retained earnings ................................. 703,454 290,890 400,460
---------- ---------- ----------
Total Shareholders' Equity ...................... 2,267,222 1,854,658 1,964,228
---------- ---------- ----------
Total Liabilities and Shareholders' Equity ......... $3,263,223 $3,798,587 $3,181,772
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
June 30, March 31,
--------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
------------- ---------------- ---------------- ---------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Brokerage commissions and fees $2,826,088 $ 10,788,575 $ 15,543,562 $ 11,266,719 $12,423,182
Trading gains (losses) .......... 115,290 64,112 132,421 138,706 (147,105)
ECN fees ........................ -- -- -- -- 433,556
Other ........................... 21,081 221,892 387,833 481,356 439,128
---------- ------------ ------------ ------------ -----------
Total Revenues ............... 2,962,459 11,074,579 16,063,816 11,886,781 13,148,761
---------- ------------ ------------ ------------ -----------
COSTS AND EXPENSES:
Cost of services ................ 1,493,880 5,217,329 7,306,682 5,117,421 5,585,286
Technology development .......... 43,225 208,877 366,475 232,261 344,044
Selling, general and administra-
tive expenses ................. 1,436,071 4,286,949 6,788,718 4,200,630 6,854,920
---------- ------------ ------------ ------------ -----------
Total Costs and Expenses ..... 2,973,176 9,713,155 14,461,875 9,550,312 12,784,250
---------- ------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES ........................... (10,717) 1,361,424 1,601,941 2,336,469 364,511
PROVISION (BENEFIT) FOR
INCOME TAXES .................... (7,469) 610,278 664,505 609,505 84,000
---------- ------------ ------------ ------------ -----------
NET INCOME (LOSS) ................ $ (3,248) $ 751,146 $ 937,436 $ 1,726,964 $ 280,511
========== ============ ============ ============ ===========
PRO FORMA DATA (Note 10)
(Unaudited)
Basic earnings (loss) per common
share ........................... $ (.00) $ .05 $ .06 $ .11 $ .02
========== ============ ============ ============ ===========
Weighted average common shares
outstanding ..................... 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750
========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
-------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Balances -- July 1, 1994 ....................... $225 $1,563,543 $ (44,444) $ 1,519,324
Net Loss ....................................... -- -- (3,248) (3,248)
---- ---------- ------------ ------------
Balances -- June 30, 1995 ...................... 225 1,563,543 (47,692) 1,516,076
Net Income ..................................... -- -- 751,146 751,146
---- ---------- ------------ ------------
Balances -- June 30, 1996 ...................... 225 1,563,543 703,454 2,267,222
Net Income ..................................... -- -- 937,436 937,436
Dividends Paid ................................. -- -- (1,350,000) (1,350,000)
---- ---------- ------------ ------------
Balances -- June 30, 1997 ...................... 225 1,563,543 290,890 1,854,658
Net Income (unaudited) ......................... -- -- 280,511 280,511
Dividends Paid (unaudited) ..................... -- -- (170,941) (170,941)
---- ---------- ------------ ------------
Balances -- March 31, 1998 (unaudited) ......... $225 $1,563,543 $ 400,460 $ 1,964,228
==== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
June 30,
-----------------------------------------------
1995 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................. $ (3,248) $ 751,146 $ 937,436
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation ..................................... 19,240 28,159 63,026
Allowance for doubtful accounts .................. -- -- --
Loss on abandonment .............................. -- -- 43,544
Deferred tax liabilities ......................... -- -- --
Changes in Operating Assets and
Liabilities:
Receivable from brokers ......................... (58,874) (479,188) 624,819
Securities owned -- at market value ............. 106,650 (947,941) (1,143,636)
Prepaid expenses ................................ (5,684) 18,661 --
Other receivables ............................... (3,400) (30,889) (161,581)
Other ........................................... 1,700 -- --
Accounts payable ................................ (49,155) 28,391 408,932
Payable to clearing broker ...................... (6,430) 181,055 769,237
Securities sold, not yet purchased-at
market value .................................. -- 35,291 333,509
Income taxes payable ............................ -- 610,000 (563,750)
Net Cash Provided by Operating Activities .......... 799 194,685 1,311,536
----------- ------------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment ............... (97,006) (43,074) (380,632)
----------- ------------- -------------
Cash Flows from Financing Activities:
Loans to parent ................................... (96,140) (1,774,378) (500,000)
Repayment of loans to parent ...................... 65,000 1,768,700 1,386,877
Dividends paid .................................... -- -- (1,350,000)
Loan to related parties and affiliates ............ (147,900) (49,429) (743,014)
Repayment of loans to related parties and
affiliates ....................................... 227,900 43,463 739,980
Deferred offering costs ........................... -- -- --
----------- ------------- -------------
Net Cash Provided (Used) by Financing
Activities ........................................ 48,860 (11,644) (466,157)
----------- ------------- -------------
Increase (Decrease) in Cash and Cash
Equivalents ....................................... (47,347) 139,967 464,747
Cash and Cash Equivalents -- Beginning of
Period ............................................ 84,047 36,700 176,667
----------- ------------- -------------
Cash and Cash Equivalents -- End of Period ......... $ 36,700 $ 176,667 $ 641,414
=========== ============= =============
Supplemental Cash Flow Disclosure:
Cash Paid for Interest ............................ $ 3,481 $ 20,174 $ 41,975
=========== ============= =============
Cash Paid for Income Taxes ........................ $ 1,325 $ -- $ 1,246,965
=========== ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
March 31,
------------------------------
1997 1998
------------- ---------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ................................. $1,726,964 $ 280,511
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation ..................................... 47,270 186,102
Allowance for doubtful accounts .................. -- 8,671
Loss on abandonment .............................. -- --
Deferred tax liabilities ......................... -- 27,000
Changes in Operating Assets and
Liabilities:
Receivable from brokers ......................... 690,828 (470,726)
Securities owned -- at market value ............. (350,004) 892,166
Prepaid expenses ................................ (750) --
Other receivables ............................... (36,269) 87,123
Other ........................................... -- --
Accounts payable ................................ 50,039 142,352
Payable to clearing broker ...................... 372,737 (1,027,113)
Securities sold, not yet purchased-at
market value .................................. 294,036 65,442
Income taxes payable ............................ (610,000) 65,934
Net Cash Provided by Operating Activities .......... 2,184,851 257,462
---------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment ............... (242,524) (283,290)
---------- -------------
Cash Flows from Financing Activities:
Loans to parent ................................... (500,000) (1,774,323)
Repayment of loans to parent ...................... -- 1,974,264
Dividends paid .................................... -- (170,941)
Loan to related parties and affiliates ............ (804,014) --
Repayment of loans to related parties and
affiliates ....................................... 609,980 9,000
Deferred offering costs ........................... -- (50,000)
---------- -------------
Net Cash Provided (Used) by Financing
Activities ........................................ (694,034) (12,000)
---------- -------------
Increase (Decrease) in Cash and Cash
Equivalents ....................................... 1,248,293 (37,828)
Cash and Cash Equivalents -- Beginning of
Period ............................................ 176,667 641,414
---------- -------------
Cash and Cash Equivalents -- End of Period ......... $1,424,960 $ 603,586
========== =============
Supplemental Cash Flow Disclosure:
Cash Paid for Interest ............................ $ 30,742 $ 26,020
========== =============
Cash Paid for Income Taxes ........................ $1,191,965 $ 150,580
========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies
Nature of Business
All-Tech Investment Group, Inc., (the "Company") is a corporation formed
for the purpose of conducting business as a broker/dealer in securities. The
Company is a 96% owned subsidiary of Rushmore Financial Services, Inc., a
privately owned corporation (the "Parent").
The Company operates under the provisions of Paragraph (k)(2)(ii) of Rule
15c3-3 of the Securities and Exchange Commission and, accordingly, is exempt
from the remaining provisions of that Rule. Essentially, the requirements of
Paragraph (k)(2)(ii) provide that the Company clear all transactions on behalf
of customers on a fully disclosed basis with a clearing broker/dealer, and
promptly transmit all customer funds and securities to the clearing
broker/dealer. The clearing broker/dealer carries all of the accounts of the
customers and maintains and preserves all related books and records as are
customarily kept by a clearing broker/dealer.
Revenue Recognition
The Company derives its revenues primarily from commissions related to
customer transactions. The Company records client and proprietary trading
transactions on a settlement date basis, which is generally three business days
after trade date. The Company is exposed to risk of loss on these transactions
in the event a client or broker fails to meet the terms of their contracts, in
which case the Company may have to purchase or sell the positions at prevailing
market prices. The Company records ECN fees on a date of transaction basis.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of money market accounts.
Marketable Securities
Securities owned and securities sold but not yet purchased are stated at
fair market value.
Securities sold but not yet purchased represent obligations of the Company
to deliver the specified security at the contracted price. A liability is
thereby created to purchase the security in the market at prevailing prices.
Accordingly, these transactions result in off-balance-sheet risk as the
Company's ultimate obligation to satisfy the sale of securities sold but not yet
purchased may exceed the amount recognized in the statement of operations.
Unrealized gains and losses on securities are reflected in the statement of
operations.
Depreciation
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
estimated useful lives of the related assets, which approximate five years.
F-7
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies
-- (Continued)
Estimated Fair Value of Financial Instruments
The Company believes the amounts presented for financial instruments on the
balance sheet consisting of cash equivalents, and brokerage receivables and
payables to be reasonable estimates of fair value. The Company uses available
market information as of the balance sheet date and appropriate valuation
methodologies in deriving amounts reported for financial instruments.
Technology Development Costs
Technology development costs are charged to operations as incurred.
Technology development costs include costs incurred in the development and
enhancement of software used in connection with services provided by the
Company.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires the recognition of deferred tax
liabilities and assets at tax rates expected to be in effect when these balances
reverse. Future tax benefits attributable to temporary differences are
recognized to the extent that realization of such benefits is more likely than
not.
Deferred Offering Costs
Deferred offering costs represent charges incurred in connection with a
proposed initial public offering of the Company's Common Stock and Warrants.
Upon successful completion of such Offering, the aggregate offering costs will
be charged to additional paid-in capital. In the event that the proposed
Offering is unsuccessful, the aggregate offering costs will be charged to
operations in the appropriate period.
Unaudited Interim Information
The financial information as of March 31, 1998 and for the nine months
ended March 31, 1997 and 1998 is unaudited. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of such periods.
The results for the interim period ended March 31, 1998 are not necessarily
indicative of the results to be obtained for a full fiscal year.
Reclassifications
Certain items in these financial statements have been reclassified to
conform to the current period presentation.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Since the Company
intends to set the exercise price of the Company's employee stock options to be
granted prior to the Company's proposed initial public offering (see Note 9)
equal to the market price of the underlying stock on the date of grant, no
compensation expense will be recognized.
F-8
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies
-- (Continued)
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The new
rules are effective for both interim and annual financial statements for the
periods ending after December 15, 1997. SFAS 128 supersedes APB No. 15 to
conform earnings per share with international standards as well as to simplify
the complexity of the computation under APB No. 15. The previous primary
earnings per share ("EPS") calculation is replaced with a basic EPS calculation.
The basic EPS differs from the primary EPS calculation in that the basic EPS
does not include any potentially dilutive securities. Fully dilutive EPS is
replaced with diluted EPS and should be disclosed regardless of dilutive impact
to basic EPS. Accordingly, the Company has adopted SFAS 128 effective December
31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement, which is effective for fiscal years beginning after December 15,
1997, expands or modifies disclosures and should have no impact on the Company's
financial position, results of operations or cash flows.
NOTE 2 -- Receivable from Brokers
<TABLE>
<CAPTION>
June 30, March 31,
------------------------ ----------
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Receivable from brokers consist of the following:
Receivable from clearing brokers .................... $692,159 $65,396 $114,933
Clearing broker deposit receivable .................. 30,693 32,637 25,272
Receivable from brokers--ECN fees (net of
allowance for doubtful accounts of $8,671) ......... -- -- 419,883
-------- ------- --------
$722,852 $98,033 $560,088
======== ======= ========
</TABLE>
NOTE 3 -- Property and Equipment
<TABLE>
<CAPTION>
June 30, March 31,
----------------------- ----------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment consists of the following:
Furniture and Fixtures .......................... $ 78,570 $ 78,570 $ 78,570
Office Equipment ................................ 1,950 380,632 651,922
Vehicles ........................................ 111,299 51,739 51,739
Leasehold Improvements .......................... -- -- 12,000
-------- -------- --------
191,819 510,941 794,231
Less: Accumulated Depreciation .................. 54,559 99,619 285,721
-------- -------- --------
$137,260 $411,322 $508,510
======== ======== ========
</TABLE>
NOTE 4 -- Regulatory Requirements
The Company is subject to the Uniform Net Capital Rule (the "Rule") under
the Securities Exchange Act of 1934. Under this Rule, the Company is required to
maintain net capital, as defined, equal to the greater of $100,000 or $2,500 for
each stock it posts a quote in, up to $1,000,000 and a net capital ratio, as
defined, of a maximum of 1500%. At June 30, 1997 the Company's net capital was
$453,672 and its net capital ratio was 121%. At March 31, 1998 the Company's net
capital as revised was $1,043,651 and its net capital ratio was 76%.
F-9
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 5 -- Commitments and Contingencies
Lease Commitments
The Company has entered into a lease commencing December 1, 1994 and ending
November 30, 1999 for office facilities. This lease has been modified effective
April 1, 1998 (see Note 11). The lessor is a corporation whose shareholders are
also the shareholders of both the Company's parent and the Company. The lease
provides for annual base rent of $101,906 and the payment of other occupancy
costs. The lease also provides that the Company pay for increases in its
pro-rata share of real estate taxes and utility costs above the original base
period. The Company sublets a portion of its office facilities on a month to
month basis to certain related companies.
Approximate future minimum rentals under this lease is summarized as
follows:
Year Ending June 30,
---------------------
1998 $101,906
1999 $101,906
2000 $ 42,460
Rent expense net of sublets under this lease for the years ended June 30,
1995, 1996 and 1997 was approximately $21,300, $65,100 and $69,900,
respectively. Rent expense net of sublets under this lease for the nine months
ended March 31, 1997 and 1998 was approximately $46,300 and $70,800,
respectively.
Legal
The Company is involved in legal proceedings and claims which arise in the
ordinary course of its business. Management believes that the outcome of such
litigation and claims will not result in any material adverse effect on the
Company's financial position or results of operations
NOTE 6 -- Financial Instruments with Off-Balance Sheet Credit Risk
As a securities broker, the Company is engaged in buying and selling
securities for a diverse group of investors. The Company introduces these
transactions for clearance to another broker/dealer on a fully disclosed basis.
