U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
____________________
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission file number: 333-1182
____________________
THE ASHTON TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-6650372
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 MARKET STREET, SUITE 701
PHILADELPHIA, PENNSYLVANIA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 751-1900
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, par value $.01
Redeemable Common Stock Purchase Warrants
(Title of Class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (X)
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing selling price as reported on NASDAQ on March
31, 1997 was $13,143,937.50.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, was 7,562,500 at March 31, 1997.
Documents incorporated by reference: None.
<PAGE>
TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS..........................................1
ITEM 2. PROPERTIES.......................................................7
ITEM 3. LEGAL PROCEEDINGS................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..........................................................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS........................................10
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................34
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............35
ITEM 10. EXECUTIVE COMPENSATION..........................................36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..39
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................42
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................44
SIGNATURES ................................................................51
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-KSB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
and the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Registrant to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions; industry trends; competition; material costs;
ability to develop markets; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in government regulation and other factors referenced in this
Form 10-KSB. Such forward-looking statements speak only as of the date of this
Form 10-KSB. For discussion of the factors that might cause the difference with
actual results, see Item 1: Description of Business and Item 6: Management's
Discussion and Analysis of Financial Condition and Result of Operations. The
Registrant expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Registrant's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
PART I
Item 1. DESCRIPTION OF BUSINESS
INTRODUCTION
The Ashton Technology Group, Inc. ("Ashton" or the "Company") was founded
in March 1994 to exploit opportunities in the rapidly evolving businesses of
Internet and electronic commerce through the application of its skills and
advanced technologies in securities trading and information security. In
furtherance of such goals, in 1995 and 1996, Ashton acquired majority interests
in two companies: Computer Science Innovations, Inc. ("CSIA(R)"), an information
technology company headquartered in Melbourne, Florida and Universal Trading
Technologies Corporation ("UTTC"), a company headquartered in Philadelphia,
Pennsylvania, that designs, develops and operates electronic transaction systems
for the financial services market.
ASHTON
Ashton designs, develops, and integrates information security (INFOSEC)
technologies, with particular emphasis on transactional systems. These
technologies cover the spectrum of computer and communications security,
including encryption, firewalls/access control, trusted systems and electronic
authentication to guarantee anonymity. To date, Ashton has:
* Designed and built the Ashton Technologies Encryption Device
("ATED"), an advanced, triple DES, evolving key encryption device
(classified in the industry as "very strong encryption") and
associated encryption client-server technology to service users
worldwide and augment user password authentication approaches;
* Integrated B-2 level firewall technology into UTTC's Universal
Trading System ("UTS(TM)") and incorporated B-2 level firewall
components into the UTS(TM) installation on the floor of the
Philadelphia Stock Exchange (the "PHLX"). (B-2 is a National
Security Agency ("NSA") standard for implementing trusted systems
at the hardware level thereby making it more difficult to copy or
reverse engineer than software encryption);
* Designed and implemented a unique client-server file-transfer
protocol (FTP) to enhance access control beyond current
capabilities of the Windows NT operating system.
* Designed and developed the trusted system components of the
UTS(TM) system thereby guaranteeing anonymity for users of this
highly transactional system.
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
UTTC was incorporated in Delaware in February 1995 with the business
objective of developing and marketing electronic pricing and transaction
products for the securities trading market.
UTTC's first product will be the Universal Trading System ("UTS(TM)"),
which will provide an electronic pathway for execution of block trades in equity
securities. UTS(TM) also provides end-to-end anonymity to its users through
advanced certified security features including encryption, electronic
authentication, trusted systems and fire-walls. UTS(TM) is available to
exchanges, broker-dealers, NASDAQ participants, financial intermediaries and
institutional investors. Users can enter and execute orders to receive system
information via encrypted public phone lines or through the Worldwide Web. In
addition to pre-trade information and order execution, UTS(TM) provides
automated post-market clearing and settlement in conjunction with the PHLX, its
clearing corporation and its members.
