CW&T Draft - 11/19/96
Privileged and Confidential
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333182
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The Ashton Technology Group, Inc.
Delaware 22-6650372
(State of incorporation) (IRS Employer
Identification No.)
1900 Market Street, Suite 701
Philadelphia, PA 19103
(Address of principal executive offices)
(215) 751-1900
(Issuer's telephone number, including area code)
10420 Little Patuxent Parkway, Suite 490
Columbia, MD 21044-3559
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of common stock,
as of September 30, 1996: 7,562,500.
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC.
INDEX - FORM 10-QSB
September 30, 1996
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and March 31, 1996
Consolidated Statements of Operations - For the
Three and Six Months Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows -
For the Six Months Ended September 30, 1996 and 1995
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Items 1 through 5 have been omitted since the items are either inapplicable or
the answer is negative
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 1996 and March 31, 1996
ASSETS
September 30, 1996 March 31, 1996
(UNAUDITED) (AUDITED)
Current Assets:
Cash and cash equivalents $ 3,250,947 $ 31,021
Contracts receivable, net of allowance
for doubtful accounts 977,084 --
Notes receivable from stockholders 91,448 --
Prepayments and other current assets 194,089 --
Total Current Assets 4,513,568 31,021
Property and equipment, net 868,617 21,359
Deferred offering costs -- 614,856
Investment in unconsolidated investee -- 708,844
Goodwill, net 623,451 --
Other assets 69,776 27,590
TOTAL ASSETS $ 6,075,412 $ 1,403,670
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 832,762 $ 1,067,429
Billings in excess of costs 107,437 --
Notes payable to stockholders 43,430 1,244,771
Total current liabilities 983,629 2,312,200
Long-term debt -- 650,000
Total liabilities 983,629 2,962,200
Minority Interest 304,931 --
Commitments and contingencies
Stockholders' Equity (Deficiency):
Preferred stock - $.01 per value -- --
Common stock - $.01 per value 75,625 52,900
Warrants outstanding, exercise price
of $5.85 618,125 --
Additional paid-in capital 9,898,192 1,341,109
Treasury stock -- (300,000)
Accumulated deficit (5,805,090) (2,652,539)
Total stockholders' equity (deficiency) 4,786,852 (1,558,530)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 6,075,412 $ 1,403,670
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended
September 30, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 1,748,443 $ -- $ 3,162,088 $ --
Costs and expenses:
Cost of revenues 1,348,264 -- 2,408,768 --
Development costs 1,594,667 -- 1,974,944 --
Selling, general and administrative expenses 1,086,970 146,612 1,877,119 156,612
Total costs and expenses 4,029,901 146,612 6,260,831 156,612
Loss from operations (2,281,458) (146,612) (3,098,743) (156,612)
Interest income (expense), net 92,017 (10,356) 98,760 (10,356)
Minority interest in earnings of subsidiary (49,362) -- (81,068) --
Loss before provision for income taxes (2,238,803) (156,968) (3,081,051) (166,968)
Provision for income taxes -- -- 71,500 --
Net loss $ (2,238,803) $ (156,968) $ (3,152,551) $ (166,968)
Net loss per common share $ (.30) $ (.03) $ (.44) $ (.03)
Weighted average number of common shares
outstanding 7,562,500 5,290,000 7,150,416 5,290,000
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,152,551) $ (166,968)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities, net of acquired business
in 1996:
Depreciation and amortization 207,280 117
Changes in operating asset and liabilities
Increase in contracts receivable, net (8,872) --
Increase in prepayments and other (258,603) (3,225)
(Decrease) Increase in accounts payable and accrued
expenses (654,154) 232,101
Increase in billings in excess of costs 95,619 --
Net cash (used in) provided by operating activities (3,771,281) 62,025
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (844,416) (1,170)
Cash paid for acquisition of CSI, net of cash acquired (506,812) (667,524)
Cash paid for acquisition of UTTC, net of cash acquired -- (50,000)
Increase in minority interest 81,068 --
Net cash used in investing activities (1,270,160) (718,694)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs for initial public offering (282,001) (229,533)
Proceeds from initial public offering 10,394,709 --
Proceeds from notes payable 250,000 1,518,806
Payment of notes payable (2,101,341) --
Net cash provided by financing activities 8,261,367 1,289,273
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,219,926 632,604
Cash and cash equivalents, beginning of period 31,021 --
Cash and cash equivalents, end of period $ 3,250,947 $ 632,604
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
The accompanying consolidated financial statements for the three
and six months ended September 30, 1996 include the accounts of The
Ashton Technology Group, Inc. ("Ashton") and its subsidiaries,
Universal Trading Technologies Corporation ("UTTC") and Computer
Science Innovations, Inc. ("CSI(R)") (collectively, the "Company").
The financial statements for the three and six months ended September
30, 1995 represent the accounts of Ashton. On October 25, 1995, Ashton
acquired 80% of the common stock of UTTC and on May 2, 1996, Ashton
purchased additional shares of CSI(R) which enabled the Company to own
80% of both classes of CSI's(R) common stock. These business
combinations have been accounted for as a purchase. Prior to September
30, 1995, Ashton had an investment in CSI(R) that was accounted for
using the equity method.