The Company's exposure to credit risk associated with non-performance of
customers in fulfilling their contractual obligations pursuant to securities
transactions can be directly impacted by volatile trading markets which may
impair the customers' ability to satisfy their obligations to the Company and
the Company's ability to liquidate the collateral at an amount equal to the
original contracted amount. The agreement between the Company and its clearing
broker provides that the Company is obligated to assume any exposure related to
such non-performance by its customers. The Company seeks to control the
aforementioned risks by requiring customers to maintain margin collateral in
compliance with various regulatory requirements and the clearing broker's
internal guidelines. The Company monitors its customer activity by reviewing
information it receives from its clearing broker on a daily basis, and requiring
customers to deposit additional collateral, or reduce positions when necessary.
The Company is obligated to settle transactions with brokers and/or other
financial institutions even if its customers fail to meet their obligations to
the Company. Customers are required to complete their transactions on settlement
date, generally three business days after trade date. If customers do not
fulfill their contractual obligations, the Company may incur losses. The Company
has established procedures to reduce this risk by requiring that customers
deposit cash and/or securities into their account prior to placing an order.
The Company may at times maintain inventories in equity securities on both
a long and short basis. While long inventory positions represent the Company's
ownership of securities, short inventory positions represent
F-10
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 6 -- Financial Instruments with Off-Balance Sheet Credit Risk
-- (Continued)
obligations of the Company to deliver specified securities at a contracted
price, which may differ from market prices prevailing at the time of completion
of the transactions. Accordingly, both long and short inventory positions may
result in losses or gains to the Company as market values of securities
fluctuate. To mitigate the risk of losses, long and short positions are marked
to market daily and are continuously monitored by the Company. In addition, the
Company monitors each of its customers via computer analysis to assess risk of
each trade and the customer's overall accept position.
NOTE 7 -- Savings Plan
The Company established a defined contribution 401(k) plan effective
January 1, 1998 that covers substantially all employees meeting certain minimum
eligibility requirements. Participating employees can elect to defer a portion
of their compensation and contribute it to the plan on a pretax basis. The
Company may also match certain amounts and/or provide additional discretionary
contributions, as defined. The Company has made discretionary contributions of
approximately $16,000 to date.
NOTE 8 -- Income Taxes
The Company and its Parent and subsidiaries are members of a group of
affiliated companies which join in filing a consolidated federal income tax
return. In addition, the Company also files separate state and local tax
returns.
The components of income tax provision (benefit) for the years ended June
30 are as follows:
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------- Nine Months Ended
1995 1996 1997 March 31, 1998
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Current:
Federal (Net of benefit of $88,000 in 1998) ......... $ -- $417,198 $512,505 $27,000
State ............................................... (7,469) 193,080 152,000 30,000
-------- -------- -------- -------
Total current .................................... (7,469) 610,278 664,505 57,000
Deferred ............................................ -- -- -- 27,000
-------- -------- -------- -------
Total income tax provision (benefit) ................ $ (7,469) $610,278 $664,505 $84,000
======== ======== ======== =======
</TABLE>
Deferred income taxes are recorded when revenues and expenses are
recognized in different periods for financial statement and tax return purposes.
Temporary differences that created tax liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended June 30 Nine Months Ended
1995 1996 1997 March 31, 1998
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
Deferred tax liabilities ......... $-- $-- $-- $27,000
=== === === =======
</TABLE>
The effective tax rates differed from the federal statutory rates as
follows:
<TABLE>
<CAPTION>
Year Ended June 30, Nine Months Ended
1995 1996 1997 March 31, 1998
------------ ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Tax expense at federal statutory rate .............. (34.0%) 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit ..... (35.7) 10.4 6.3 5.4
Federal income tax refund .......................... -- -- -- (23.8)
Other .............................................. -- .4 1.2 7.2
----- ----- ----- ------
Effective tax rate .............................. (69.7%) 44.8% 41.5% 22.8%
===== ===== ===== ======
</TABLE>
F-11
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 9 -- Proposed Initial Public Offering
The Company intends to file a Registration Statement relating to the
initial public offering of its common shares and Warrants (the "Offering"). In
connection with the Offering, the Company intends to re-incorporate in the State
of Delaware and effect a 68.75 for 1 forward stock split on the new Delaware
common shares. Following is a table presenting the pro forma shareholders'
equity as if the reincorporation and recapitalization occurred at March 31,
1998:
Shareholders' Equity (Unaudited): ................................
Preferred stock, $.01 par value; 5,000,000 shares authorized, none
outstanding .................................................... $ --
Common stock, $.001 par value; 55,000,000 shares authorized,
15,468,750 shares issued and outstanding ....................... 15,469
Additional paid-in capital ....................................... 1,548,299
Retained earnings ................................................ 400,460
----------
Shareholders' equity ............................................. $1,964,228
==========
The Company intends to offer to the public 5,625,000 shares of its Common
Stock at $8.00 per share and 3,125,000 Warrants to purchase Common Stock at $.10
per Warrant for gross proceeds to the Company of $45,312,500 before underwriting
costs and expenses of the Offering. In addition, the Company may sell an
additional 468,750 shares at $8.00 per share and 468,750 Warrants at $.10 per
Warrant pursuant to an over-allotment option exercisable by the Underwriters.
Additional terms of the Offering include: the sale of 625,000 shares of Common
Stock at $8.00 per share to be offered by Selling Shareholders, an
Over-Allotment Option of 468,750 shares at $8.00 per share to be offered by
Selling Shareholders exercisable by the Underwriters and at the closing of the
proposed Offering a grant to the Underwriter of five year warrants.
NOTE 10 -- Unaudited Pro Forma Information
The unaudited pro forma earnings (loss) per share has been calculated by
dividing net income (loss) by the weighted average shares outstanding based on
the recapitalization of the Company as if the recapitalization took place at the
beginning of the periods presented. (See Note 9).
NOTE 11 -- Subsequent Events
Lease Agreement
The Company has entered in a lease modification whereby the term has been
extended effective April 1, 1998 to March 31, 2003. The lease modification calls
for annual rents of approximately $263,000 (see Note 5).
Employment Agreements
The Company has employment agreements with two senior executives and
shareholders of the Company. The employment agreements were made on April 30,
1998 and commence on the effective date of the Company's proposed initial public
offering of its Common Stock. The agreements have a term of three years from the
effective date and provide for annual aggregate compensation of $1,000,000,
aggregate additional salaries of 10% of net earnings before taxes to a maximum
of an additional $1,000,000 in the first two years and $3,000,000 in the third
year, and payment of certain employment related expenses.
Stock Option Plan
The Company's 1998 Stock Option Plan (the "Plan") was adopted by the Board
of Directors of the Company on May 11, 1998. A total of 2,250,000 shares of
Common Stock are reserved for issuance upon exercise of options to be granted
under the Plan, of which the Company intends to grant 1,500,000 stock options as
of
F-12
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
Notes to Financial Statements -- (Continued)
(Information at March 31, 1998 and for the nine months ended
March 31, 1997 and 1998 is unaudited)
NOTE 11 -- Subsequent Events -- (Continued)
the effective date of the Company's proposed initial public offering of its
Common Stock and Warrants. The options granted will be exercisable at a price
equal to the initial public offering price per share, have an expiration date of
May 10, 2008, and vest at a rate of twenty percent per year from the date of
grant.
F-13
<PAGE>
===============================================================================
No Underwriter, dealer, sales representative or any other person has been
authorized to give any information or to make any representations in connection
with this Offering other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company, by any Selling Shareholder or by any
Underwriter. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities other than the registered
securities to which it relates or an offer to, or a solicitation of, any person
in any jurisdiction where such an offer or solicitation is unauthorized or in
which the person making such offer or solicitation is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary .......................... 3
Risk Factors ................................ 6
Use of Proceeds ............................. 19
Dividend Policy ............................. 19
Dilution .................................... 20
Capitalization .............................. 21
Selected Financial Data ..................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 23
Business .................................... 29
Management .................................. 40
Certain Transactions ........................ 44
Principal and Selling Shareholders .......... 45
Description of Capital Stock ................ 46
Shares Eligible for Future Sale ............. 49
Underwriting ................................ 50
Legal Matters ............................... 52
Experts ..................................... 52
Additional Information ...................... 52
Index to Financial Statements ............... F-1
-----------------------------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
LOGO
All-Tech
Investment Group, Inc.
6,250,000 Shares of Common Stock
and
3,125,000 Redeemable
Common Stock Purchase Warrants
(as units, each consisting of two shares of
Common Stock and one Redeemable
Common Stock Purchase Warrant)
---------------
PROSPECTUS
---------------
Security Capital Trading, Inc.
, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered,
excluding underwriting discounts and commissions and the Representative's
non-accountable expense allowance. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the AMEX listing fee.
Amount to
be Paid
---------------
SEC registration fee ................. $ 32,677.71
NASD filing fee ...................... 11,577.19
AMEX listing fee ..................... 50,000.00
Printing and engraving ............... 110,000.00
Legal fees and expenses .............. 60,000.00
Accounting fees and expenses ......... 75,000.00
Blue sky fees and expenses ........... 20,000.00
Transfer agent fees .................. 5,000.00
Miscellaneous ........................ 10,745.10
-----------
Total ............................... $375,000.00
===========
ITEM 14. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
("Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner s/he reasonably believed to be in
or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors in an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of his
or her duty. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
In accordance with Delaware Law, the Certificate of Incorporation of the
Company contains a provision to limit the personal liability of the directors of
the Registrant for violations of their fiduciary duty. This provision eliminates
each director's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
Article 13 of the By-Laws of the Registrant provides for indemnification of
the officers and directors of the Registrant to the fullest extent permitted by
applicable law.
II-1
<PAGE>
In connection with the reincorporation of the Registrant in the State of
Delaware, the Registrant entered into indemnification agreements with each
director and officer, a form of which is attached as Exhibit 10.1 hereto. The
indemnification agreements provide indemnification to such directors and
officers under certain circumstances for acts or omissions which may not be
covered by directors' and officers' liability insurance. Reference is also made
to Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. Recent Sales of Unregistered Securities
None.
ITEM 16. Exhibits and Financial Statement Schedules
(1) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- ---------------------
<S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation.
*3.2 By-Laws of the Registrant.
*4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement, including Form of Warrant Certificate.
4.3 Form of Representative's Warrant Agreement, including Form of Representative's Warrant Certificate.
*5.1 Opinion of Sichenzia, Ross & Friedman LLP.
*10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and certain
officers.
*10.2 1998 Stock Option Plan.
*10.3 401(k) Plan.
*10.4 Lease of premises at 160 Summit Avenue, Montvale, New Jersey.
*10.5 Employment Agreement dated April 30, 1998, by and between Harvey I. Houtkin and the Registrant.
*10.6 Employment Agreement dated April 30, 1998, by and between Mark D. Shefts and the Registrant.
*10.7 Clearing Agreement between Registrant and Southwest Securities Corp. dated July 15, 1997, as
amended August 4, 1997.
*10.8 Guarantee by the Registrant to Southwest Securities Corp.
*11.1 Statement regarding computation of per share earnings.
23.1 Consent of Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule as of and for the year ended June 30, 1997 and as of and for the nine
months ended March 31, 1998.
99.1 Consent of Josef A. Ross.
99.2 Consent of Robert D. Kashan.
</TABLE>
- ------------
* To be filed by amendment
(2) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the Financial
Statements or Notes thereto.
ITEM 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Restated By-Laws of Registrant, Indemnification Agreements
entered into between the Registrant and its directors and officers, Underwriting
Agreement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MONTVALE, STATE OF NEW JERSEY ON THIS 22ND DAY OF
MAY, 1998.
ALL-TECH INVESTMENT GROUP, INC.
By /s/ Harvey I. Houtkin
-------------------------------
Harvey I. Houtkin
Chairman and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Harvey
Houtkin and Mark Shefts, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this Registration
Statement and a new Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURES
/s/ Harvey I. Houtkin Chief Executive Officer, Secretary and Director
- ----------------------------- May 22,1998
Harvey I. Houtkin
/s/ Mark D. Shefts President, Treasurer and Director
- ----------------------------- May 22,1998
Mark D. Shefts
/s/ Harry M. Lefkowitz Senior Vice President and Director
- ----------------------------- May 22, 1998
Harry M. Lefkowitz
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- ---------------------
<S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation.
*3.2 By-Laws of the Registrant.
*4.1 Specimen of Common Stock Certificate.
4.2 Form of Warrant Agreement, including Form of Warrant Certificate.
4.3 Form of Representative's Warrant Agreement, including Form of Representative's Warrant Certificate.
*5.1 Opinion of Sichenzia, Ross & Friedman LLP.
*10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and certain
officers.
*10.2 1998 Stock Option Plan.
*10.3 401(k) Plan.
*10.4 Lease of premises at 160 Summit Avenue, Montvale, New Jersey.
*10.5 Employment Agreement dated April 30, 1998, by and between Harvey I. Houtkin and the Registrant.
*10.6 Employment Agreement dated April 30, 1998, by and between Mark D. Shefts and the Registrant.
*10.7 Clearing Agreement between Registrant and Southwest Securities Corp. dated July 15, 1997, as
amended August 4, 1997.
*10.8 Guarantee by the Registrant to Southwest Securities Corp.
*11.1 Statement regarding computation of per share earnings.
23.1 Consent of Independent Auditors.
*23.2 Consent of Counsel (included in Exhibit 5.1).
*24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule as of and for the year ended June 30, 1997 and as of and for the nine
months ended March 31, 1998.
99.1 Consent of Josef A. Ross.
99.2 Consent of Robert D. Kashan.
</TABLE>
- ------------
* To be filed by amendment
<PAGE>
ALL-TECH INVESTMENT GROUP, INC.
6,250,000 Shares of Common Stock and
3,125,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
----------------------
New York, New York
__________, 1998
SECURITY CAPITAL TRADING, INC.
As Representative of the
several Underwriters named
in Schedule A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
All-Tech Investment Group, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Security Capital Trading, Inc. ("Security Capital"),
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 12), for whom Security Capital is acting as
Representative (in such capacity, Security Capital shall hereinafter be referred
to as "you" or the "Representative"), and certain persons named in Schedule B
(the "Primary Selling Shareholders"), with respect to the sale by the Company
and the Primary Selling Shareholders and the purchase by the Underwriters,
acting severally and not jointly, of the respective number of shares of the
Company's common stock, $.001 par value per share ("Common Stock") and
redeemable common stock purchase warrants (the "Redeemable Warrants"), each to
purchase one share of Common Stock, set forth in Schedule A.