The benefits of the UTS(TM) system to market participants include:
* Fair competition for all including public orders
* Price discovery, price efficiency, and price improvement
* Best execution opportunity without the imposition of a dealer
* Public order display mechanisms
* Decimal pricing for all securities
* Guaranteed anonymity and data security
* Electronic linkage to all markets
* Enhanced transparency
* Decision flexibility to seek best price and execution
* Interactive, displayed public limit order book
* Public order preference and protection
* Ability to obtain the Volume Weighted Average Price (VWAP(TM))
On April 22, 1995, the PHLX and UTTC agreed to integrate and deploy UTTC's
Universal Trading System, an electronic trading and pricing system that will
initially provide a pre-opening morning session to trade PHLX-listed and
NASDAQ-NMS securities at the daily volume weighted average price (VWAP). On
September 18, 1995, UTTC and the PHLX memorialized the April 22 agreement in a
formal five year contract. On September 4, 1996, in release No. 34-37640 (File
No. SR-PHLX 96-14), the Securities and Exchange Commission (the "SEC") published
a notice in the Federal Register regarding a proposal by the PHLX to adopt PHLX
Rule 237 to accommodate the UTS(TM) pre-opening morning session. During the
period provided by the SEC for public comment on the proposed rule change, the
SEC commenced a special investigation of the PHLX. In addition, on October 24,
1996, the SEC commenced a private investigation concerning the circumstances
under which UTTC obtained its agreement with the PHLX, including the timing and
issuance of Ashton common stock to Medford Financial, Inc. ("Medford"), Vincent
Casella ("Casella"), and other persons at Medford; Casella's position with the
PHLX; and Casella's role in the PHLX's determination to enter into the agreement
with UTTC. In March 1997, the SEC reportedly recommended that the PHLX make
certain changes in its corporate governance, and in April 1997 the PHLX
announced a reorganization of its Board of Governors and changes in its
governance procedures. The Company believes that the investigations have
resulted in delays in consideration of the rule change and, consequently, in the
introduction of the Universal Trading System on the floor of the PHLX.
Management expects that the proposed rule, plus new amendments reflecting
enhancements to the Universal Trading System, will be submitted by the PHLX to
the SEC by September 30, 1997. If the SEC chooses to re-publish the proposed
rule and amendments in the Federal Register, the notification period will be a
minimum of 35 days and a maximum of 90 days after publication.
In the twenty-three months since the April 1995 agreement, UTTC has
enhanced, expanded and implemented the UTS(TM) Volume Weighted Average Price
(VWAP(TM)) Trading System.
On April 8, 1997, the Company announced that the UTS(TM) is ready for
operational use pending the final approval by the SEC of the PHLX's proposed
Rule 237.
Until the SEC approves the PHLX proposed Rule 237, the UTS(TM) System will
not be introduced at the PHLX and the UTS(TM) will not generate any revenue.
Failure of the UTS(TM) system to generate revenue for UTTC could have an adverse
effect on the financial position of the Company. There can be no assurance that
the SEC will approve the rule change.
COMPUTER SCIENCE INNOVATIONS, INC.
CSI(R) was incorporated in Florida in March 1983 and specializes in
utilizing computer technologies and sophisticated mathematical techniques to
address complex information retrieval and management problems. CSI(R)'s
principal business is the development of sophisticated custom software products
for both governmental and commercial customers.
In the 1980's, CSI(R) specialized in a segment of the U.S. defense industry
commonly referred to as "C(3)I" (Command, Control, Communications and
Intelligence). To compete in this market, CSI(R) conducted some pioneering work
in the use of "trainable" mathematical systems using neural network technology
and knowledge based expert systems for resolving "real-world" problems. These
systems utilize various techniques to "learn" and "recognize" patterns which
enable these systems to absorb, process and analyze vast amounts of data and
predict outcomes. CSI(R)'s efforts produced several systems for its customers,
which provided solutions to problems which the Company believes were insolvable
by other means. CSI(R)'s clients in the U.S. defense industry include: The NSA,
the White House Communications Agency, the United States Army and the United
States Air Force. Government contracts accounted for approximately 20% of
CSI(R)'s revenues in fiscal 1997.