The accompanying unaudited consolidated financial statements have
been prepared by the Company in accordance with generally accepted
accounting principles for interim financial statements and in
accordance with the instructions for Form 10-QSB. Accordingly, they do
not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on the same basis as the
audited statements and include all adjustments, consisting only of
normal recurring adjustments, which are necessary for a fair statement
of the results of the interim periods presented. These financial
statements should be read in conjunction with the footnotes contained
in the Company's 10-KSB for the fiscal year ended March 31, 1996.
The preparation of interim financial statements, in conformity
with generally accepted accounting principles, also requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities; the disclosure of contingent assets
and liabilities at the date of the interim statements; and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Initial Public Offering of Stock
On May 2, 1996, Ashton's previously filed Registration Statement
on Form SB-2 became effective and the Company completed an initial
public offering (the "Offering") of 2,150,000 shares of common stock
at an offering price of $4.50 per share and 2,150,000 warrants at $.25
per warrant. The common stock and the warrants are separately
tradable. The Company granted to the underwriters the right to
exercise over-allotment options of 322,500 shares of common stock
and/or 322,500 warrants at the public offering rate, within 45 days of
May 2, 1996. On May 7, 1996, the underwriters exercised the
over-allotment options and offered an additional 322,500 shares of
common stock and 322,500 warrants to the public at $4.50 per share and
$.25 per warrant. As a result of the initial public offering, the
Company received net proceeds of approximately $10,395,000 ($9,498,000
after out of pocket expenses associated with the offering) and
increased its total shares of common stock and warrants outstanding by
2,472,500 each. The net proceeds from the Offering were used to repay
all notes payable to stockholders, long-term debt and related accrued
interest in existence through the date of the Offering and provide
working capital. The net proceeds were also used to purchase the
additional shares of CSI(R) stock and provide the Company with
additional working capital.
Concurrent with the initial public offering, the Company
registered 760,000 additional warrants to purchase common stock. The
warrants were issuable automatically upon the completion of the
offering in exchange for the already existing outstanding common stock
shares.
3. Acquisitions
On June 6, 1996, Ashton signed a Memorandum of Principal Points
as a prelude to a Definitive Agreement for the acquisition of
Information Systems Security Incorporated (ISSI), an information
security consulting firm. The Definitive Agreement was never executed
and at the beginning of November 1996, both companies determined that
an acquisition was not in their best interests.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Second Quarter of Fiscal 1997 Compared to Second Quarter of Fiscal
1996.
The results of operations for the second quarter of fiscal 1997
are not comparable to the second quarter of fiscal 1996 because all
accounts in fiscal 1996 were the accounts of Ashton only, whereas
fiscal 1997 accounts also include Ashton's subsidiaries, Universal
Trading Technologies Corporation ("UTTC") and Computer Science
Innovations ("CSI").
The Company had revenues of $1,748,443 for the quarter ended
September 30, 1996 and revenues of $3,162,088 for the six months ended
September 30, 1996. All of the Company's revenues, and the related
"cost of revenues", were generated by the Company's CSI subsidiary.
During the three months ended September 30, 1996, the Company
incurred a net loss of $2,238,803 and for the six months ended
September 30, 1996, the Company incurred a net loss of $3,152,551. The
losses for the first six months ended September 30, 1996 include
significant non-recurring start-up expenses related to:
-- development of the Ashton Technology Encryption
Device (ATED)
-- development of the Universal Trading System (UTS(TM))
-- establishment of offices and hiring of key personnel
Development Costs
During the six months ended September 30, 1996, the Company
incurred $1,974,944 of development costs on a consolidated basis, of
which Ashton incurred costs of $875,610 for the design, development
and initial manufacturing of the ATED encryption device and $424,475
for the development of the crypto-server. The ATED will provide
information security, including encryption and authentication, for
communications with a host computer. The crypto-server will enable a
host computer to simultaneously communicate with multiple ATEDs. The
ATED and crypto-server technology will be used by UTTC to provide
information security and complete anonymity for all trades through the
UTS(TM) system. Separately, UTTC incurred costs of $674,859 for the
development of the UTS(TM) system which will be an electronic pricing
and transaction facility for trading exchange listed and NASDAQ NMS
securities in conjunction with the Philadelphia Stock Exchange.
Significant Contracts
In the Prospectus for the Company's initial public offering,
dated May 2, 1996, the Company estimated that it would spend
approximately $500,000 for the design and development of ATED and
$350,000 for the encryption server. During the six months ended
September 30, 1996, Ashton (i) increased its commitments for the
design and development of ATED from $500,000 to approximately
$1,400,000 (of which $1,283,000 represented Ashton's commitment to
Alliant Techsystems, Inc. ("Alliant") as the primary contractor for
ATEDs), and (ii) increased its commitments for the encryption server
from $350,000 to $506,000. These increases resulted in cost overruns
of approximately $1,050,000.