The aggregate 6,250,000 shares of Common Stock and 3,125,000 Redeemable
Warrants will be separately tradable upon issuance and are hereinafter referred
to as the "Firm Securities." Unless previously redeemed by the Company, each
Redeemable Warrant is exercisable to purchase, at any time commencing ________,
1998 [6 months from the date of prospectus] until 5:30 p.m. New York time
on_________, 2003 [30 months after the date of prospectus], one
<PAGE>
share of Common Stock at a price of $___ [150% of the initial public offering
price of the Common Stock]. per share, and from such date until 5:30 p.m. New
York time on ______, 2003 [60 months after the date hereof], one share of Common
Stock at a price of $___ [175% of the initial public offering price of the
Common Stock] per share. The Redeemable Warrants may be redeemed by the Company
at a redemption price of $.10 per Redeemable Warrant at any time after
_________, 1999 on thirty (30) days' prior written notice, provided that the
closing sale price of the Common stock equals or exceeds $20.00 per share, for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth trading day prior to the notice of redemption, all in
accordance with the terms and conditions of the Warrant Agreement (herein
defined).
Upon your request, as provided in Section 3(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 468,750 shares of Common Stock and/or 468,750 Redeemable
Warrants and certain persons named in Schedule C (the "Option Selling
Shareholders") shall also sell to the Underwriters, acting severally and not
jointly, up to an additional 468,750 shares of Common Stock in the aggregate for
the purpose of covering over-allotments, if any. Such aggregate 937,500 shares
of Common Stock and 468,750 Redeemable Warrants are hereinafter referred to as
the "Option Securities." The Firm Securities and, to the extent the
over-allotment option is exercised, the Option Securities, are hereinafter
collectively referred to as the "Securities." The Company also proposes to issue
and sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
for the purchase of an additional 625,000 shares of Common Stock and/or 312,500
Redeemable Warrants. The shares of Common Stock and Redeemable Warrants issuable
upon exercise of the Representative's Warrants are hereinafter referred to as
the "Representative's Securities." The Firm Securities, the Option Securities,
the Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Offering Securities") are more fully described
in the Registration Statement and the Prospectus referred to below.
The Primary Selling Shareholders and the Option Selling Shareholders are
hereinafter collectively referred to as the "Selling Shareholders." Each Selling
Shareholder has executed and delivered a Letter of Transmittal and Custody
Agreement ("Custody Agreement"), a Stock Power ("Stock Power"), and a Power of
Attorney ("Power of Attorney") pursuant to which each Selling Shareholder has
placed his shares of Common Stock in custody and appointed the persons
designated therein with authority to execute and deliver this Agreement on
behalf of such Selling Shareholder and to take certain other actions with
respect thereto and hereto.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Offering Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or
2
<PAGE>
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations (the "Regulations") of the Commission
under the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters and
will not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto. The Company
acknowledges that the statements with respect to the public offering of the
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided,
3
<PAGE>
however, that this representation and warranty does not apply to statements made
or statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing with respect to the Underwriters by or on
behalf of any Underwriter, expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or supplement
thereto. The Company acknowledges that the statements with respect to the public
offering of the Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriters
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the Prospectus.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
Except as set forth in the Prospectus, the Company does not own an interest in
any corporation, partnership, trust, joint venture or other business entity. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. The Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus;
the Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading in light of the circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and each Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement, the Representative's Warrant Agreement, the Warrant
Agreement, and as described in the Prospectus. The Offering Securities and all
other securities issued or issuable by the Company conform or, when issued and
paid for, will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
4
<PAGE>
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company. The Offering
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Offering Securities has been duly and
validly taken; and the certificates representing the Offering Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Offering Securities to be sold by the Company and Selling
Shareholders hereunder, the Underwriters or the Representative, as the case may
be, will acquire good and marketable title to such Offering Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved and such
financial statements as are audited have been examined by Wolinetz, Gottlieb &
Lafazan, who are independent certified public accountants within the meaning of
the Act and the Rules and Regulations, as indicated in their reports filed
therewith. There has been no adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to the
Company, whether disputed or not, for the applicable period then ended and
periods prior thereto; adequate allowance for doubtful accounts has been
provided for unindemnified losses due to the operations of the Company; and the
statements of income do not contain any items of special or nonrecurring income
not earned in the ordinary course of business, except as specified in the notes
thereto.
5
<PAGE>
(g) The Company (i) has paid all federal, state, local, and foreign taxes
for which it is liable, including, but not limited to, withholding taxes and
amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Offering Securities, (ii) the sale of shares of Common Stock by the Selling
Shareholders, (iii) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and Selling Shareholders and the purchase
by the Representative of the Representative's Warrants from the Company, (iv)
the consummation by the Company and Selling Shareholders of any of their
respective obligations under this Agreement, or the Company's consummation of
obligations under the Representative's Warrant Agreement, or the Warrant
Agreement, or (v) resales of the Firm Securities and the Option Securities in
connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not limited
to, general liability, malpractice and property insurance, which insures each of
the Company and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) does not have any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond, which would relieve any insurer of its obligation to satisfy in
full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the
Company which (i) questions the validity of the capital stock of the Company,
this Agreement, the Warrant Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Offering Securities, enter into this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement and to consummate
the transactions provided for in this
6
<PAGE>
Agreement, the Warrant Agreement and the Representative's Warrant Agreement; and
this Agreement, the Warrant Agreement and the Representative's Warrant Agreement
have each been duly and properly authorized, executed and delivered by the
Company. Each of this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, and none
of the Company's issue and sale of the Offering Securities, execution or
delivery of this Agreement, the Warrant Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of (i)
the certificate of incorporation or by-laws of the Company, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which the Company is or may be bound or to which its assets (tangible or
intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Offering Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
the Warrant Agreement and the Representative's Warrant Agreement and the
transactions contemplated hereby and thereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Offering Securities,
except such as have been or may be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Firm Securities and the Option Securities, to
be sold by the Company and Selling Shareholders hereunder and the
Representative's Warrants and Representative's Securities to be sold by the
Company.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against it in accordance with its terms. The descriptions in the Registration
Statement of agreements, contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form S-1,
and there are no contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
7
<PAGE>
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any change in the debt (long or
short term) or liabilities or material adverse change in or affecting the
general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which the property or assets (tangible or intangible) of the
Company is subject or affected.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal, state,
local and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company by the U.S. Department of Labor, or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any lockout, strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists, or, is imminent.
(q) The Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code
8
<PAGE>
Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. The Company has never completely or partially withdrawn
from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Offering Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held
by the Company, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. The Company (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or
with respect to any of the foregoing and (ii) is not obligated or under any
liability whatsoever to make any payment by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) Wolinetz, Gottlieb & Lafazan, whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each officer, director and
stockholder of the Company and each holder of securities exchangeable or
exercisable for or convertible into shares of Common Stock has agreed not to,
directly or indirectly, issue, offer, offer to sell, sell, grant any option
for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months following
the effective date of the Registration Statement (the "Lock-Up Period")
without the prior written consent of the Representative and the Company.
During the 12 month period commencing on the effective date of the
Registration Statement, the Company shall not, without the prior written
consent of the
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Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock. The Company will cause the Transfer Agent (as hereinafter defined)
to mark an appropriate legend on the face of stock certificates representing
all of such securities and to place "stop transfer" orders on the Company's
stock ledgers.
(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Offering
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company, or any of its officers,
directors, stockholders, partners, employees or affiliates, that may affect
the Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(x) The Common Stock has been approved for listing on the American
Stock Exchange ("Amex").
(y) None of the Company, nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) which (a)
might subject the Company, or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a material adverse
effect on the assets, business or operations of the Company, or (c) if not
continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of the Company. The Company's internal accounting
controls are sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficiary
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, or 5% or greater securityholder of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities.
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(aa) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(bb) The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions of the
directors (including committees thereof) and stockholders of the Company, since
the time of its incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.
(cc) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(dd) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Harvey I.
Houtkin and Mark D. Shefts, and in the form filed as Exhibits [10.5], and
[10.6], respectively, to the Registration Statement and (ii) purchased term key
person insurance on the lives of each of _________________ and ______________ in
the amount of $________________ each.
(ee) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(ff) The Company is not, and upon the issuance and sale of the
Offering Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus under the caption "Use of
Proceeds" will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(gg) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; (iv)
transactions are recorded as necessary to comply with applicable record-keeping
regulations of the NASD and under the
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applicable Rules and Regulations and (v) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(hh) The Company has entered into a warrant agreement substantially in
the form filed as Exhibit [ ] to the Registration Statement (the "Warrant
Agreement") with Continental Stock Transfer & Trust Company, as Warrant Agent,
in form and substance satisfactory to the Representative, with respect to the
Redeemable Warrants.
2. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents, warrants and
covenants to each Underwriter that:
(a) Such Selling Shareholder has full power and authority to enter
into this Agreement and the Custody Agreement and Power of Attorney with
__________ as attorney-in-fact (the "Attorney-in-Fact"). All authorizations and
consents necessary for the execution and delivery by such Selling Shareholder of
the Custody Agreement and Power of Attorney, and for the execution of this
Agreement on behalf of such Selling Shareholder, have been given. Each of the
Custody Agreement and Power of Attorney and this Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and constitutes a valid and binding agreement of such Selling Shareholder and is
enforceable against such Selling Shareholders in accordance with the terms
thereof and hereof; the Attorney-in-Fact, acting alone, is authorized to execute
and deliver this Agreement and the certificates referred to in Section ___
hereof on behalf of such Selling Shareholder, to authorize the delivery of those
Securities to be sold by such Selling Shareholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Selling Shareholders' Securities or the Stock Power or Powers
with respect thereto, to accept payment therefor, and otherwise to act on behalf
of such Selling Shareholder in connection with this Agreement, and the Custody
Agreement.
(b) Such Selling Shareholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the Securities to
be sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Custody Agreement
and Power of Attorney) and (ii) full legal right and power, and all
authorizations and approvals required by law, to sell, assign, transfer and
deliver such Securities to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Shareholder
herein. Upon the delivery of and payment for such Securities hereunder, such
Selling Shareholder will deliver good and marketable title thereto, free and
clear of all liens, encumbrances and claims whatsoever to the Underwriters.
(c) On the Closing Date or Option Closing Date, as the case may be,
all stock transfer or other taxes (other than income taxes) which are required
to be paid in connection with the sale and transfer of the shares to be sold by
such Selling Shareholder to the several Underwriters hereunder will have been
fully paid or provided for by such Selling Shareholder and all laws imposing
such taxes will have been fully complied with.
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<PAGE>
(d) None of the execution, delivery or performance of this Agreement,
the Stock Power or the Custody Agreement nor the consummation of the
transactions contemplated hereby or thereby will result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of such
Selling Shareholder pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the acceleration of any obligation under, if such
Selling Shareholder is a corporation or partnership, the organizational
documents of such Selling Shareholder, or, as to all such Selling Shareholders,
any indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder or any of its property is bound or
affected, or under any ruling, decree, judgment, order, statute, rule or
regulation of any court or other governmental agency or body having jurisdiction
over such Selling Shareholder or the property of such Selling Shareholder.
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by such Selling Shareholder of the transactions on its part
contemplated herein and in the Custody Agreement and Power of Attorney, except
such as have been obtained under the Act or the Rules and Regulations and such
as may be required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Securities to be sold by such Selling Shareholder.
(f) Such Selling Shareholder has no knowledge of any material fact or
condition not set forth in the Registration Statement or Prospectus which has
adversely affected, or may adversely affect, the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company, and the sale of the Securities proposed to be sold by such Selling
Shareholder is not prompted by any such knowledge.
(g) All information with respect to such Selling Shareholder contained
in the Registration Statement and the Prospectus (as amended or supplemented, if
the Company shall have filed with the Commission any amendment or supplement
thereto) complied and will comply with all applicable provisions of the Act and
the Rules and Regulations, contains and will contain all statements required to
be stated therein in accordance with the Act and the Rules and Regulations, and
does not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
(h) To the best knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section 1 are true
and correct.
(i) Other than as permitted by the Act and the Rules and Regulations,
such Selling Shareholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Securities. Such Selling
Shareholder has not taken, directly or indirectly, any action designed, or which
might reasonably be expected, to cause or result in, under the Act or otherwise,
or which has caused or resulted in, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities.
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(j) Certificates in negotiable form for the Securities to be sold
hereunder by such Selling Shareholder have been placed in custody, for the
purpose of making delivery of such
(k) under this Agreement, under the Custody Agreement and Power of
Attorney which appoints Continental Stock Transfer and Trust Company as
custodian (the "Custodian") for each Selling Shareholder. Such Selling
Shareholder agrees that the Securities represented by the certificates held in
custody for him or it under the Agreement and Power of Attorney are for the
benefit of and coupled with and subject to the interest hereunder of the
Custodian, the Underwriters, each other Selling Shareholder and the Company,
that the arrangements made by such Selling Shareholder for such custody and the
appointment of the Custodian by such Selling Shareholder are irrevocable, and
that the obligations of such Selling Shareholder hereunder shall not be
terminated by operation of law, whether by the death, disability, incapacity or
liquidation of any Selling Shareholder or the occurrence of any other event. If
any Selling Shareholder should die, become disabled or incapacitated or is
liquidated or if any other such event should occur before the delivery of the
Securities hereunder, certificates for the Securities shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement and
actions taken by the Custodian pursuant to the Agreement and Power of Attorney
shall be as valid as if such death, liquidation, incapacity or other event had
not occurred, regardless of whether or not the Custodian shall have received
notice thereof.
(l) There is not pending or threatened against such Selling
Shareholder any action, suit or proceeding which (A) questions the validity of
this Agreement, the Stock Power, the Power of Attorney, the Custody Agreement or
of any action taken or to be taken by such Selling Shareholder pursuant to or in
connection with this Agreement, the Stock Power, the Power of Attorney or the
Custody Agreement or (B) is required to be disclosed in the Registration
Statement which is not so disclosed, and such actions, suits or proceedings as
are summarized in the Registration Statement, if any, are accurately summarized.
(m) Except as set forth in the Prospectuses or waived in connection
with the offering of the Offering Securities, such Selling Shareholder does not
have any registration rights or other similar rights with respect to any
securities of the Company; and such Selling Shareholder does not have any right
of first refusal or other similar right to purchase any securities of the
Company upon the issuance or sale thereof by the Company or upon the sale
thereof by any other shareholder of the Company.
(n) Any certificate signed by or on behalf of such Selling Shareholder
and delivered to the Underwriters shall be deemed a representation and warranty
by such Selling Shareholder to the Underwriters as to the matters covered
thereby.