Currently, CSI(R) is maintaining its core intelligence agency and
defense business while applying technologies developed through its
defense-related business to commercial applications. These crossover initiatives
have resulted in CSI(R)'s receipt of a commercial contract from Motorola to
integrate and test a subsystem of Motorola's Iridium(R) cellular telephone
system, a system being designed to enable handheld wireless telephones to
receive voice, data, paging and facsimile information anywhere in the world
through a network of 66 low earth orbit satellites. The contract was executed in
1995 and extends to December 31, 1997 and was responsible for 63% of CSI(R)'s
revenues in fiscal 1997. CSI(R) has completed multi-year contracts, totaling
approximately $1.8 million, with Ashton and UTTC for software engineering for
the encryption client-server and UTS(TM) system. CSI(R)'s new initiatives are in
the healthcare information industry.
CAPITALIZATION, OWNERSHIP OF SUBSIDIARIES AND ORGANIZATION
INITIAL PUBLIC OFFERING
On May 2, 1996, Ashton completed an initial public offering (the
"Offering") of 2,472,500 shares of common stock at an offering price of $4.50
per share and 2,472,500 redeemable common stock purchase warrants at $.25 per
warrant. The common stock and the warrants are separately tradable. As a result
of the Offering, the Company received net proceeds of approximately $10,395,000.
UTTC PRIVATE PLACEMENT
On December 26, 1996, UTTC commenced and on April 25, 1997 completed a
private offering of units of a 9% Subordinated Non-Convertible Promissory Note
(the "Non-Convertible Note") in the principal amount of $42,500 and a 9%
Subordinated Convertible Promissory Note (the "Convertible Note," and together
with the Non-Convertible Note, the "Notes") in the principal amount of $7,500.
The net proceeds of this private offering were $2,631,013. The Notes are due
January 31, 1999. Interest is payable annually in arrears on January 31, 1998
and on January 31, 1999 or after the earlier conversion, prepayment or due date
of the Notes. See Item 7: Financial Statements Note 13-Subsequent Events. UTTC
intends to use the proceeds of the private offering for the software development
and systems integration of two new transaction products, the UTTC Electronic
Auction System and the UTTC NASDAQ Transaction System.
OWNERSHIP OF SUBSIDIARIES
Ashton owns (i) 80% of the outstanding common stock of UTTC and (ii)
approximately 86% of the outstanding Class A Common Stock of CSI(R) (the "CSI(R)
Class A Common Stock") and approximately 81% of the outstanding Non-Voting Class
B Common Stock of CSI(R) (the "CSI(R) Class B Common Stock") of CSI(R) . The
Company used a portion of the proceeds from the Offering to acquire additional
CSI(R) Class A and Class B Common Stock sufficient to achieve greater than an
80% equity interest in CSI(R).
ORGANIZATION
In September 1996, Robert A. Eprile, Fredric W. Rittereiser, John A. Blohm,
The Dover Group, Inc. (the "Dover Group") and affiliates of the Dover Group
(collectively, 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 Ashton's then Chairman, President and
Chief Executive Officer, Raymond T. Tate ("Mr. Tate"). These discussions led to
a resolution of the Group Members' differences with Mr. Tate. On October 22,
1996, the Company entered into a settlement agreement (the "Settlement
Agreement") with the Group Members, Mr. Tate, Helen J. Tate, as trustee for the
Andrew Patrick Tate Trust, Helen J. Tate, as trustee for the Susan Katherine
Tate Burrowbridge Trust and Helen J. Tate, as trustee for the Elizabeth Tate
Winters Trust (collectively, the "Tate Trusts"). 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. The Board of Directors of the Company elected Fred
S. Weingard, Executive Vice President for Technology and Advanced Computer
Systems of UTTC, to fill the vacancy on the Company's Board of Directors created
by the resignation of Mr. Tate.
In addition, on October 22, 1996, after closing the transactions
contemplated by the Settlement Agreement, the newly-constituted Board of
Directors of the Company 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, as Chairman of the Board and
Treasurer of the Company; (iii) appointed Fredric 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 on behalf of the Group Members in connection with or relating
to the Settlement Agreement, the transactions contemplated thereby and the
disputes settled pursuant thereto.