Separately, UTTC has contracts totaling $1,046,456 with CSI for
the UTS(TM) system and, as of September 30, 1996, $755,362 had been
paid to CSI. Additionally, in August 1996, UTTC entered into a
sublease through May 31, 2005 for 10,000 square feet in the same
building as the Philadelphia Stock Exchange. UTTC's monthly lease
cost, which includes a five-year buyout of the furniture and fixtures,
is $14,897.67.
In November 1996, Ashton closed the Maryland office and moved to
space at 1900 Market Street in Philadelphia, Pennsylvania. The costs
associated with closing the Maryland facility will be recorded as a
charge in the third quarter of fiscal 1997.
Capital Equipment
During the six months ended September 30, 1996, the Company spent
$844,416 for the acquisition of equipment, primarily computer hardware
and software for the UTS(TM) system. To date, the Company has not
obtained financing for such purchases.
Selling, General and Administrative Expenses
During the six months ended September 30, 1996, the Company
incurred $1,877,119 of Selling, General and Administrative (SG&A)
expenses. On a per subsidiary basis, Ashton incurred $1,158,869 of
SG&A expense, UTTC $485,622 and CSI $232,628. The largest component of
Ashton and UTTC's SG&A expenses were labor costs which amounted to
$294,591 for Ashton and $140,628 for UTTC. Additionally, during the
six months ended September 30, 1996, the Company incurred considerable
one-time SG&A expenses related to:
-- opening offices and building a computer facility for
UTTC Non-recurring costs during this period were
approximately $110,000.
-- hiring key technical people for UTTC including Fred S.
Weingard, who is Executive Vice President for Advanced
Programs and Technologies, and two senior
technologists. (Relocation costs paid during the period
were $135,000. UTTC has also signed an employment
contract with Mr. Weingard. This contract has been
included as an Exhibit to this Form 10-QSB.)
Liquidity
At September 30, 1996, the Company had cash and cash equivalents
of $3,250,947. Management believes that the Company has sufficient
resources to complete its initial development program for ATEDs and
the UTS(TM) system. Management further expects to begin generating
revenues from trading through the UTS(TM) system in the fourth quarter
of the fiscal year ending March 31, 1997. Management is also
considering options for additional debt and/or equity financings to
enhance the Company's ability to develop and market new products.
Subsequent Events
On September 6, 1996, Robert A. Eprile filed an amended Schedule
13D relating to his ownership of common stock of Ashton. On September
13, 1996, a group filed a Schedule 13D, which was amended on September
17, 1996. This group was comprised of Robert A. Eprile, Fredric W.
Rittereiser, John A. Blohm, The Dover Group, Inc. and affiliates of
the Dover Group (collectively, the "Group Members"). The Group Members
were concerned that the management of Ashton was not taking
appropriate measures to protect the interests of Ashton's stockholders
and to enhance the value of the stockholders' investments in Ashton.
Through legal counsel, the Group Members commenced discussions with
Ashton's legal counsel and counsel for Raymond T. Tate. These
discussions led to a resolution of the Group Members' differences with
Raymond T. Tate and Ashton, as described below. The Group Members
filed an amended Schedule 13D on October 25, 1996, disbanding the
group.
On October 22, 1996, The Ashton Technology Group, Inc. (the
"Company") entered into a settlement agreement (the "Settlement
Agreement") with the Group Members, Raymond T. Tate and Helen J. Tate
as trustee for the Tate Trusts. The Settlement Agreement resolved all
differences among the parties thereto, and all parties to the
Settlement Agreement agreed to release each of the other parties from
any and all actions or claims arising out of or in connection with the
matters covered by the Settlement Agreement. Pursuant to the
Settlement Agreement, on October 22, 1996, Mr. Tate resigned from his
position as director of the Company and its subsidiaries and all
officer positions held by him in the Company and its subsidiaries.
Pursuant to the Settlement Agreement, on October 22, 1996, the Board
of Directors of the Company elected Fred S. Weingard, Executive Vice
President for Technology and Advanced Computer Systems of the
Company's subsidiary Universal Trading Technologies Corporation, to
fill the vacancy on the Company's Board of Directors created by the
resignation of Mr. Tate.
Pursuant to the Settlement Agreement and in consideration of the
payment of $250,000, on October 22, 1996, Helen J. Tate, as trustee
for the Tate Trusts, granted to Mr. Rittereiser or his designee the
option (the "Call Option"), exercisable at any time from April 2, 1997
through June 2, 1997, to purchase 1,000,000 shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), from the
Tate Trusts for a total purchase price of $4,500,000. Pursuant to the
Settlement Agreement and in consideration for $1, Mr. Rittereiser
granted Mr. Tate the option (the "Put Option"), exercisable at any
time during the five business days following the exercise of the Call
Option, to require Mr. Rittereiser to purchase from Mr. Tate the
107,500 shares of Common Stock of the Company owned, beneficially or
otherwise, by Mr. Tate for a total purchase price of $483,750. The Put
Option is assignable by Mr. Rittereiser.