3. Purchase, Sale and Delivery of the Offering Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and the Primary Selling Shareholders agree to sell to each
Underwriter, and each Underwriter, severally and not jointly, agrees to purchase
at a price of $_______ per share [93.5% of the initial public offering price per
share of Common Stock] of Common Stock and $______ per share [93.5% of the
initial public offering price per Redeemable Warrant] that number of Firm
Securities set forth
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<PAGE>
in Schedule A opposite the name of such Underwriter, subject to such adjustment
as the Representative in its sole discretion shall make to eliminate any sales
or purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 12 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company and the Option Selling Shareholders
hereby grant an option to the Underwriters, severally and not jointly, to
purchase all or any part of an additional 937,500 shares of Common Stock at a
price of $__________ per share [93.5% of the initial public offering price per
share of Common Stock] of Common Stock and/or an additional 468,750 Redeemable
Warrants at a price of $______ per Redeemable Warrant [93.5% of the initial
public offering price per Redeemable Warrant]. The option granted hereby will
expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than seven (7) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of Security Capital
Trading, Inc. at 520 Madison Avenue, 10th Floor, New York, New York 10022, or at
such other place as shall be agreed upon by the Representative and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
__________, 1998 or at such other time and date as shall be agreed upon by the
Representative and the Company, but not less than three (3) nor more than five
(5) full business days after the effective date of the Registration Statement
(such time and date of payment and delivery being herein called the "Closing
Date"). In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
office of the Representative or at such other place as shall be agreed upon by
the Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company. Delivery of the certificates
for the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company and the Primary Selling Shareholders or Option Selling
Shareholders, as the case may be, for the Firm Securities and the Option
Securities, if any, by New York Clearing House funds. In the event such option
is exercised, each of the Underwriters, acting severally and not jointly, shall
purchase that proportion of the Underwriters' portion of Option Securities
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<PAGE>
then being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 625,000 shares of Common Stock and/or 312,500
Redeemable Warrants. The Representative's Warrants shall be exercisable for a
period of four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the respective initial public offering price of the shares of Common Stock and
the Redeemable Warrants. The Representative's Warrant Agreement and form of
Warrant Certificate shall be substantially in the form filed as Exhibit __ to
the Registration Statement. Payment for the Representative's Warrants shall be
made on the Closing Date.
4. Public Offering of the Securities. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities
is required and has not become effective) at the price and upon the other
terms set forth in the Prospectus. The Representative may from time to time
increase or decrease the public offering price after distribution of the
Securities has been completed to such extent as the Representative, in its
sole discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
5. Covenants and Agreements of the Company and Each Selling Shareholder.
The Company covenants and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Securities by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
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<PAGE>
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceeding suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose; (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Offering
Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification
at any time, the Company will make every effort to obtain promptly the lifting
of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Offering Securities which
differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Offering Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall
be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts
17
<PAGE>
to file and make such statements or reports at such times as are or may
reasonably be required by the laws of such jurisdiction to continue such
qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings
in the Offering Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the Offering Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or Underwriters' Counsel, the Prospectus,
as then amended or supplemented, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
to amend the Prospectus to comply with the Act, the Company will notify the
Representative promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Underwriters' Counsel,
and the Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the Underwriters may
request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each quarter
in the form furnished to the Company's stockholders and certified by
the Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
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(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission,
the NASD or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs, which was released or prepared by or on
behalf of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiary) or its businesses
which the Representative may request.
During such seven-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary(ies) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative
may designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as the
Representative may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (12) months from the effective date of the Registration
Statement, each of the Company's officers, directors and stockholders and
holders of securities exchangeable or exercisable for or convertible into
shares of Common Stock agrees that it or he or she will not, directly or
indirectly, issue, offer to sell, sell, grant an option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein without the prior consent of the Representative (collectively, the
"Lock-up Agreements"). During the 12 month period commencing on the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of the Representative, sell, contract or offer to sell, issue,
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transfer, assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants with
respect to any shares of Common Stock. On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to
place appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop transfer
orders on the Company's ledgers.
(l) Each Selling Shareholder agrees to deliver to the Representative,
on or prior to the Closing Date, a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(m) None of the Company, nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
(n) The Selling Shareholders will not, without the prior written
consent of the Representative, make any bid for or purchase any shares of Common
Stock or Redeemable Warrants during the six month period commencing on the date
hereof.
(o) As soon as any Selling Shareholder is advised thereof, such
Selling Shareholder will advise the Representative and confirm such advice in
writing, (1) of receipt by such Selling Shareholder, or by any representative
of such Selling Shareholder, of any communication from the Commission relating
to the Registration Statement, the Prospectus or any preliminary prospectus,
or any notice or order of the Commission relating to the Company or any of the
Selling Shareholders in connection with the transactions contemplated by this
Agreement and (2) of the happening of any event during the period from and
after the effective date that in the judgment of such Selling Shareholder
makes any statement made in the Registration Statement or Prospectus untrue or
that requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(p) The Company shall apply the net proceeds from the sale of the
Offering Securities in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used, directly or indirectly, to acquire any securities issued by the
Company.
(q) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(r) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
20
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days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 7(j) and 7(k) hereof.
(s) The Company shall cause the Common Stock and Redeemable Warrants
to be quoted on Amex and, for a period of seven (7) years from the date hereof,
use its best efforts to maintain the Amex listing of the Common Stock and
Redeemable Warrants to the extent outstanding.
(t) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and Redeemable
Warrants (ii) the list of holders of all of the Company's securities and (iii) a
Blue Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
(u) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Offering Securities and (ii) but in no event more than thirty (30)
days after the effective date of the Registration Statement, take all
necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Moody's OTC Manual and to continue such inclusion
for a period of not less than seven (7) years.
(v) The Company hereby agrees that it will not, for a period of
twelve (12) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement permitting
(i) the grant, issue, sale or entry into any agreement to grant, issue or sell
any option, warrant or other contract right (x) at an exercise price that is
less than the greater of the public offering price of the Securities set forth
herein and the fair market value on the date of grant or sale or (y) to any of
its executive officers or directors or to any, direct or indirect, holder of
5% or more of the Common Stock; (ii) the maximum number of shares of Common
Stock or other securities of the Company purchasable at any time pursuant to
options or warrants issued by the Company to exceed the aggregate shares
reserved for future issuance under the Company's Stock Option Plan and the
Representative's Warrant Agreement (excluding the overallotment option); (iii)
the payment for such securities with any form of consideration other than
cash; or (iv) the existence of stock appreciation rights, phantom options or
similar arrangements.
(w) Until the completion of the distribution of the Offering
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other
than trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
(x) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent
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or disqualify the Company's use of Form S-1 (or other appropriate form) for
the registration under the Act of the Representative's Securities. The Company
further agrees to use its best efforts to file such post-effective amendments
to the Registration Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective while any of
the Redeemable Warrants or Representative's Warrants remain outstanding.
6. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than (i) fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company and the Selling Shareholders under this Agreement, of the Company
under the Warrant Agreement, Representative's Warrant Agreement and of the
Selling Shareholders under the Custody Agreement, the Power of Attorney and
the Stock Power, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company [and the Selling Shareholders], (ii)
all costs and expenses incurred in connection with the preparation,
duplication, printing (including mailing and handling charges), filing,
delivery and mailing (including the payment of postage with respect thereto)
of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement, the Warrant
Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, the Custody Agreements, the
Stock Powers, the Powers of Attorney and related documents, including the cost
of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities
as hereinabove stated, (iii) the printing, engraving, issuance and delivery of
the Offering Securities including, but not limited to, (x) the purchase by the
Underwriters of the Firm Securities and the Option Securities and the purchase
by the Representative of the Representative's Warrants from the Company, (y)
the consummation by the Company of any of its obligations under this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement,
and the consummation by the Selling Shareholders of any of their obligations
under this Agreement, the Custody Agreement, the Stock Powers or the Powers of
Attorney, and (z) resale of the Firm Securities and the Option Securities by
the Underwriters in connection with the distribution contemplated hereby, (iv)
the qualification of the Offering Securities under state or foreign securities
or "Blue Sky" laws and determination of the status of such securities under
legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, fees and disbursements of counsel in
connection therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show", information
meetings and presentations, bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses (vi) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any, (vii)
applications for assignment of a rating of the Offering Securities by
qualified rating agencies, (viii) the fees payable to the Commission and the
NASD, (ix) costs and expenses in connection with copyright due diligence
expert, and (x) the fees and expenses incurred in connection with the
quotation of the Offering Securities on Amex and any other exchange.
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<PAGE>
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 7, Section 10(a) or Section 13, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 6(c) hereof. The Company shall
remain liable for all Blue Sky counsel fees and expenses and Blue Sky filing
fees as provided in Section 6(a) above.
(c) The Company and the Selling Shareholders further agree that, in
addition to the expenses payable by the Company pursuant to subsection (a) of
this Section 6, they will pay to the Representative on the Closing Date by
certified or bank cashier's check or, at the election of the Representative,
by deduction from the proceeds of the offering of the Firm Securities, a
non-accountable expense allowance equal to 1 1/2% of the gross proceeds
received by the Company, and Selling Shareholders from the sale of the Firm
Securities, $50,000 of which has been paid to date. In the event the
Representative elects to exercise the overallotment option described in
Section 3(b) hereof, the Company and the Selling Shareholders further agree to
pay to the Representative on each Option Closing Date, by certified or bank
cashier's check, or at the Representative's election, by deduction from the
proceeds of the Option Securities purchased on such Option Closing Date, a
non-accountable expense allowance equal to 1 1/2% of the gross proceeds
received by the Company and Selling Shareholders from the sale of such Option
Securities. The Company and Selling Shareholders agree they will pay their
respective proportion of the 1 1/2% non-accountable expense allowance for the
Firm Securities and Option Securities based on the amount of gross proceeds
each receives for the sale of their Firm Securities and/or Options Securities,
as the case may be.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and Selling Shareholders herein
as of the date hereof and as of the Closing Date and each Option Closing Date,
if any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date
or Option Closing Date, if any, of the statements of the officers of the
Company and Selling Shareholders made pursuant to the provisions hereof; and
the performance by the Company and Selling Shareholders on and as of the
Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representative, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of
the Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the
Securities and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
23
<PAGE>
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state
a fact which, in the Representative's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material,
or omits to state a fact which, in the Representative's opinion, is material
and is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of the Company, the
validity of the Offering Securities, the Registration Statement, the Prospectus
and other related matters as the Representative may request and Underwriters'
Counsel shall have received such papers and information as they request to
enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Sichenzia, Ross & Friedman, LLP, counsel to the Company and
Selling Shareholders, dated the Closing Date, addressed to the Underwriters and
in form and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power and
authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local laws,
rules and regulations; and, the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do
not omit to state a fact required to be stated therein or necessary to make
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the statements contained therein not misleading in light of the
circumstances in which they were made.
(ii) except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture, trust
or other business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization", and the Company is not a party
to or bound by any instrument, agreement or other arrangement providing for
it to issue, sell, transfer, purchase or redeem any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Warrant Agreement and the Representative's Warrant Agreement and as
described in the Prospectus. The Offering Securities and all other
securities issued or issuable by the Company conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability
by reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or any similar rights granted by the Company. The Offering
Securities to be sold by the Company hereunder and under the Warrant
Agreement and Representative's Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Offering Securities has been duly and
validly taken; and the certificates representing the Offering Securities
are in due and proper form. The Representative's Warrants and Redeemable
Warrants constitute valid and binding obligations of the Company to issue
and sell, upon exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement of the Firm Securities and the Option
Securities and the Representative's Warrants to be sold by the Company, the
Underwriters and the Representative, respectively, will acquire good and
marketable title to the Firm Securities, the Option Securities and the
Representative's Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever. No transfer tax is payable by or on behalf
of the Underwriters in connection with (A) the issuance by the Company of
the Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, and the purchase by the
Representative of the Representative's Warrants or the Representative's
Securities from the Company (C) the consummation by the Company of any of
its obligations under this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement, or (D) resales of the Firm Securities
and the Option Securities in connection with the distribution contemplated
hereby.
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(iv) the Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the use
of the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's knowledge,
threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and statistical
data included therein, as to which no opinion need be rendered) comply as
to form in all material respects with the requirements of the Act and the
Rules and Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or by which
it is bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form S-1; (C) there is not pending or
threatened against the Company any action, arbitration, suit, proceeding,
inquiry, investigation, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company which (x) is required
to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of the
capital stock of the Company or this Agreement, the Warrant Agreement or
the Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as required;
and (E) there is no action, suit or proceeding pending, or threatened,
against or affecting the Company before any court or arbitrator or
governmental body, agency or official (or any basis thereof known to such
counsel) in which there is a reasonable possibility of a decision which may
result in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company, which could adversely affect the present or prospective ability of
the Company to perform its obligations under this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement or which in any manner
26
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draws into question the validity or enforceability of this Agreement, the
Warrant Agreement or the Representative's Warrant Agreement;
(vii) the Company has full legal right, power and authority to
enter into each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and to consummate the transactions
provided for therein; and each of this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement has been duly authorized, executed
and delivered by the Company. Each of this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement, assuming due authorization,
execution and delivery by each other party thereto constitutes a legal,
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms of,
(A) the certificate of incorporation or by-laws of the Company, (B) any
license, contract, collective bargaining agreement, indenture, mortgage,
deed of trust, lease, voting trust agreement, stockholders' agreement,
note, loan or credit agreement or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to which
any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having jurisdiction
over the Company or any of its activities or properties.