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 CSI(R). On
October 25, 1996, Dr. Ruth M. Davis also resigned her position as a director of
the Company. On December 20, 1996, Fredric W. Rittereiser was elected a director
of the Company to fill one of the vacancies created by such resignations.
COMPETITION
Ashton's competition in the commercial markets principally comes from
larger, better-established companies, many of which have financial, sales and
marketing resources substantially greater than Ashton. The UTS(TM) system will
compete with other electronic trading systems, including Reuters, N.A. Instinet
system and Investment Technology Group, Inc.'s POSIT system. The Company
believes that competitive criteria include quality of trade execution, pricing
and reliability of post-execution processing and settlement operations. The
UTS(TM) system will also compete with various national and regional securities
exchanges for trade execution services. The automated trade execution and
analytical services to be offered by the UTS(TM) system will compete with
services offered by leading brokerage firms and other information service and
transaction processing firms.
DEVELOPMENT COSTS
During the fiscal year ended March 31, 1997, the Company incurred
$3,382,848 of development costs on a consolidated basis. Ashton incurred
development costs of $2,049,651 for the design and development of the ATED
encryption device and the encryption client-server. The ATED will provide
information security, including encryption and authentication, for
communications with a host computer. The encryption client-server will enable a
host computer to simultaneously communicate with multiple ATEDs. The ATED and
encryption client-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 $1,333,197 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 PHLX.
PROPRIETARY RIGHTS
Ashton and its subsidiaries regard their respective products as proprietary
and rely primarily on a combination of trademark and trade secret protection,
employee and third party confidentiality and non-disclosure agreements, license
agreements and other intellectual property protection methods to protect their
proprietary rights. Neither Ashton, UTTC or CSI(R) currently holds any material
patents or has filed for copyright protection. CSI(R)'s products are generally
licensed to customers on a "right to use" basis pursuant to a non-transferable
license that generally restricts the customer's use to internal purposes.
GOVERNMENT REGULATION
The UTS(TM) system has been developed as a facility of the PHLX, a
self-regulatory organization, and is subject to regulation by the SEC. Section
19(b) of the Securities Exchange Act of 1934, as amended, and Rule 19b-4
promulgated thereunder require the PHLX to file any proposed rules changes with
the SEC. The concept of the UTS(TM) system, which would constitute a new PHLX
facility accompanied by new PHLX rules, must be filed as a proposed rule change.
In this regard, PHLX management was authorized by its Board of Governors to
submit a proposed rule change filing relating to the UTS(TM) system with the
SEC, which published a notice of the terms of the substance of the proposed rule
change on September 4, 1996 and gave interested persons an opportunity to submit
written data, views, and arguments concerning such proposed rule change. Since
publication of the notice, the application has been amended pursuant to the SEC
requests and a decision is still pending. The Company's proposed new products
will also require either the SEC approval or exemptive orders. There can be no
assurance that any such approval or orders will be obtained or the failure to
obtain such approval or order would not materially affect the operations of the
Company.
EMPLOYEES
As of March 31, 1997, the Company and its subsidiaries employed a total of
43 people, of whom 34 are employed by CSI(R).
SUBSEQUENT EVENTS
In May 1997, the Company formed a wholly-owned subsidiary, Gomez Advisors,
Inc., which will be headquartered at 101 Federal Street, Boston, Massachusetts
02110, and Mr. Julio Gomez, a leading independent authority on the Internet and
the world of on-line investing, was named its President and Chief Executive
Officer. Also joining Gomez Advisors Inc. is Mr. John Robb who previously worked
with Mr. Gomez at Forrester Research in Cambridge, Massachusetts.
Gomez Advisors, Inc. will provide banks, broker-dealers, insurance
companies and other financial intermediaries with advice concerning the business
potential of the Internet as a tool for use in marketing and in the interactive
distribution of financial products. The range of services that will be provided
by Gomez Advisors, Inc. include strategy development, marketing, product and
interface design and implementation planning.