As a result of the Call Option, Mr. Rittereiser may be deemed to
beneficially own 1,000,000 shares, or approximately 13.2%, of the
outstanding Common Stock of the Company.
On October 22, 1996, Mr. Tate and the Company also entered into a
license agreement (the "License Agreement"). Under the terms of the
License Agreement, the Company granted to Mr. Tate a perpetual,
worldwide license, at his own cost, to use, sublicense, reproduce and
make derivative works and enhancements of the technology used by the
Company to develop the Ashton Technology Encryption Devices ("ATED"),
including the ATED Key Management System, encryption software and
crypto-server technology (the "Licensed Technology") in any field of
use other than the Financial Services Industry (as such term is
defined in the License Agreement). In consideration for granting the
license, Mr. Tate (or his permitted assigns under the License
Agreement) must pay a perpetual annual royalty to the Company equal to
2% of the total gross revenues earned from the use of the Licensed
Technology. Mr. Tate's right to use the Licensed Technology will be
exclusive, provided Mr. Tate pays to the Company a cumulative license
fee of at least $100,000 by October 22, 2000 (the "License Fee"). The
License Fee will be reduced by the total amount of royalties paid to
the Company. Mr. Tate may assign the license to any person or entity
controlled by Mr. Tate.
The Company and Mr. Tate also entered into a consulting
agreement, dated October 22, 1996 (the "Consulting Agreement"). Under
the terms of the Consulting Agreement, the Company retained Mr. Tate
to act as a consultant to Computer Science Innovations, Inc. ("CSI"),
a subsidiary of the Company, for the period from October 22, 1996 to
December 31, 1998. As compensation for such services, for the period
from October 22, 1996 through December 31, 1996, the Company will pay
Mr. Tate (or, in the event of his death, his estate) $40,000. For the
period from October 22, 1996 through December 31, 1998, the Company
also will pay to Raymond Tate Associates, Inc. $120,000 per annum. Mr.
Tate also agreed not to compete with the Company in the Financial
Services Industry (as such term is defined in the Consulting
Agreement) during the term of the Consulting Agreement.
In connection with the Settlement Agreement, First United
Equities Corporation, the representative of the underwriters of the
Company's May 2, 1996 initial public offering ("First United"), agreed
to waive certain restrictions on the transfer of Common Stock by Mr.
Tate and Helen J. Tate, as trustee of the Tate Trusts. In
consideration for such waiver, the Company agreed to release First
United from any and all actions or claims arising out of or in
connection with the Settlement Agreement. The Company also agreed to
indemnify First United for any such actions and to reimburse First
United for certain legal fees incurred in connection with the
Settlement Agreement.
The Settlement Agreement, the License Agreement and the
Consulting Agreement and all transactions contemplated thereby were
unanimously approved by the Company's Board of Directors, acting
through Vice Admiral (U.S. Navy retired) Albert J. Baciocco, Jr. and
Dr. Ruth M. Davis, the Company's outside directors.
On October 22, 1996, after closing the transactions contemplated
by the Settlement Agreement, the newly constituted Board of Directors
of the Company convened a meeting and took the following actions: (i)
amended Article V, Section 6 of the By-Laws of the Company to permit
the positions of Chairman of the Board and Chief Executive Officer to
be held by different individuals; (ii) elected Robert A. Eprile,
currently a director of the Company as well as the President and Chief
Operating Officer of UTTC, Chairman of the Board and Treasurer of the
Company; (iii) appointed Mr. Rittereiser President and Chief Executive
Officer of the Company and Chairman of the Board of UTTC and (iv)
authorized the Company to reimburse the Group Members for any and all
legal services rendered by the law firm of Cadwalader, Wickersham &
Taft in connection with or relating to the Settlement Agreement, the
transactions contemplated thereby and the disputes settled thereby.
On October 23, 1996, Vice Admiral (U.S. Navy retired) Albert J.
Baciocco, Jr. resigned from his positions as a director of the Company
and its subsidiary, Computer Science Innovations, Inc. On October 25,
1996, Dr. Ruth M. Davis also resigned her position as a director of
the Company. The Board of Directors has not filled the vacancies
created by such resignations.
The Settlement Agreement, License Agreement, and Consulting
Agreement were all attached as Exhibits to the Form 8-K of the Company
filed on October 28, 1996.
<PAGE>
PART II - OTHER INFORMATION
(Items 1 through 5 have been omitted since the items are either
inapplicable or the answer is negative)
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 11 - Earnings per share computation.
Exhibit 12 - Fred S. Weingard Employment Contract.
Exhibit 27 - Financial Data Schedule
(B) Reports on form 8-K
October 28, 1996 - Report on Change in Control of the Company
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Ashton Technology Group, Inc.