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body
(other than such as may be required under Blue Sky laws, as to which no
opinion need be rendered) is required in connection with the issuance of
the Firm Securities and the Option Securities pursuant to the Prospectus
and the Registration Statement, the issuance of the Representative's
Warrants, the performance of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;
(ix) the properties and business of the Company conforms in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and marketable title
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<PAGE>
to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, in
each case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of
any kind whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
(x) the Company is not in breach of, or in default under, any
term or provision of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, partnership
agreement, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the properties or assets (tangible or
intangible) of the Company is subject or affected; and the Company is not
in violation of any term or provision of its Articles of Incorporation or
By-Laws or in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
(xi) the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "SELLING
SHAREHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," and
"SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all
material respects;
(xii) the Offering Securities have been accepted for quotation on
Amex;
(xiii) the persons listed under the caption "PRINCIPAL AND
SELLING STOCKHOLDERS" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in regulation 13d-3 under the Exchange
Act) of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xiv) none of the Company, nor any of its officers, stockholders,
employees or agents, nor any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental
agency or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who is or may be in a position to help or hinder the business of the
Company (or assist it in connection with any actual or proposed
transaction) which (A) might subject the Company to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (B) if not
given in the past, might have had an adverse effect on the assets, business
or operations of the Company, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not continued
in the future, might adversely affect the assets, business, operations or
prospects of the Company;
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(xv) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xvi) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Offering Securities hereunder or financial consulting arrangements or any
other arrangements, agreements, understandings, payments or issuances that
may affect the Underwriters' compensation, as determined by the NASD;
(xvii) assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and any
subsequent holder of the securities subject thereto in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law);
(xviii) except as described in the Prospectus, the Company does
not (A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has ever completely or partially
withdrawn from a "multiemployer plan";
(xix) the Company is in compliance with all provisions of Section
1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of
Doing Business with Cuba;
(xx) none of the Company or any of its affiliates shall be
subject to the requirements of or shall be deemed an "Investment Company,"
pursuant to and as defined under, respectively, the Investment Company Act;
(xxi) to the best knowledge of such counsel and except as
described in the Prospectus, the Company owns or possesses, free and clear
of all liens or encumbrances and rights thereto or therein by third
parties, the requisite licenses or other rights to use all trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications and licenses necessary to conduct its business (including,
without limitation, any such licenses or rights described in the Prospectus
as being owned or possessed by the Company), and there is no claim or
action by any person pertaining to, or proceeding, pending or threatened,
which challenges the exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications and licenses used in the conduct of the Company's
business (including, without limitation, any such licenses or rights
described in the Prospectus as being owned or possessed by the Company);
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and the Company's current products, services and processes do not and will
not infringe on the patents currently held by third parties;
(xxii) to the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company is not under any obligation to pay
royalties or fees to any third party, with respect to any technology or
intellectual properties developed, employed, licensed or used by the
Company; and
(xxiii) each Selling Shareholder has the full right, power and
authority to enter into the Underwriting Agreement and the Custody
Agreement and to carry out all the terms and provisions thereof;
(xxiv) the Underwriting Agreement, the Custody Agreement, Stock
Power and Power of Attorney have been duly authorized, executed and
delivered by each Selling Shareholder and, assuming due authorization,
execution and delivery by the Representative and/or Custodian, as
applicable, the Underwriting Agreement, the Custody Agreement, Stock Power
and Power of Attorney are legal, valid, binding and enforceable agreements
or instruments of such Selling Shareholder, except insofar as the
indemnification and contribution provisions of the Underwriting Agreement
may be limited by public policy concerns and except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by general equitable
principles;
(xxv) assuming that (i) the Underwriters have no notice of any
adverse claims with respect to the Securities being sold hereunder by such
Selling Shareholder, and (ii) the certificates representing the Securities
being sold by such Selling Shareholder are delivered to the Underwriters
duly endorsed or accompanied by a duly executed assignment separate from
the certificate, the delivery by such Selling Shareholder to the several
Underwriters of certificates for the Securities being sold hereunder by
such Selling Shareholder against payment therefor as provided herein, will
convey good and marketable to such Securities to the several Underwriters,
free and clear of all adverse claims; and
(xxvi) the sale of the Securities to the Underwriters by such
Selling Shareholder pursuant to the Underwriting Agreement, the compliance
by such Selling Shareholder with the other provisions of the Underwriting
Agreement and the Custody Agreement, and the consummation of the other
transactions therein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required
under state securities or blue sky laws, or (ii) conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, any statute or, to the knowledge of such counsel, any
articles of incorporation, by-laws, indenture, mortgage, deed of trust,
lease or other agreement or instrument to which such Selling Shareholder is
a party or by which such Selling Shareholder or any of such Selling
Shareholder's properties are bound or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any arbitrator
applicable to such Selling Shareholder.
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Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at
which conferences such counsel made inquiries of such officers,
representatives and accountants and discussed the contents of the Preliminary
Prospectus, the Registration Statement, the Prospectus, and related matters
and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary Prospectus, the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the attention
of such counsel which lead them to believe that either the Registration
Statement or any amendment thereto, at the time such Registration Statement or
amendment became effective or the Preliminary Prospectus or Prospectus or
amendment or supplement thereto as of the date of such opinion contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or the Prospectus). Such counsel shall further state that its
opinions may be relied upon by Underwriters' Counsel in rendering its opinion
to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence
or good standing of the Company, provided that copies of any such statements
or certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and that the
Representatives, Underwriters' Counsel and they are each justified in relying
thereon. Any opinion of counsel for the Company shall not state that it is to
be governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including,
without limitation, the Legal Opinion Accord of the ABA Section of Business
Law (1991) or any comparable state accord.
(e) The Underwriters shall have received the favorable opinion of
____________________________________, intellectual property counsel to the
Company, dated the Closing Date, addressed to the Underwriters, in substantially
the form attached as Exhibit A to this Agreement.
(f) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Sichenzia, Ross & Friedman, LLP, in its
capacity as counsel to the Company and as counsel to the Selling Shareholders,
dated such Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by Sichenzia, Ross & Friedman, LLP, in their
opinion delivered on the Closing Date.
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(g) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained. -------
(h) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
earnings, position, value, properties, results of operations, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company, from the latest date as of which the financial
condition of the Company is set forth in the Registration Statement and
Prospectus which is adverse to the Company; (iii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) the Company shall not have issued any securities (other
than the Offering Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there has not
been any change in the capital stock or any material change in the debt (long
or short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement
and Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall
have been pending or threatened (or circumstances giving rise to same) against
the Company, or affecting any of its properties or businesses before or by any
court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may adversely affect
the business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company; and
(vii) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(i) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in
this Agreement on its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the
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best of each of such person's knowledge, are contemplated or threatened
under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement
thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (a) the Company
has not incurred up to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered into
any transactions not in the ordinary course of business; (d) there has not
been any change in the capital stock or long-term debt or any increase in
the short-term borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of the Company; (e) the
Company has not sustained any loss or damage to its properties or assets,
whether or not insured; (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the Company or
any affiliated party which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Wolinetz, Gottlieb & Lafazan:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
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applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of Wolinetz,
Gottlieb & Lafazan with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the board
of directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited financial
statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements of the Company included in
the Registration Statement, or (B) at a specified date not more than five
(5) days prior to the effective date of the Registration Statement, there
has been any change in the capital stock or long-term debt of the Company,
or any decrease in the stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in the March 31, 1998
balance sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from March 31, 1998 to a specified date
not more than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net earnings or increase
in net earnings per common share of any of the Company or the Subsidiaries,
in each case as compared with the corresponding period beginning March 31,
1997, other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of
such decrease;
(iv) setting forth, at a date not later than five (5) days prior
to the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
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(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request;
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Wolinetz, Gottlieb & Lafazan a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (k) of this Section, except that the specified date
referred to shall be a date not more than five (5) days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that Wolinetz, Gottlieb & Lafazan have carried out procedures as
specified in clause (v) of subsection (k) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Representative and deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(m) At the Closing Date and, as to the Option Securities, the Option
Closing Date, there shall have been furnished to the Representative an
accurate certificate, dated the date of its delivery, signed by the
attorney-in-fact on behalf of each of the Selling Shareholders, in form and
substance satisfactory to the Representatives, to the effect that the
representations and warranties of each of the Selling Shareholders contained
herein are true and correct in all material respects on and as of the date of
such certificate as if made on and as of the date of such certificate, and
each of the covenants and condition required herein to be performed or
complied with by the Selling Shareholders on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(n) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Offering Securities.
(o) No order suspending the sale of the Offering Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 5 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit ____ to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(q) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Amex, subject to
official notice of issuance.
(r) On or before the Closing Date, there shall have been delivered to
the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
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(s) On or before the Closing Date, the Company shall have executed and
delivered to the Representative and the Transfer Agent the Warrant Agreement
substantially in the form filed as Exhibit [ ] to the Registration Statement, in
final form and substance satisfactory to the Representatives.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Representative may terminate this Agreement or,
if the Representative so elects, it may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.
8. Indemnification.
(a) The Company and Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each of the Underwriters (for purposes of
this Section 8 "Underwriter" shall include the officers, directors, partners,
employees, agents and counsel of the Underwriter, including specifically each
person who may be substituted for an Underwriter as provided in Section 12
hereof), and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all losses, claims, damages, expenses
or liabilities, joint or several (and actions, proceedings, investigations,
inquiries, suits and litigation in respect thereof), whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such claim, action,
proceeding, investigation, inquiry, suit or litigation, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment
or amendments or any new registration statement and prospectus in which is
included securities of the Company issued or issuable upon exercise of the
Offering Securities; or (iii) in any application or other document or written
communication (in this Section 8 collectively called "application") executed
by the Company or Selling Shareholders or based upon written information
furnished by the Company or Selling Shareholders in any jurisdiction in order
to qualify the Offering Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, Nasdaq or any
other securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in the light
of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company or Selling
Shareholders contained herein or in any certificate by or on behalf of the
Company or Selling Shareholders or any of its officers delivered pursuant
hereto, unless, in the case of clause (A) or (B) above, such statement or
omission was made in reliance upon and in strict conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus,
the Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be. The indemnity
agreement in this subsection (a) shall be in addition to any liability which
the Company and Selling Shareholders may have at common law or otherwise.
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(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company and Selling Shareholders, as the case
may be, each of their directors, each of their officers who has signed the
Registration Statement, and each other person, if any, who controls the
Company or the Selling Shareholders within the meaning of the Act, to the same
extent as the foregoing indemnity from the Company and Selling Shareholders to
the Underwriters but only with respect to statements or omissions, if any,
made in any Preliminary Prospectus, the Registration Statement or Prospectus
or any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to any Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus
or any amendment thereof or supplement thereto or in any such application,
provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company and Selling Shareholders
acknowledge that the statements with respect to the public offering of the
Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the
only information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 8, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such claim, action, suit,
investigation, inquiry, proceeding or litigation is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless
(i) the employment of such counsel shall have been authorized in writing by
the indemnifying parties in connection with the defense of thereof at the
expense of the indemnifying party, (ii) the indemnifying parties shall not
have employed counsel reasonably satisfactory to such indemnified party to
have charge of the defense thereof within a reasonable time after notice of
commencement thereof, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have
the right to direct the defense thereof on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one claim, action, suit,
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investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim, action, suit, investigation, inquiry, proceeding or litigation
effected without its written consent; provided, however, that such consent was
not unreasonably withheld. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle, compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit, investigation, inquiry, proceeding or litigation in respect of
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim, action,
suit, investigation, inquiry, proceeding or litigation), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such claim, action,
suit, investigation, inquiry, proceeding or litigation and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 8, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 8 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Firm Securities and the Option Securities
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as
well as any other relevant equitable considerations. In any case where the
Company or Selling Shareholders is the contributing party and the Underwriters
are the indemnified party, the relative benefits received by the Company or
Selling Shareholders on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Firm Securities and the Option Securities (before
deducting expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or Selling Shareholders, or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting
38
<PAGE>
discount applicable to the Firm Securities and the Option Securities purchased
by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Company, Selling Shareholders, or the Underwriter within the
meaning of the Act, each officer of the Company or Selling Shareholders who
has signed the Registration Statement, and each director of the Company or
Selling Shareholders shall have the same rights to contribution as the
Company, Selling Shareholders, or the Underwriter, as the case may be, subject
in each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify
such party or parties from whom contribution may be sought, but the omission
so to notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subsection (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
9. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant
hereto, shall be deemed to be representations, warranties and agreements at
the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the indemnity
agreements contained in Section 8 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter, the Company, any controlling person of any Underwriter or the
Company, and shall survive termination of this Agreement or the issuance and
delivery of the Offering Securities to the Underwriters and the
Representative, as the case may be.
10. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Offering Securities for
sale to the public; provided, however, that the provisions of Sections 6, 8 and
11 of this Agreement shall at all times be effective. For purposes of this
Section 10, the Offering Securities to be purchased hereunder shall be deemed to
have been so released upon the earlier of dispatch by the Representative of
telegrams to securities dealers releasing such securities for offering or the
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Offering
Securities.
11. Termination.
(a) Subject to subsection (b) of this Section 11, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted,
or in the Representative's opinion will in the immediate future materially
adversely disrupt, the financial markets; or (ii) if any material adverse
change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the
case may be, any of the New York Stock Exchange, the American Stock Exchange,
39
<PAGE>
the NASD, the Boston Stock Exchange, the Commission or any governmental
authority having jurisdiction over such matters; or (iv) if trading of any of
the securities of the Company shall have been suspended, or any of the
securities of the Company shall have been delisted, on any exchange or in any
over-the-counter market; (v) if the United States shall have become involved
in a war or major hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have been
declared in the United States; or (vi) if a banking moratorium has been
declared by a state or federal authority; or (vii) if a moratorium in foreign
exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
offering, sale and/or delivery of the Offering Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects
of the Company, or such material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, that, in
each case, in the Representative's judgment, would make it inadvisable to
proceed with the offering, sale and/or delivery of the Offering Securities or
(x) if either Harvey Houtkin or Mark Shefts shall no longer serve the Company
in their respective present capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 11(a) or Section 13 hereof the
Company shall promptly reimburse and indemnify the Representative for all of
its actual out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to Section
6(c) above). Notwithstanding any contrary provision contained in this
Agreement, if this Agreement shall not be carried out within the time
specified herein, or any extension thereof granted to the Representative, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 7, Section 11(a) or
Section 13) then, the Company shall promptly reimburse and indemnify the
Representative for all of its actual out-of-pocket expenses, including the
fees and disbursements of counsel for the Underwriters (less amounts
previously paid pursuant to Section 6(c) above). In addition, the Company
shall remain liable for all Blue Sky counsel fees and disbursements, expenses
and filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 7, 11, 12 and 13 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 6 and Section 8 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination
of this Agreement under the provisions of Section 7, Section 11 or Section 13
hereof) to purchase the Offering Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
40
<PAGE>
(a) if the number of Defaulted Securities does not exceed
10% of the total number of Firm Securities to be purchased on such
date, the non-defaulting Underwriters shall be obligated to purchase
the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters (or,
if such default shall occur with respect to any Option Securities to
be purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 12 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
13. Default by the Company or Selling Shareholders. If either the Company
or any Selling Shareholder shall fail at the Closing Date or at any Option
Closing Date, as applicable, to sell and deliver the number of Offering
Securities which it or they are obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect
to any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any
liability on the part of any non-defaulting party other than pursuant to
Section 6, Section 8 and Section 11 hereof. No action taken pursuant to this
Section 13 shall relieve the Company and/or any Selling Shareholder, as the
case may be, from liability, if any, in respect of such default.
14. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to
have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative c/o Security Capital Trading, Inc., 520 Madison Avenue, 10th
Floor, New York, New York 10022, Attention: Raymond Dirks, Chairman, with a
copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall
be directed to the Company at 160 Summit Avenue, Montvale, NJ 07645,
Attention: Harvey I. Houtkin, Chief Executive Officer, with a copy to:
Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, 20th Floor, New York,
New York 10020, Attention: Richard Friedman, Esq.
15. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company, the Selling Shareholders
and the controlling persons, directors and officers referred to in Section 8
hereof, and their respective successors, legal representatives and assigns,
41
<PAGE>
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement
or any provisions herein contained. No purchaser of Offering Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
16. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
18. Entire Agreement; Amendments. This Agreement, the Warrant Agreement and
the Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in writing, signed by the Representative,
the Company and the Selling Shareholders.