ITEM 2. PROPERTIES
Ashton and UTTC lease approximately 10,000 square feet of office space at
1900 Market Street, Suite 701, Philadelphia, Pennsylvania 19103. Ashton leases
approximately 2,500 square feet of office space at 10420 Little Patuxent
Parkway, Columbia, Maryland 21044. CSI(R) leases approximately 20,000 square
feet of office space at 1235 Evans Road, Melbourne, FL 32904, and approximately
7,000 square feet of office space at 1445 North Fiesta Boulevard, Suite 101,
Gilbert, Arizona 85234.
ITEM 3. LEGAL PROCEEDINGS
On October 24, 1996, the SEC commenced a private investigation concerning
the circumstances under which UTTC obtained a contract with the PHLX to develop
and install an electronic trading and pricing system. Ashton provided testimony
to the SEC on February 12, 1997 through its Chairman, Robert A. Eprile, and has
not been contacted about the matter since that date. In March 1997, the SEC
directed the PHLX to make certain changes in its governance procedures and in
April 1997 the PHLX announced a reorganization of its Board of Governors and
changes in its governance procedures.
Alliant Techsystems, Inc., with whom the Company has a contract for the
production of certain encryption devices, has demanded payment of approximately
$292,000 under that contract, which the Company is contesting.
On May 1, 1997, David N. Rosensaft ("Mr. Rosensaft") commenced an action in
the United States District Court for the Southern District of New York entitled
"David N. Rosensaft v. The Ashton Technology Group, Inc., Universal Trading
Technologies Corporation, The Dover Group, Inc. and Frederic W. Rittereiser
(collectively, the "Defendants")" No. 97 Civ. 3138 ("Rosensaft Action"),
asserting ten claims against the Defendants including breach of contract and
securities fraud and seeking, inter alia, specific performance of the Settlement
Agreement, dated January 30, 1997, between and among the parties or in the
alternative, actual and consequential damages in an amount to be proved at trial
in addition to punitive damages. On June 11, 1997, Mr. Rosensaft served a First
Amended Complaint adding three additional claims against the Defendants,
relating to Ashton's refusal to allow Rosensaft's sale of his Ashton shares.
On June 26, 1997, the Defendants filed their answers and counterclaims
generally denying the allegations of the First Amended Complaint and alleging
six counterclaims against Mr. Rosensaft including that (i) Mr. Rosensaft
acquired 1,100,000 shares of Ashton common stock from Ashton on the basis of
false and misleading statements and common law fraud and (ii) Mr. Rosensaft
breached his January 19, 1996 Consulting Agreement with the Company (the
"Agreement") by (a) failing to carry out his duties as a consultant under the
Agreement, (b) violating the provisions of the Agreement restricting his use of
confidential information of the Company, (c) failing to adhere to the
non-competition provisions of the Agreement, (d) misappropriating for himself
the property rights of UTTC relating to the Company's UTS(TM) and (e) failing to
return to UTTC and/or Ashton valuable property and information, including
confidential documents and computer equipment, belonging to UTTC and/or Ashton.
The Company believes that none of the above matters will have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
year ended March 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On May 2, 1996, Ashton completed an initial public offering of 2,472,500
shares of common stock ("Common Stock") at an offering price of $4.50 per share
and 2,472,500 redeemable common stock purchases warrants ("Warrants") at $0.25
per warrant. The Common Stock and the Warrants are traded on the NASDAQ Small
Cap Market.
The following sets forth the initial offering, high and low prices for the
Common Stock during the periods indicated:
HIGH($) LOW($)
INITIAL OFFERING PRICE 4.50 4.50
MAY 2, 1996 THROUGH JUNE 30, 1996: 15.50 7.00
JULY 1, 1996 THROUGH SEPTEMBER 30, 1996: 11.625 4.25
OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996: 8.125 5.00
JANUARY 1, 1997 THROUGH MARCH 31, 1997: 7.6875 3.00
The following sets forth the initial offering, high and low prices for the
Warrants during the periods indicated:
HIGH($) LOW($)
INITIAL OFFERING PRICE 0.25 0.25
MAY 2, 1996 THROUGH JUNE 30, 1996: 9.25 3.25
JULY 1, 1996 THROUGH SEPTEMBER 30, 1996: 5.375 1.25
OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996: 4.00 2.00
JANUARY 1, 1997 THROUGH MARCH 31, 1997: 3.25 1.625
On March 31, 1997, the closing price of the Common Stock was $3.375 and the
closing price of the Warrants was $1.625.