---------------------------------
(Registrant)
Date: November 20, 1996 By: /s/ Fredric W. Rittereiser
-------------------- -------------------------------------
Fredric W. Rittereiser
Chief Executive Officer and President
<PAGE>
EXHIBIT INDEX
Exhibit 11 Page
Earnings per share computation
Exhibit 12 Page
Fred S. Weingard Employment Contract
Exhibit 27 Page
Financial Data Schedule
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 7,562,500 5,290,000 7,150,416 5,290,000
Dilutive effect of common equivalent shares(a) 38,900 38,900 38,900 38,900
------ ------ ------ ------
Weighted average shares outstanding 7,601,400 5,328,900 7,189,316 5,328,900
========= ========= ========= =========
Net loss $ (2,319,108) $ (156,968) $ 3,232,856 $ (166,968)
============ ========== =========== ==========
Fully diluted earnings per share(b) $ (.31) $ (.03) $ (.45) $ (.03)
====== ====== ====== ======
<FN>
(a) Calculates the dilutive effect of outstanding stock options based upon the
"Treasury Stock Method".
(b) As fully diluted earnings per share and primary earnings per share are
equal, only fully diluted earnings per share will be disclosed in the Form
10-QSB.
</FN>
</TABLE>
Fred S. Weingard Employment Contract
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
124 West 60th Street, Suite 18D
New York, NY 10023
(212) 262-2383
June 21, 1996
Mr. Fred S. Weingard
12907 Chalkstone Court
Fairfax, VA 22030
RE: Offer of Employment
Dear Fred:
In accordance with out prior discussions, Universal Trading Technologies
Corporation (UTTC) makes this offer of employment to you as Executive Vice
President of Technology and Advance Programs, subject to the following terms and
conditions of this letter Agreement.
UTTC's obligations to you under this Letter Agreement are guaranteed by The
Ashton Technology Group, Inc. (Ashton). Ashton also agrees to grant you options
for its stock, subject to the terms and conditions set forth below. Ashton
therefore joins in this Letter Agreement.
For this Letter Agreement, "Ashton" shall mean Ashton Technology Group, Inc. and
all of its subsidiaries.
1.0 Term of Offer:
This offer expires on June 21, 1996.
2.0 Acceptance of Offer:
You may accept this offer by dating and signing this Letter
Agreement and mailing or faxing the signed Letter Agreement to
UTTC by the expiration date (with the signed original to follow).
3.0 Guarantee of Obligations:
All obligations to you from UTTC under this Letter Agreement are
guaranteed by Ashton.
4.0 Term of Employment:
The term of your employment is three years beginning on July 8,
1996 and ending on July 7, 1999, unless terminated earlier, as
provided in paragraph 11.0 below (the "Term").
5.0 Employment Position and Responsibilities:
5.1 You will be employed in the position of Executive Vice
President of Technology and Advance Programs, and not
demoted during the Term.
5.2 You shall be responsible for management of the Technology
Programs of UTTC. This position shall involve coordination
with the management of Ashton and Ashton's other
subsidiaries, particularly in the formulation of Technology
Programs and the marketing/selling of Ashton/UTTC products
and services.
5.3 Your immediate supervisor shall be the Chairman of the Board
of UTTC, who shall approve UTTC's major Technology Programs,
and coordinate your activities with the UTTC Board of
Directors.
5.4 All project heads of Technology Programs undertaken by UTTC
shall report directly to you. You shall be responsible for
all technical recruiting, hiring and firing of those
individuals whom report to you or are within your
organization.
6.0 Compensation and Benefits
6.1 Your base salary during the Term is guaranteed to be no less
than $185,000 per year. Payment of salary shall be biweekly.
6.2 On each anniversary of your start of employment with UTTC,
your base salary shall be reviewed by the Board of Directors
of UTTC, to determine any increase in salary, based on your
individual performance and the overall performance of UTTC.
In no event shall your base salary be reduced. No guaranty
is made of any particular salary increase, as a result of an
annual salary review.
6.3 In addition to your base salary, you shall be paid a
semi-annual bonus every six months after the start date of
you employment (that is on the next payroll date following
January 8 and July 5 of each year). Your bonus shall be
based on your individual performance and the overall
performance of UTTC. Your semi-annual bonus is guaranteed to
be no less than $40,000 (for a total bonus per year of no
less than $80,000).
6.4 UTTC and Ashton are contemplating adoption of an Incentive
Compensation Program for UTTC and Ashton management. When
this Program is adopted, during the Term you will be
entitled to participate in any such incentive Compensation
Program on a basis no less favorable than other equivalent
UTTC or Ashton managers participating in the Program. Such
participation would be in lieu of the salary and bonus
agreements set forth herein, and accordingly would be
conditioned on your entering (at your election) into an
amendment to this Letter Agreement to terminate any such
salary and bonus agreements; but your compensation shall be
no less than this Agreement specifies.
6.5 UTTC and Ashton are each contemplating adoption of a
Retirement Program. During the term, you will be entitled to
participate in any such Retirement Plan covering members of
UTTC and Ashton management on a basis no less favorable than
other equivalent UTTC or Ashton managers participating in
the Program. Upon participation in the Program you will be
fully vested without the requirement of any qualification
period for vesting.