42
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
ALL-TECH INVESTMENT GROUP, INC.
By:_________________________________
Harvey I. Houtkin
Chief Executive Officer
The Selling Shareholders Named on
Schedule B and C hereto
By:_________________________________
Attorney-In-Fact
Confirmed and accepted as of
the date first above written.
SECURITY CAPITAL TRADING, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:________________________________
Ronald Heineman
President
43
<PAGE>
SCHEDULE A
Number of
Number of Shares Redeemable Warrants
Name of Underwriters to be Purchased to be Purchased
- -------------------- --------------- ---------------
Security Capital Trading, Inc. .....
Total............................... _______________ ______________
6,250,000 3,125,000
A-1
<PAGE>
SCHEDULE B
PRIMARY SELLING SHAREHOLDERS
Name Number of Shares
- ---- ----------------
Total.................................................. 625,000
B-1
<PAGE>
SCHEDULE C
OPTION SELLING SHAREHOLDERS
Name Number of Shares
- ---- ----------------
Total.................................................. 468,750
C-1
<PAGE>
EXHIBIT A
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1998
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
Re: Public Offering of Securities of
All-Tech Investment Group, Inc.
-------------------------------
Ladies and Gentlemen:
We have acted as special counsel to All-Tech Investment
Group, Inc., a Delaware corporation (the "Company"), in connection with the
entering into by the Company of that certain Underwriting Agreement by and
among Security Capital Trading, Inc., the Company, and certain Selling
Shareholders, dated _______, 1998 (the "Underwriting Agreement"). This opinion
is provided to you pursuant to Section ___ of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement on Form S-1
(Registration No. 333- ____) filed on __________,
1998 and all amendments thereto (the "Registration
Statement");
(iii) a search of the United States Patent and Trademark
Office records relevant to ownership of any and all:
trademarks, trademark applications, service marks and
service mark applications (collectively, the "Marks")
(including, without limitation, the Marks listed on
Schedule 1 annexed hereto and hereby incorporated by
reference herein (collectively, the "Trademarks")),
owned, purportedly owned or licensed by the Company
(including, those Marks licensed, without limitation,
pursuant to the licenses listed on Schedule 2 annexed
hereto and hereby incorporated by reference herein
(collectively, the "Licenses")), conducted by
______________________________ and certified as true
D-1
<PAGE>
and correct as of _______________________, 1998 (no
earlier than 5 days prior to the effective date of
the Registration Statement (the "Effective Date");
(v) a search of the United States Copyright Office
records relevant to ownership of any and all
copyrighted material (including, without limitation,
the copyright in, or license permitting the Company's
actual use of, the material licensed or otherwise
distributed by the Company and listed on Schedule 3
annexed hereto and hereby incorporated by reference
herein (collectively, the "Copyrighted Material")),
owned, purportedly owned or licensed by the Company
conducted by _____________________ and certified as
true and correct as of __________________, 1998 (no
earlier than 5 days prior to the Effective Date);
(vi) an intellectual property litigation search with
respect to all Trademarks, Licenses and Copyrighted
Material, listed on Schedules 1, 2 and 3,
respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions
-- [New York, New Jersey, Delaware and ________],
with respect to the following two categories of
general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's, inventions, know how, trademarks, service
marks, copyrights, service and trade names,
intellectual property licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, inventions, know how, trademarks, service
marks, copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule 2),
said search certified to us as complete and accurate by
________________ and current through ________________________,
1998 (no earlier than 5 days prior to the Effective Date) and
said jurisdictions being the only jurisdictions in which
filing of UCC financing statements or other documents may be
filed to effectively evidence a security or other interest in
said general intangibles; and
(viii) any and all records, documents, instruments and
agreements in our possession or under our control
relating to the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
D-2
<PAGE>
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the
opinion that:
1. To the best of our knowledge, after due inquiry,
except as described in the Memorandum, the Company owns or has
the right to use, free and clear of all liens, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever,
(i) all trademarks and service marks (including,
without limitation, the Trademarks),
(ii) all copyrights (including, without limitation,
the Copyrighted Material),
(iii) all service and trade names, and
(iv) all intellectual property licenses (including,
without limitation, the Licenses),
used in, or required for, the conduct of the Company's
business.
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its business (including, the Licenses and without
limitation, any such licenses or rights described in the
Registration Statement as being owned, possessed or licensed
by the Company), such licenses and rights are in full force
and effect, and the Company's products, methods and services
do not infringe any unlicensed intellectual property of any
third parties.
3. To the best of our knowledge, after due inquiry,
there is no claim, action, or opposition pending, threatened
or potential, which affects or could affect the rights of the
Company with respect to any trademarks, service marks,
copyrights, service names, trade names, or licenses used in,
or required for, the conduct of the Company's business, and
all trademarks, service marks, copyrights, service names,
tradenames and patents, owned or licensed to the Company are
valid.
D-3
<PAGE>
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
is not under any obligation to pay royalties or fees to any
third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Memorandum under the headings, "Risk
Factors - Protection of Intellectual Property" are accurate in
all material respects, fairly represent the information
disclosed therein and do not omit to state any fact necessary
to make the statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement do not contain
any untrue statement of a material fact with respect to the
intellectual property position of the Company or omit to state
any material fact relating to the intellectual property
position of the Company which is required to be stated in the
Registration Statement or is necessary to make the statements
therein not misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
The opinions expressed herein are for the sole benefit of,
and may be relied upon only by All-Tech Investment Group, Inc. and Orrick,
Herrington & Sutcliffe LLP.
Very truly yours,
D-4
<PAGE>
================================================================================
ALL-TECH INVESTMENT GROUP, INC.
AND
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
------------
WARRANT AGREEMENT
Dated as of _____________, 1998
================================================================================
<PAGE>
AGREEMENT, dated this _______ day of __________, 1998, by
and between ALL-TECH INVESTMENT GROUP, INC., a Delaware corporation (the
"Company") and CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent
(the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public
of up to 6,250,000 shares of Common Stock (as defined in Section 1) and
3,125,000 redeemable common stock purchase warrants (the "Warrants"), each
warrant entitling the holder thereof to purchase one additional share of
Common Stock, (ii) the over-allotment option to purchase up to an additional
937,500 shares of Common Stock and/or 468,750 Warrants (the "Over-allotment
Option"), and (iii) the sale to Security Capital Trading, Inc., the
representative of the several underwriters (the "Representative"), of warrants
(the "Representative's Warrants") to purchase up to 625,000 shares of Common
Stock and/or 312,500 Warrants, the Company will issue up to 3,906,250 Warrants
(subject to increase as provided in the Representative's Warrant Agreement);
and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and redemption
of the Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the
<PAGE>
Company, the holders of certificates representing the Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Amex" shall mean the American Stock Exchange.
(c) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the right
to participate in the voting and in the distribution of earnings and assets of
the Company without limit as to amount or percentage.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Corporate Office shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its business in
New York, New York, shall be administered, which office is located on the date
hereof at 2 Broadway.
(f) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions
of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Registered Holder
thereof or his attorney duly authorized in writing, and (ii) payment in cash
or by official bank or certified check made payable to the Warrant Agent for
the account of the Company, of the amount in lawful money of the United States
of America equal to the applicable Purchase Price (as hereinafter defined) in
good funds.
2
<PAGE>
(h) "Initial Public Offering Price" shall mean $_______
per share of Common Stock.
(i) "Initial Warrant Exercise Date" shall mean
__________, 1998 [six months after date of prospectus].
(j) "Initial Warrant Redemption Date" shall mean
___________, 1998 [eighteen (18) months after date of prospectus].
(k) "NASD" shall mean the National Association of
Securities Dealers, Inc.
(l) "Nasdaq" shall mean the Nasdaq Stock Market.
(m) "Purchase Price" shall mean, subject to
modification and adjustment as provided in Section 8, the purchase price paid
upon exercise of a Warrant in accordance with the terms hereof; commencing
_______, 1998 [6 months from the date of prospectus] until 5:30 p.m. New York
time on _______, 2001 [30 months after the date of prospectus], the price
shall be $_________ [150% of initial public offering price per share of Common
Stock] per share of Common Stock, and from such date until 5:30 p.m. New York
time on _______, 2003 [60 months after the date hereof], the price shall be
$_________ [175% of initial public offering price per share of Common Stock]
per share of Common Stock, subject to the Company's right, in its sole
discretion, to decrease the Purchase Price for a period of not less than 30
days on not less than 30 days' prior written notice to the Registered Holders.
(n) "Redemption Date" shall mean the date (which may
not occur before the Initial Warrant Redemption Date) fixed for the redemption
of the Warrants in accordance with the terms hereof.
3
<PAGE>
(o) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.10 per Warrant, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof.
(p) "Registered Holder" shall mean the person in whose
name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(q) "Transfer Agent" shall mean Continental Stock
Transfer and Trust Company, or its authorized successor.
(r) "Underwriting Agreement" shall mean the
underwriting agreement dated ____________, 1998 between the Company, certain
selling shareholders and the several underwriters listed therein relating to
the purchase for resale to the public of the Common Stock and the Warrants.
(s) "Representative's Warrant Agreement" shall mean the
agreement dated as of ____________, 1998 between the Company and the
Representative relating to and governing the terms and provisions of the
Representative's Warrants.
(t) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(u) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:30
p.m. (New York time), on ___________, 2003 [five years after effective date of
registration statement], or the Redemption Date as defined herein, whichever
date is earlier; provided that if such date shall in the State of New York be
a holiday or a day on which banks are authorized to close, then 5:30 p.m. (New
York time) on the next following day which, in the State of New York, is not a
holiday or a day on which banks
4
<PAGE>
are authorized to close. Upon five business days' prior written notice to the
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) Each Warrant shall initially entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase at the
Purchase Price therefor from the Initial Warrant Exercise Date until the
Warrant Expiration Date one share of Common Stock upon the exercise thereof in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing all or a portion of
312,500 Warrants to purchase up to an aggregate of 312,500 shares of Common
Stock (subject to modification and adjustment as provided in Section 8 hereof
and in the Representative's Warrant Agreement), shall be countersigned, issued
and delivered by the Warrant Agent upon written order of the Company signed by
its Chairman of the Board, Chief Executive Officer, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or
an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration
Date or the Redemption Date, whichever date is earlier, the Warrant Agent
shall countersign and deliver Warrant Certificates in required denominations
of one or whole number multiples thereof to the person entitled thereto in
connection with any transfer or exchange permitted under this Agreement.
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Except as provided herein, no Warrant Certificates shall be issued except (i)
Warrant Certificates initially issued hereunder and those issued on or after the
Initial Warrant Exercise Date, upon the exercise of fewer than all Warrants
held by the exercising Registered Holder, (ii) Warrant Certificates issued
upon any transfer or exchange of Warrants, (iii) Warrant Certificates issued
in replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Representative's Warrant Agreement, and (v) at the option of the Company,
Warrant Certificates in such form as may be approved by its Board of
Directors, to reflect any adjustment or change in the Purchase Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially in
the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may
be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered
serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, Chief Executive Officer, President
or any Vice President and by its
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Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon,
and shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall
not be valid for any purpose unless so countersigned. In case any officer of
the Company who shall have signed any of the Warrant Certificates shall cease
to be such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company,
except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
--------
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the
holder, upon exercise thereof, as of the close of business on the Exercise
Date. If Warrants in denominations other than whole number multiples thereof
shall be exercised at one time by the same Registered Holder, the number of
full shares of Common Stock which shall be issuable upon exercise thereof
shall be computed on the basis of the aggregate number of full shares of
Common
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Stock issuable upon such exercise. As soon as practicable on or after the
Exercise Date and in any event within five business days after such date, if one
or more Warrants have been exercised, the Warrant Agent on behalf of the Company
shall cause to be issued to the person or persons entitled to receive the same a
Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of any one or more
Warrants, the Warrant Agent shall promptly notify the Company in writing of such
fact and of the number of securities delivered upon such exercise and, subject
to subsection (b) below, shall cause all payments of an amount in cash or by
check made payable to the order of the Company, equal to the Purchase Price, to
be deposited promptly in the Company's bank account.
(b) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised
in such multiples as are required to permit the issuance by the Company of one
or more whole shares. If one or more Warrants shall be presented for exercise
in full at the same time by the same Registered Holder, the number of whole
shares which shall be issuable upon such exercise thereof shall be computed on
the basis of the aggregate number of shares purchasable on exercise of the
Warrants so presented. If any fraction of a share would, except for the
provisions provided herein, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current market value of a share of Common
Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to
unlisted trading privileges on a national securities exchange, or is traded on
Nasdaq, the current market value of a share of Common Stock shall be the
closing sale price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the
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<PAGE>
Warrants on whichever of such exchanges or Nasdaq had the highest average daily
trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, but is traded in the over-the-counter
market, the current market value of a share of Common Stock shall be the average
of the last reported bid and asked prices of the Common Stock reported by the
National Quotation Bureau, Inc. on the last business day prior to the date of
exercise of the Warrants; or
(3) If the Common Stock is not listed, admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock shall be an amount, not less
than the book value thereof as of the end of the most recently completed
fiscal quarter of the Company ending prior to the date of exercise, determined
by the members of the Board of Directors of the Company exercising good faith
and using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
-----------------------------------------------------------------
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens
9
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and charges with respect to the issue thereof, and that upon issuance such
shares shall be listed on each securities exchange, if any, on which the other
shares of outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any
federal securities law before such securities may be validly issued or
delivered upon such exercise, then the Company will file a registration
statement under the federal securities laws or a post-effective amendment, use
its best efforts to cause the same to become effective and to keep such
registration statement current while any of the Warrants are outstanding and
deliver a prospectus which complies with Section 10(a)(3) of the Act, to the
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Commission
stating that it would not take any enforcement action if such registration is
not effected). The Company will use its best efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with respect
to any such securities. However, Warrants may not be exercised by, or shares
of Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance or delivery of any shares of
Common Stock upon exercise of the Warrants; provided, however, that if shares
of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no
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<PAGE>
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto,
if any.
(d) The Warrant Agent is hereby irrevocably authorized
as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
-------------------------------------
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to
be exchanged shall be surrendered to the Warrant Agent at its Corporate
Office, and, upon satisfaction of the terms and provisions hereof, the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books
in which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented
for registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
11
<PAGE>
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such Holder of a sum sufficient
to cover any tax or other governmental charge that may be imposed in
connection therewith.
(e) All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than a duly authorized
officer of the Company or the Warrant Agent) for all purposes and shall not be
affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
the loss, theft, destruction or mutilation of any Warrant Certificate and (in
the case of loss, theft or destruction) of indemnity satisfactory to them, and
(in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or the Warrant Agent that a new Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a
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<PAGE>
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, issue or sell any shares of Common Stock for a consideration
per share less than the Initial Public Offering Price of the shares of Common
Stock or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common
Stock into a greater or lesser number of shares (any such issuance,
subdivision or combination being herein called a "Change of Shares"), then,
and thereafter upon each further Change of Shares, the Purchase Price for the
Warrants (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined
by dividing (i) the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the
Purchase Price in effect immediately prior to such Change of Shares and (b)
the consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination, by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; provided, however, that
in no event shall the Purchase Price be adjusted pursuant to this computation
to an amount in excess of the Purchase Price in effect immediately prior to
such computation, except in the case of a combination of outstanding shares of
Common Stock.
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<PAGE>
For the purposes of any adjustment to be made in accordance
with this Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if
shares of Common Stock are offered by the Company for subscription, or (ii)
the public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other
case.
(B) In case of the issuance or sale (otherwise than as
a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than cash
deemed to have been received by the Company shall be the value of such
consideration as determined in good faith by the Board of Directors of the
Company, using customary valuation methods and on the basis of prevailing
market values for similar property or services.
(C) Shares of Common Stock issuable by way of dividend
or other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders
14
<PAGE>
entitled to receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock
for a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (B) of
this Section 8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights or warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(b) Upon each adjustment of the Purchase Price pursuant
to this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of
Common Stock, or issue any securities convertible into or exchangeable for
shares of Common Stock, for a consideration per share (determined as provided
in Sections 8(a) and 8(b) and as provided below) less than the Initial Public
Offering Price of the Common Stock, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or
15
<PAGE>
not the same shall be issued and outstanding) in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of
shares as to which options, warrants and/or rights shall have expired, and
such number of shares shall no longer be deemed to be issued and outstanding,
and the Purchase Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as
to which the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in
full even if not then currently convertible or
16
<PAGE>
exchangeable in full) shall be deemed to be issued and outstanding at the time
of issuance of such securities, for a consideration equal to the consideration
received by the Company for such securities, plus the minimum consideration, if
any, receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the termination of the right to convert or exchange
such convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (B) (and for the purposes of subsection
(E) of Section 8(a) hereof) shall be reduced by the number of shares as to which
the conversion or exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
subsection (A) of this Section 8(c), or in the price per share or ratio at
which the securities referred to in subsection (B) of this Section 8(c) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant
to the exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities.
17
<PAGE>
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than (1) a merger with a subsidiary of the Company in which
merger the Company is the continuing corporation or (2) any consolidation or
merger of the Company with or into another corporation which, in either
instance, does not result in any reclassification or change of the then
outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of
subdivision or combination)) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company, or such successor or
purchasing corporation, as the case may be, shall make lawful and adequate
provision whereby the Registered Holder of each Warrant then outstanding shall
have the right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chief Executive Officer, President or a Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8(a), (b) and (c). The above provisions
of this Section 8(d) shall similarly apply to
18
<PAGE>
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new
Warrant Certificates pursuant to Section 2(e) hereof, continue to express the
Purchase Price per share and the number of shares purchasable thereunder as
the Purchase Price per share and the number of shares purchasable thereunder
were expressed in the Warrant Certificates when the same were originally
issued.
(f) After each adjustment of the Purchase Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise
of each Warrant, after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof to be
sent by ordinary first class mail to each Registered Holder at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
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<PAGE>
(g) No adjustment of the Purchase Price shall be made
as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the
public offering contemplated by the Underwriting Agreement; (B) stock options
to be granted under the Company's Stock Option Plan to employees, consultants
and directors; or (C) the issuance or sale of shares of Common Stock if the
amount of said adjustment shall be less than $.10, provided, however, that in
such case, any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment that shall amount, together with any adjustment
so carried forward, to at least $.10. In addition, Registered Holders shall
not be entitled to cash dividends paid by the Company prior to the exercise of
any Warrant or Warrants held by them.
SECTION 9. Redemption.
----------
(a) Commencing on the Initial Warrant Redemption Date,
the Company may, on 30 days' prior written notice, redeem all the Warrants at
ten cents ($.10) per Warrant, provided, however, that before any such call for
redemption of Warrants can take place, the average closing sale price for the
Common Stock as reported by Amex, if the Common Stock is then traded on Amex,
(or the average closing bid price, if the Common Stock is then traded on
Nasdaq) shall have equaled or exceeded $20.00 per share, for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date on which the notice contemplated by
(b) and (c) below is given (subject to adjustment in the event of any stock
splits or other similar events as provided in Section 8 hereof).
20
<PAGE>
(b) In case the Company shall exercise its right to
redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than four
(4) trading days prior to the mailing to the Registered Holders of the
Warrants of the notice of redemption, the Company shall deliver or cause to be
delivered to Security Capital Trading, Inc. a similar notice telephonically
and confirmed in writing together with a list of the Registered Holders
(including their respective addresses and number of Warrants beneficially
owned) to whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the Redemption Date, which shall in no event be less
than thirty (30) days after the date of mailing of such notice, (iii) the
place where the Warrant Certificate shall be delivered and the redemption
price shall be paid, and (iv) that the right to exercise the Warrant shall
terminate at 5:30 p.m. (New York time) on the business day immediately
preceding the date fixed for redemption. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was
not mailed or (b) whose notice was defective. An affidavit of the Warrant
Agent or the Secretary or Assistant Secretary of the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
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(d) Any right to exercise a Warrant shall terminate at
5:30 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall
be mailed to such persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
----------------------------
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed to
make any representations as to the validity or value or authorization of the
Warrant Certificates or the Warrants represented thereby or of any securities
or other property delivered upon exercise of any Warrant or whether any stock
issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of
the Company to comply with any of its covenants and obligations contained in
this Agreement or in any Warrant Certificate, or (iii) be liable for any act
or omission in connection with this Agreement except for its own negligence,
bad faith or willful misconduct.
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<PAGE>
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company or for Security
Capital Trading, Inc.) and shall incur no liability or responsibility for any
action taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by
an instrument signed by the Chairman of the Board of Directors, Chief
Executive Officer, President or any Vice President (unless other evidence in
respect thereof is herein specifically prescribed). The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand
reasonably believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless from and against any and all losses,
expenses and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties
and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent's negligence, bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own gross negligence or
willful misconduct), after giving 30 days' prior written notice to the
Company. At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of resignation
to be mailed to the Registered Holder of each Warrant Certificate at the
Company's expense. Upon such resignation, or any inability of the
23
<PAGE>
Warrant Agent to act as such hereunder, the Company shall appoint in writing a
new warrant agent. If the Company shall fail to make such appointment within a
period of 15 days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the Registered Holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the appointment
of a new warrant agent. Any new warrant agent, whether appointed by the Company
or by such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of not less
than $10,000,000 or a stock transfer company. After acceptance in writing of
such appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any
new warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be
a party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent
under this Agreement without any further act, provided that such corporation
is eligible for appointment as successor to the Warrant Agent under the
provisions of the preceding paragraph.
24
<PAGE>
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the Registered Holders of
each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates,
and any of its or their officers or directors, may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as
though it were not Warrant Agent. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Warrant Agent shall retain for a period of two
years from the date of exercise any Warrant Certificate received by it upon
such exercise.
SECTION 11. Modification of Agreement.
-------------------------
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they
shall deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or to increase the Purchase Price therefor or to
accelerate the Warrant Expiration Date, shall be made without the consent in
writing of the Registered Holders representing not less than 66-2/3% of the
Warrants then outstanding, other than such changes as are presently
specifically prescribed by this Agreement as originally executed. In addition,
this Agreement may not be modified, amended or supplemented without the prior
written consent of the Representative, other than to cure any ambiguity or to
correct any provision which is inconsistent with any other provision of this
Agreement or to make any such
25
<PAGE>
change that is necessary or desirable and which shall not adversely affect the
interests of the Representative and except as may be required by law.
SECTION 12. Notices.
-------
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at 160 Summit Avenue, Montvale, NJ 07645,
Attention: Harvey I. Houtkin, Chief Executive Officer, or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate Office. Copies of any
notice delivered pursuant to this Agreement shall also be delivered to the
Representative c/o Security Capital Trading, Inc., 520 Madison Avenue, 10th
Floor, New York, New York 10022, Attention: Ronald Heineman, President, or at
such other address as may have been furnished to the Company and the Warrant
Agent in writing.
SECTION 13. Governing Law.
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the
benefit of the Company, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer
upon any other person any right, remedy or claim, in equity or at law, or to
impose upon any other person any duty, liability or obligation.
26
<PAGE>
SECTION 15. Termination.
-----------
This Agreement shall terminate at the close of business on
the Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
------------
This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
[SEAL]
ALL-TECH INVESTMENT GROUP, INC.
By:______________________________
Harvey I. Houtkin
Chief Executive Officer
Attest:
_______________________________________
Secretary
CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY,
As Warrant Agent
By:______________________________
Name:
Title:
28
<PAGE>
EXHIBIT A
---------
No. W ______ VOID AFTER ________, 1998
____________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
ALL-TECH INVESTMENT GROUP, INC.
CUSIP_____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
__________________ or registered assigns (the "Registered
Holder") is the owner of the number of Redeemable Warrants (the "Warrants")
specified above. Each Warrant initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Certificate
and the Warrant Agreement (as hereinafter defined), one fully paid and
nonassessable share of Common Stock, $0.001 par value, of All-Tech Investment
Group, Inc., a Delaware corporation (the "Company"), at any time between
___________, 1998 (the "Initial Warrant Exercise Date"), and the Expiration
Date (as hereinafter defined) upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer and Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of the purchase price (the "Purchase Price") in lawful money of the
United States of America in cash or by check made payable to the Warrant Agent
for the account of the Company.
Purchase price means, subject to modification and
adjustment, commencing _______, 1998 [6 months from the date of prospectus]
until 5:30 p.m. New York time on _______, 2001 [30 months after the date of
prospectus], $_________ [150% of initial public offering price per share of
Common Stock] per share of Common Stock, and from such date until 5:30 p.m.
New York time on _______, 2003 [60 months after the date hereof], $_________
[175% of initial public offering price per share of Common Stock] per share of
Common Stock.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________, 1998, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender
1
<PAGE>
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York
time) on the date which is forty-eight (48) months after the Initial Warrant
Exercise Date. If each such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:30 p.m. (New York time) on the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current,
if required under the Act, while any of the Warrants are outstanding, and
deliver a prospectus which complies with Section 10(a)(3) of the Act to the
Registered Holder exercising this Warrant. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment and
payment of any tax or other charge imposed in connection therewith or incident
thereto, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an
equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant
Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$0.10 per Warrant, at any time commencing after _____________, 1999, provided
that the average closing sale price for the Common Stock as reported by Amex
(or the closing bid price, if the Common Stock is then traded on Nasdaq),
shall have equaled or exceeded $20.00 per share for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the
fifth trading day prior to the Notice of Redemption, as defined below (subject
to adjustment in the event of any stock splits or other similar events).
Notice of redemption (the "Notice of Redemption") shall be given not later
than the thirtieth day before the date fixed for redemption, all as provided
in the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants except to
receive the $.10 per Warrant upon surrender of this Warrant Certificate.
2
<PAGE>
Prior to due presentment for registration of transfer
hereof, the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except
as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned
by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:_____________________, 1998
ALL-TECH INVESTMENT GROUP, INC.
[SEAL]
By:______________________________
Name:
Title:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By:_______________________________________
Authorized Officer
3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_______________________________
_______________________________
_______________________________
(please print or type name and address)
and be delivered to
_______________________________
_______________________________
_______________________________
(please print or type name and address)
4
<PAGE>
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:____________________________ X______________________________
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,_______________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________
________________________________
________________________________
________________________________
(please print or type name and address)
___________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints _____________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:_________________________ X___________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND
MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
6
<PAGE>
- --------------------------------------------------------------------------------
ALL-TECH INVESTMENT GROUP, INC.
AND
SECURITY CAPITAL TRADING, INC.
-----------------
REPRESENTATIVE'S
WARRANT AGREEMENT
__________, 1998
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of __________,
1998 by and between ALL-TECH INVESTMENT GROUP, INC., a Delaware Corporation (the
"Company"), and SECURITY CAPITAL TRADING, INC. ("Security Capital") (Security
Capital is hereinafter referred to variously as the "Holder" or the
"Representative").
W I T N E S S E T H:
--------------------
WHEREAS, the Company proposes to issue to the Representative
or its designee(s) warrants ("Warrants") to purchase an aggregate 625,000 shares
("Shares") of common stock, $.001 par value per share, of the Company ("Common
Stock") and/or 312,500 redeemable Common Stock purchase warrants of the Company
("Redeemable Warrants"), each Redeemable Warrant to purchase one additional
share of Common Stock; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof by and among the Representative, as the Representative of the several
Underwriters named in Schedule A thereto, the Company, and certain Selling
Shareholders named in Schedule B thereto, to act as the Representative in
connection with the proposed public offering of up to 6,250,000 shares of Common
Stock and 3,125,000 Redeemable Warrants ("Public Warrants") at a public offering
price of $____ per share of Common Stock and $.10 per Public Warrant (the
"Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with the Representative
acting as the Representative pursuant to the Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the promises, the
payment by the Representative to the Company of sixty-two dollars and fifty
cents ($62.50), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Representative (or its designee(s)) are hereby
granted the right to purchase, at any time from __________, 1999 [one year from
the date hereof], until 5:00 p.m., New York time, on __________, 2003 [5 years
from the date hereof], up to an aggregate of 625,000 shares of Common Stock
and/or 312,500 Redeemable Warrants at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $______ per share of Common Stock
[120% of the initial public offering price per share] and $.12 per Redeemable
Warrant [120% of the initial public offering price per Public Warrant], subject
to the terms and conditions of this Agreement. One Redeemable Warrant is
exercisable to purchase, at any time commencing _____ __, 1998 [6 months from
the date of prospectus] until 5:30 p.m. New York time on _____ __, 2001 [30
months after the date of prospectus], one share of Common Stock at a price of
$___ [150% of the initial public offering price of the Common Stock] per share,
and from such date until 5:30 p.m. New York time on _______ __, 2003 [60 months
afer the date of prospectus], one share of Common Stock at a price of $___ [175%
of the initial public offering price of the Common Stock] per share, subject to
adjustment in accordance with certain anti-dilution and other provisions. Except
as set forth herein, the shares of Common Stock and the Redeemable Warrants
issuable upon exercise of the Warrants are in all respects identical to the
shares of Common Stock and the Public Warrants being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. The shares of Common Stock and the Redeemable
Warrants issuable upon exercise of the Warrants are sometimes hereinafter
referred to collectively as the "Securities."