6.6 In addition to your base salary, bonus, and Incentive
Compensation Program, and Retirement Program, during the
Term, you shall be entitled to participate with all officers
of UTTC and Ashton in the standard fringe benefits package
made available generally to the executive management
employees of UTTC and Ashton, as such benefits may be
determined from time to time by the Board of Directors of
UTTC and Ashton or other responsible officers of UTTC and
Ashton. Presently, these benefits are administered by
Administaff. A brochure of these benefits is attached.
6.7 UTTC agrees to your previously scheduled vacation planned
for July 29 to August 9, 1996.
7.0 Relocations Allowance:
7.1 Your principal place of employment under this Letter
Agreement shall be at UTTC's offices located in
Philadelphia, PA. In addition, your presence shall be
required at the offices of Ashton (currently located in
Columbia, MD), as well as at the offices of Ashton's other
subsidiaries, clients, and potential clients. You are
responsible for relocating from your present residence in
Fairfax, VA, to the Philadelphia area to enable you to
reasonably perform your duties under this Letter Agreement.
7.2 In lieu of reimbursement of actual relocation expenses,
based on proof of payment, or payment to cover other
expenses which may be difficult to calculate (such as
"buydown" of your present home to enable you to sell
quickly), UTTC shall pay you a lump sum relocation payment
of $100,000 payable as follows:
Upon acceptance of this Letter Agreement: $50,000, and;
On September 15, 1996 or execution of a binding contract for
purchase of a new residence: $50,000.
7.3 The relocation of payments made under this paragraph shall
be due and owing, regardless of the duration of employment
or the reason that employment ends. You shall have no
obligation to return the relocation payments to UTTC under
any circumstances, if you are terminated by UTTC. In the
event you voluntarily leave UTTC prior to the end of the
term of this Letter Agreement, you shall repay to UTTC the
following relocation payments (but in no event more than the
amount of relocation monies actually paid to you prior to
the date of termination):
If termination is before you have sold your present
residence and before you have purchased a new residence
$100,000
If termination is after you have sold your present residence
and before you have purchased a new residence
$50,000 if you have received $100,000
$0 if you have received $50,000
If Termination is before you have sold your present
residence and after you have purchased a new residence
$50,000 if you have received $100,000
$0 if received if you $50,000
If termination is after you have sold your present residence
and after you have purchased a new residence $0
Sale or Purchase shall constitute signing a binding written
contract.
8.0 Commuting
8.1 It is expected that during the period July 8, 1996 through
September 15, 1996, you will average no more than three days
per week which require your presence in either Philadelphia,
PA or Columbia, MD. During this period of relocating
transition, when your presence is not required in
Philadelphia, PA or Columbia, MD, you shall be permitted to
perform your employment tasks at other locations, which are
convenient for you. By September 15, 1996, you shall
commence full-time work at Philadelphia, PA and shall have
made appropriate living arrangements in the Philadelphia
Metropolitan area to permit ready access to UTTC's
Philadelphia office.
8.2 During the period July 8, 1996 through September 15, 1996,
you shall be entitled to reimbursement of actual, documented
out-of-pocket commuting costs from Fairfax, VA to
Philadelphia, PA or Columbia, MD consisting of air fare,
train fare, or auto mileage plus overnight accommodations in
Philadelphia or Columbia. Reimbursement of such expenses
will be subject to review and approval by UTTC of reasonable
documentation therefor.
9.0 Stock Options and Rights:
9.1 Effective July 8, 1996, you shall be granted a three year
option for 250,000 shares of UTTC Common Stock at an option
price of $1.50 per share.
9.2 You will receive a Stock Option for 100,000 shares of Ashton
Stock. The price of the stock shall be the public price on
the close of the date of the signing of the option grant
(which is the date of the signing of this Letter Agreement).
The Stock Option shall be for ten years which shall vest 20
percent after the completion of each of the first two (2)
years of the Term (March 31, 1997 and March 31, 1998) and an
additional 60 percent after completion of the third year of
the term (march 31, 1999). A separate written Stock Option
document will be provided to you.
10.0 Errors and Omissions Insurance:
During the term of your employment, UTTC shall have in force
and effect (at its own cost) Officer's Errors and Omissions
Insurance, which shall include you as an incurred, with
coverage in such amounts as may be deemed appropriate by the
UTTC Board of Directors. The current policy of UTTC includes
$5,000,000 coverages, with no deductible.
11.0 Termination:
11.1 Your employment under this Letter Agreement may be
terminated by UTTC or you at any time, with or without
cause.
11.2 In the event of termination by UTTC, with or without cause,
UTTC shall pay to you one month's base salary for each whole
or partial six month period of employment under this Letter
Agreement, which remains of your three year term of
employment at the time of the notice of termination. For
example, if you are terminated four months after the start
of your employment, there remains one partial six month
period and five full six month periods of your three year
term of employment. Your termination payment would then be
six months of base salary.
11.3 In the event of termination by UTTC (with or without cause),
you shall be entitled to a prorata share of what your next
six months' semi-annual bonus based on the number of days
prior to such termination of employment included in such
six-month period.