2
<PAGE>
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable
at an aggregate exercise price per share of Common Stock and per Redeemable
Warrant set forth in Section 6 hereof payable by certified or official bank
check in New York Clearing House funds, subject to adjustment as provided in
Section 8 hereof. Upon surrender of a Warrant Certificate, together with the
annexed Form of Election to Purchase duly executed and payment of the Exercise
Price (as hereinafter defined) for the shares of Common Stock and/or the
Redeemable Warrants purchased at the Company's principal offices, located at 160
Summit Avenue, Montvale, NJ 07645, the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Redeemable Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock and Redeemable Warrants underlying the Warrants). In the event the
Company redeems all of the Public Warrants (other than the Redeemable Warrants
underlying the Warrants), then the Warrants may only be exercised if such
exercise is accompanied by the simultaneous exercise of the Redeemable
Warrant(s) underlying the Warrants being so exercised. Warrants may be
3
<PAGE>
exercised to purchase all or part of the shares of Common Stock together with an
equal or unequal number of the Redeemable Warrants represented thereby. In the
case of the purchase of less than all the shares of Common Stock and/or the
Redeemable Warrants purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock and Redeemable Warrants purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares of
Common Stock in respect of which the Warrants are exercised and (b) a fraction,
the numerator of which shall be the number of shares of Common Stock in respect
of which the Warrants are exercised multiplied by the Exercise Price and the
denominator of which shall be the Market Price (as defined in Section 3.3
hereof) of the shares of Common Stock. The number of Redeemable Warrants to be
issued pursuant to this Section 3.2 shall be equal to the difference between (a)
the number of Redeemable Warrants in respect of which the Warrants are exercised
and (b) a fraction, the numerator of which shall be the number of Redeemable
Warrants in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this Section 3.2, Market Price shall be calculated either (i) on the
date on which the form of election attached hereto is deemed to have been sent
4
<PAGE>
to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the
average of the Market Prices for each of the five trading days immediately
preceding the Notice Date, whichever of (i) or (ii) results in a greater
Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price" at any date
shall be deemed to be (i) when referring to the Common Stock, the last reported
sale price, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by the Nasdaq National
Market ("Nasdaq/NM") or the Nasdaq SmallCap Market ("Nasdaq SmallCap"), or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information or, if
the Market Price of the Shares cannot be determined pursuant to the methods
above, the Market Price of the Shares shall be determined in good faith (using
customary valuation methods) by resolution of the members of the Board of
Directors of the Company, based on the best information available to it; or (ii)
when referring to a Redeemable Warrant, the last reported sales price, or, in
the case no such reported sale takes place on such day, the average of the last
reported sale price for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Redeemable
Warrants are listed or admitted to trading or by Nasdaq, or, if the Redeemable
Warrants are not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq/NM or the Nasdaq SmallCap, the average
5
<PAGE>
closing bid price as furnished by the NASD through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the
Redeemable Warrants are not quoted on Nasdaq or are no longer outstanding, the
Market Price of a Redeemable Warrant shall equal the difference between the
Market Price of the Common Stock and the Exercise Price of the Redeemable
Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and Redeemable
Warrants and/or other securities, properties or rights underlying such Warrants
and, upon the exercise of the Redeemable Warrants, the issuance of certificates
for shares of Common Stock and/or other securities, properties or rights
underlying such Redeemable Warrants shall be made forthwith (and in any event
such issuance shall be made within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or the
Redeemable Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange,
6
<PAGE>
substitution or transfer. Certificates representing the shares of Common Stock
and Redeemable Warrants, and the shares of Common Stock underlying each
Redeemable Warrant (and/or other securities, property or rights issuable upon
exercise of the Warrants) shall be dated as of the Notice Date (regardless of
when executed or delivered) and dividend bearing securities so issued shall
accrue dividends from the Notice Date.
5. Restriction on Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Underwriters.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per share of Common Stock [120% of the initial public offering price
per share] and $.12 per Redeemable Warrant [120% of the initial public offering
price per Public Warrant]. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof. Any
transfer of a Warrant shall constitute an automatic transfer and assignment of
the registration rights set forth in Section 7 hereof with respect to the
Securities or other securities, properties or rights underlying the Warrants.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7
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7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and Redeemable Warrants, or other
securities issuable upon exercise of the Warrants, and the shares of Common
Stock or other securities issuable upon exercise of the Redeemable Warrants
(collectively, the "Warrant Securities") have been registered under the
Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form S-1 (Registration No. 333-_______ (the
"Registration Statement"). All of the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
incorporated by reference herein. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason, whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, certificates representing the Warrant Securities shall
bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring five (5) years thereafter, the Company proposes
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to register any of its securities under the Act (other than pursuant to Form
S-8, S-4 or a comparable registration statement), the Company will give
written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Representative and to all
other Holders of the Warrants and/or the Warrant Securities of its intention
to do so. If the Representative or other Holders of the Warrants and/or
Warrant Securities notify the Company within twenty (20) business days after
receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
the Representative and such Holders of the Warrants and/or Warrant Securities
the opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for
the Underwriters and Holders, in order to comply with the
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provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities requesting such registration to repurchase (i) any and
all Warrant Securities of such Holders at the higher of the Market Price per
share of Common Stock and per Redeemable Warrant, determined as of (x) the date
of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the
period specified in Section 7.4(a) and (ii) any and all Warrants of such Holders
at such Market Price less the Exercise Price of such Warrant. Such repurchase
shall be in immediately available funds and shall close within two (2) days
after the later of (i) the expiration of the period specified in Section 7.4(a)
or (ii) the delivery of the written notice of election specified in this Section
7.3(c).
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7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration
statements declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. If the Company shall fail to
comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the
Holder(s), be liable for any or all incidental or special damages
sustained by the Holder(s) requesting registration of their Warrant
Securities, excluding consequential damages.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that the Company shall not be obligated to execute
or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
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(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid
by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(d) any such payment or reimbursement by the Company of
fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is
entered against the Company or such indemnified person as a direct
result of the Holder(s) or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls
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the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as
the provisions contained in Section 7 of the Underwriting Agreement
pursuant to which the Underwriters have agreed to indemnify the
Company. The Holder(s) further agree(s) that upon demand by an
indemnified person, at any time or from time to time, they will
promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Holder(s) have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(e) any such payment or reimbursement by the Holder(s)
of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is
entered against the Company or such indemnified person as a direct
result of the Company or such person's gross negligence or willful
misfeasance will be promptly repaid to the Holder(s).
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
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(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof or permit
any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section 7.3
hereof (other than (i) shelf registrations effectiveness prior thereto
and (ii) registrations on Form S-4 of S-8), without the prior written
consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities (assuming the exercise of
all of the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
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(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
in such underwriting, which may be the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriter, and shall contain such
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representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by
the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their
Warrant Securities and may, at their option, require that any or all of
the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their
intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
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8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
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8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of
securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
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of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing
of value, or any combination thereof, on the payment date of such sale,
transaction or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10(cent)) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of
Common Stock or Redeemable Warrants upon the exercise of the Warrants, nor
shall it be required to issue scrip or pay cash in lieu of
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fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Common Stock or Redeemable Warrants, or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock, Redeemable Warrants
and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. The Company further covenants and agrees that upon exercise of
the Redeemable Warrants underlying the Warrants and payment of the respective
Redeemable Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants and Redeemable Warrants and all Redeemable Warrants underlying
the Warrants to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock or the Public Warrants, issued to
the public in connection herewith may then be listed and/or quoted on Nasdaq/NM
or Nasdaq SmallCap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice
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as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings or capital surplus (in accordance with applicable
law), as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
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Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Warrant Agreement dated as of the date hereof by and between the
Company and Continental Stock Transfer and Trust Company (the "Redeemable
Warrant Agreement"). Each Redeemable Warrant issuable upon exercise of the
Warrants is exercisable to purchase, at any time commencing _____ __, 1998 [6
months from the date of prospectus] until 5:30 p.m. New York time on _____ __,
2001 [30 months after the date of prospectus], one fully paid and non-assessable
share of Common Stock at a price of $___ [150% of the initial public offering
price of the Common Stock] per share, and from such date until 5:30 p.m. New
York time on _______ __, 2003 [60 months afer the date of prospectus], one fully
paid and non-assessable share of Common Stock at a price of $___ [175% of the
initial public offering price of the Common Stock] per share. The exercise price
of the Redeemable Warrants and the number of shares of Common Stock issuable
upon the exercise of the Redeemable Warrants are subject to adjustment, whether
or not the Warrants have been exercised and the Redeemable Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Redeemable
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Warrants underlying the Warrants, each registered holder of such Redeemable
Warrant shall have the right to purchase from the Company (and the Company shall
issue to such registered holders) up to the number of fully paid and
non-assessable shares of Common Stock (subject to adjustment as provided herein
and in the Redeemable Warrant Agreement), free and clear of all preemptive
rights of stockholders, provided that such registered holder complies with the
terms governing exercise of the Redeemable Warrant set forth in the Redeemable
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Redeemable Warrant Agreement. Upon exercise of
the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided in this Agreement, the Redeemable
Warrants underlying the Warrants shall be governed in all respects by the terms
of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
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(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
(c) If to the Representative to Security Capital Trading,
Inc., 520 Madison Avenue, 10th Floor, New York, New York 10022,
Attention: Ronald Heineman.
15. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on __________, 2003. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on __________, 2009.
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
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made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address as set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement and the Warrant Agreement to the extent portions
thereof are referred to herein) contains the entire understanding between the
parties hereto with respect to the subject matter hereof and may not be modified
or amended except by a writing duly signed by the party against whom enforcement
of the modification or amendment is sought.
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<PAGE>
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Representative and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
ALL-TECH INVESTMENT GROUP, INC.
By: ___________________________
Name:
Title:
Attest:
_______________________
Secretary
SECURITY CAPITAL TRADING, INC.
By: ___________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, __________, 2003
No. UW-01 Warrants to Purchase 625,000
Shares of Common Stock
and 312,500 Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________________________, or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from __________, 1999 until 5:00 p.m. New York time on __________,
2003 ("Expiration Date"), up to _________ fully paid and non-assessable shares
of common stock, $.001 par value ("Common Stock") of ALL-TECH INVESTMENT GROUP,
INC. a Delaware corporation (the "Company"), and _____ Redeemable Warrants of
the Company (one Redeemable Warrant entitling the owner to purchase one
fully-paid and non-assessable Share of Common Stock) at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $____
per share of Common Stock and $____ per Redeemable Warrant upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, or by surrender of this Warrant Certificate in lieu of
cash payment, but subject to the conditions set forth herein and in the warrant
agreement dated as of __________, 1998 between the Company and Security Capital
Trading, Inc. (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant Certificate.
1
<PAGE>
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _____ __, 1998
ALL-TECH INVESTMENT GROUP, INC.
[SEAL] By: ______________________
Name:
Title:
Attest:
_____________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
|_| ________ shares of Common Stock;
|_| ________ Redeemable Warrants;
|_| ________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
|_| ________ shares of Common Stock together with
________ Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of All-Tech
Investment Group, Inc. in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of _____ __, 1998 between All-Tech Investment Group, Inc. and
Security Capital Trading, Inc. The undersigned requests that a certificate for
such securities be registered in the name of whose address is _________________
___________________ and that such Certificate be delivered to _________________
whose address is _____________________.
Dated:
Signature ______________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
|_| ________ shares of Common Stock;
|_| ________ Redeemable Warrants;
|_| ________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
|_| ________ shares of Common Stock together with
________ Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of _____ __, 1998 between All-Tech Investment Group, Inc. and
Security Capital Trading, Inc. The undersigned requests that a certificate for
such securities be registered in the name of whose address is and that such
Certificate be delivered to _______________________________ whose address
is ____________________________________.
Dated:
Signature _______________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant Certificate.)
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
____________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
Signature _______________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant Certificate.)
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form S-1 filed with the
Securities and Exchange Commission of our report dated August 12, 1997 with
respect to the financial statements of All-Tech Investment Group, Inc. included
herein and to the reference to us under the caption "Experts" in the
Prospectus.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
May 22, 1998
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<ARTICLE> CT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<TOTAL-ASSETS> 3,798,587
0
0
<COMMON> 225
<OTHER-SE> 1,854,433
<TOTAL-LIABILITY-AND-EQUITY> 3,798,587
<TOTAL-REVENUES> 16,063,816
<INCOME-TAX> 664,505
<INCOME-CONTINUING> 937,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,436
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 641,414
<RECEIVABLES> 98,033
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 2,243,007
<PP&E> 411,322
<TOTAL-ASSETS> 3,798,587
<SHORT-TERM> 0
<PAYABLES> 1,575,129
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 368,800
<LONG-TERM> 0
0
0
<COMMON> 225
<OTHER-SE> 1,854,433
<TOTAL-LIABILITY-AND-EQUITY> 3,798,587
<TRADING-REVENUE> 132,421
<INTEREST-DIVIDENDS> 0
<COMMISSIONS> 15,543,562
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 0
<INCOME-PRETAX> 1,601,941
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,436
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> CT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<TOTAL-ASSETS> 3,181,772
0
0
<COMMON> 225
<OTHER-SE> 1,964,003
<TOTAL-LIABILITY-AND-EQUITY> 3,181,772
<TOTAL-REVENUES> 13,148,761
<INCOME-TAX> 84,000
<INCOME-CONTINUING> 280,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280,511
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 603,586
<RECEIVABLES> 560,088
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 1,350,841
<PP&E> 508,510
<TOTAL-ASSETS> 3,181,772
<SHORT-TERM> 0
<PAYABLES> 783,302
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 434,242
<LONG-TERM> 0
0
0
<COMMON> 225
<OTHER-SE> 1,964,003
<TOTAL-LIABILITY-AND-EQUITY> 3,181,772
<TRADING-REVENUE> (147,105)
<INTEREST-DIVIDENDS> 0
<COMMISSIONS> 12,423,182
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 0
<INCOME-PRETAX> 364,511
<INCOME-PRE-EXTRAORDINARY> 84,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280,511
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
<PAGE>
To: The Board of Directors
All-Tech Investment Group, Inc.
I hereby consent to serve as a director of All-Tech Investment Group,
Inc. (the "Company") after the effective date of the Company's Registration
Statement on form S-1 and the use of my name in such registration Statement.
Dated: May 21, 1998
/s/ Josef A. Ross
------------------------
Josef A. Ross
<PAGE>
To: The Board of Directors
All-Tech Investment Group, Inc.
I hereby consent to serve as a director of All-Tech Investment Group,
Inc. (the "Company") after the effective date of the Company's Registration
Statement on form S-1 and the use of my name in such registration Statement.
Dated: May 21, 1998
/s/ Robert D. Kashan
-------------------------
Robert D. Kashan