11.4 The termination of your employment prior to the end of the
term (by either UTTC or you, and whether with or without
cause) shall not cause forfeiture of any stock options or
stock rights which you have under this Letter Agreement, or
any UTTC or Ashton Stock Plan in which you are a
participant.
11.5 As used in this Letter Agreement, "Cause" shall mean (a) a
refusal to perform Employee's lawful duties; (b) material
breach of this Agreement; (c) material misconduct; (d)
material failure to follow Ashton's policies, directives, or
orders applicable to Ashton employees holding comparable
positions; (e) intentional destruction or theft of Ashton
property or falsifications of Ashton documents; (f)
conviction of a felony or any crime involving moral
turpitude; or (g) violation of the Ashton Code of Conduct.
12.0 Disclosure of Confidential Information.
During and following your employment at UTTC, without the
written approval of UTTC, you agree not to disclose or use
any Confidential Information of Ashton, other than in
connection with authorized activities conducted in the
course of your employment at UTTC.
13.0 Non-competition.
If your employment with UTTC is terminated for Cause or you
voluntarily terminate your employment, you agree not to
engage directly or indirectly in any of the conduct set
forth in subparagraphs 13.1 through 13.3 below for a period
of one year following your termination of employment:
13.1 Hire, attempt to hire or assist any other person in
hiring or attempting to hire any employee of Ashton,
any person who was an Ashton employee within the
6-month period prior to the termination of your
employment, or any affiliated personnel of Ashton who
performed services for Ashton in the 6-month period
prior to the termination of your employment.
13.2 Solicit the business of either (i) any Ashton customer
to whom you rendered services during the 12-month
period prior to your termination of employment (a
"Specific Customer"); or (ii) any person or entity
whose business you solicited by multiple personal
contacts during the 6-month period prior to your
termination (a "Specific Contact"); or
13.3 Participate in any activity for any Specific Customer
or Contract which is the same as or substantially
similar to those activities which you performed for
such Specific Customer or proposed to perform for such
Specific Contact, unless to do so would not have a
material adverse effect on the business conducted
between Ashton and such Specific Customer or Specific
Contact.
Without affecting or limiting any other remedies to which
Ashton might be entitled, in the event you violate Paragraph
13.3, you will pay to Ashton an amount equal to 25% of the
gross fees/revenue generated from any Specific Customer or
Specific Contact for any engagement and/or services provided
as a result of an engagement during the period of
restriction on your activities.
14. Development of Methodologies.
During the course of your employment with UTTC, you may work
on or be a part of the development of non-public domain
management consulting methodologies, technologies, tools or
other systems for Ashton. You understand and agree that any
and all non-public domain methodologies, technologies, tools
and other systems developed by employees of Ashton
(including non-public domain methodologies, technologies,
tools and other systems developed by you for Ashton) and the
methodologies, technologies, tools and other systems and
business information of Ashton, shall be, and remain, the
sole and absolute property of Ashton, and that you shall
acquire no rights to any of these.
15. Assignment of Inventions and Copyrights.
In further consideration of your employment with Ashton, you
agree that any and all copyrights, inventions, improvements,
discoveries, processes, methodologies, tools or systems
authored, developed and discovered by you during and as a
result of your employment with Ashton shall be fully
disclosed to the officer in charge of Ashton Management
Consulting Services, and the same shall be the sole and
absolute property of Ashton; and upon the request of Ashton,
you shall execute, acknowledge and deliver such assignments
and other documents as Ashton may consider necessary or
appropriate to vest all rights, titles and interests therein
to Ashton. You further agree that Ashton during the term of
this Agreement may, with your written permission (such
permission not to be unreasonably withheld) use your image
as appropriate in the conduct of its business.
The Advanced Pattern Recognition Technology that you refer
to as the "Star Algorithm," invented by you prior to
employment by UTTC, and which is based on a cohort
clustering technique and dual-threaded normalization, shall
not be subject to any form of assignment (as described in
this section).
16.0 Exclusive Service.
You agree to devote your full time and best efforts to the
performance of your employment under this Agreement. While
employed by Ashton, you agree not to engage in any other
employment or business venture without the prior consent of
Ashton, unless to do so would in no way affect or conflict
with the performance of your duties for Ashton.
Continued development and enhancement of the "Star
Algorithm" (described in section 15 above) on your own
personal time shall be deemed a personal-use-only venture
and shall not in any way be deemed a breach of this
exclusive service clause. Furthermore, such enhancement and
development shall not be subject to any form of assignment
as described in section 15 above.
17.0 Drug Testing.
You understand and agree that, from time to time, you may be
tested to detect the presence or absence of any illegal
drugs or controlled substances and that the results of any
such tests shall be released to Ashton.
18. Monies Owed to Ashton.
Upon the separation of your employment from Ashton, you
agree to authorize Ashton to deduct from your final wages or
other monies due to you any debts or financial obligations
owned to Ashton by you except written loans which do not
require acceleration on termination.
19. Arbitration.
You agree that any controversy or dispute between you and
Ashton relating to or arising out of the termination of your
employment (other than disputes regarding an alleged
violation of paragraphs 12, 13, or 15) shall be fully and
finally resolved pursuant to standard Dispute Resolution and
Arbitration Procedures.
20. Remedies.
You understand and agree that Ashton will be irreparably
damaged in the event that the provisions of paragraphs 12,
13, or 15 of this Agreement are violated. You agree that
Ashton shall be entitled to (in addition to any other remedy
to which it may be entitled, at law or in equity) to an
injunction to redress breaches of paragraphs 12, 13, or 15
of this Agreement and to specifically enforce the terms and
provisions thereof.
21. Separability.
Each provision of this Agreement will be interpreted in such
a manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such
provisions, to the extent of such prohibition or invalidity,
shall be deemed not to be part of this Agreement, and shall
not invalidate the remainder of such provision or the
remaining provisions of this Agreement.
22. Governing Law.
Any action or proceeding arising out of or relating to this
Agreement may be commenced in any court of competent
jurisdiction in Howard County, Maryland, or Federal Court in
the District of Maryland, and shall be governed by and
interpreted under the laws of Maryland, except for actions
or proceedings arising out of the alleged violations of
paragraph 13, which shall be governed by and interpreted
under the laws of the state in which Employee had his/her
principal Ashton office at the time of termination from
employment.
23. Amendments.
This Agreement may not be modified or amended except by
written instrument executed by you and an authorized
corporate officer of UTTC.
24. Entire Agreement.
This Agreement constitutes the parties' entire agreement,
and supersedes and prevails over all other prior, or
contemporaneous, agreements, understandings or
representations by or between the parties, whether oral or
written, with respect to the subject matters herein.
<PAGE>
IN WITNESS WHEREOF, all parties have executed this Agreement to
be effective as of the Effective Date set forth below:
EFFECTIVE DATE June 21, 1996
Fred S. Weingard
----------------
[Employee Name]
/s/ Fred S. Weingard
--------------------
[Signature]
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By: /s/ Robert A. Eprile
---------------------
Robert Eprile
President and CEO
ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Raymond T. Tate
---------------------
Raymond T. Tate
President and CEO
By: /s/ John A. Blohm
---------------------
John A. Blohm
Executive Vice-President
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
OF FRED S. WEINGARD
This addendum amends the Letter Employment Agreement (the "Letter Agreement")
dated June 21, 1996 between Universal Trading Technologies Corporation (UTTC),
Ashton Technology Group, Inc. (Ashton) and Fred S. Weingard (Employee). The
parties agree as follows:
1. Delete Paragraph 9.1 of the Letter Agreement and substitute the
following:
Effective July 8, 1996, you shall be granted a five year option for
250,000 shares of UTTC Common Stock at an option price of 51.50 per
share. The option may not be exercised in whole or in part before July
8, 1998, unless (1) UTTC files a registration statement for an initial
public offering or (2) majority control of UTTC is acquired by someone
other than Ashton, prior to July 8, 1998. In the event that the UTTC
Option is exercised the Certificate representing the shares of Common
Stock of UTTC shall contain an appropriate restricted legend under the
Securities Act of 1933, as amended.
2. In Paragraph 9.2 change the date March 31, 1997 to June 21, 1997. Add
the following sentence to the end of the paragraph: The Ashton Board
will file an S-8 Registration Statement which shall be effective no
later than June 21, 1997.
3. Renumber the original text of Paragraph 12.0 of the Letter Agreement
as 12.1.
4. Add as 12.2 the following:
"Confidential Information" shall mean, for the purposes of this Letter
Agreement, information of any type, which is owned by UTTC, at any
time during the Term, and which is not:
(i) in the public domain, or
(ii) disclosed publicly by UTTC or anyone else, or
(iii) generally known by those having a use for such type of
information, or
(iv) the same or substantially the same information that is in the
public domain, or disclosed publicly by anyone or generally known by
those having a use for such type of information.
5. Add as 12.3 the following:
Upon termination of your employment under this Letter Agreement for
any reason, you shall forthwith deliver to UTTC any and all documents,
customer lists, electronic media and any other materials, and all
copies thereof, in your possession or under your control relating to,
containing, or derived from Confidential Information (as that term is
defined in Paragraph 12.2 of this Letter Agreement).
6. Add as 13.4 the following:
Participate in any activity, in any manner, which involves the
development, or marketing, or operation of a service and/or product
which is in competition with the UTS and/or its successor System. The
"UTS and/or its successor System" shall mean, for purposes of this
Letter Agreement, a system of computer generated pricing, delivery,
and execution of securities and/or fungible commodities.
7. All provisions of the Letter Agreement which are not expressly amended
or modified by this Addendum, shall remain unchanged.
Executed this 21st day of June, 1996
/s/ Fred S. Weingard
--------------------
Fred S. Weingard
Employee
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By: /s/ Robert A. Eprile
---------------------
Robert Eprile
President and CEO
ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Raymond T. Tate
---------------------
Raymond T. Tate
President and CEO
By: /s/ John A. Blohm
---------------------
John A. Blohm
President and CEO
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