As of March 31, 1997, there were approximately 74 holders of record of
Common Stock in "Street Name" representing approximately 1200 stockholders and
approximately 17 holders of record of Warrants in "Street Name" representing
approximately 1200 stockholders.
DIVIDEND POLICY
No dividends have been declared on the Common Stock through June 30, 1997
and the Board of Directors has no current intention to declare or pay dividends
on the Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
The following discussion of the Company's results of operations and
liquidity and capital resources should be read in conjunction with the
consolidated financial statements and related notes of the Company for the years
ended March 31, 1996 and 1997.
In the first quarter of the fiscal year ended March 31, 1997 Ashton
completed its initial public offering (the "Offering"), which provided the
Company with the capital to:
* Acquire a majority interest in CSI;
* Develop Ashton's information security technology capabilities
including the design and development of the Ashton Technology
Encryption Device (ATED);
* Establish UTTC in the Philadelphia Stock Exchange building and hire a
technology team headed by Fred S. Weingard who was previously a
principal at the consulting firm of Booz, Allen & Hamilton and was the
founder and director of Booz's Advanced Computation Technologies and
Systems Group; and
* Build the UTS(TM) System.
REVENUES AND EXPENSES
The Company had consolidated revenues of $4,938,330 for the fiscal year
ended March 31, 1997. All of the Company's revenues and the related "cost of
revenues" were generated by the CSI. (The consolidated revenues do not include
$1,386,143 paid by Ashton and UTTC to CSI for software engineering services.) In
the financial statements included in the Company's quarterly filings on Form
10-QSB for the year ended March 31, 1997, the Company did not eliminate
intercompany transactions between Ashton and its Subsidiaries. See Item
7: Financial Statements-Note 14, Quarterly Results.
During the twelve months ended March 31, 1997, the Company incurred a net
loss of $6,842,406. These losses include significant expenses for start-up
costs, system development and corporate restructuring.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the fiscal year ended March 31, 1997, the Company incurred
$3,479,660 of selling, general and administrative ("SG&A") expenses. On a per
subsidiary basis, Ashton incurred $2,140,582 of SG&A expense, UTTC $876,069 and
CSI $463,009. The largest components of Ashton's SG&A expenses were salaries,
professional fees and public company expenses which include directors and
officers insurance. Additionally, during the fiscal year ended March 31, 1997,
the Company incurred considerable one-time SG&A expenses related to:
* opening offices for Ashton and UTTC and building a computer facility
for UTTC (The total cash outlay for this period was $1,256,329 of
which $381,311 was capitalized and $875,018 was expensed.)
* hiring key technical people for UTTC including Fred S. Weingard, the
Executive Vice President for Advanced Programs and Technologies, and
three senior technologists. (Relocation costs paid during the period
were $195,000.)
DEVELOPMENT COSTS
During the fiscal year ended March 31, 1997, the Company incurred
$3,382,848 of development costs on a consolidated basis. Ashton incurred
development costs of $2,049,651 primarily for the design and development of the
ATED encryption device and the encryption client-server. The ATED will provide
information security, including encryption and authentication, for
communications with a host computer. The encryption client-server will enable a
host computer to simultaneously communicate with multiple ATEDs. The ATED and
encryption client-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 $1,333,197 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 PHLX.
COST OF CORPORATE RESTRUCTURING
The Company has recorded a charge of $957,487 for corporate restructuring
costs related to the resignation of Raymond T. Tate as Chairman, President and
Chief Executive Officer of Ashton; the subsequent closing of Ashton's corporate
offices in Columbia, Maryland; the transfer of all corporate functions to
Philadelphia, Pennsylvania; and the termination of the eight person staff in
Maryland.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended March 31, 1997, the Company had cash and cash
equivalents of $2,691,854 after giving pro-forma effect to the UTTC private
placement offering that was consummated in April 1997. See Item 1: Description
of Business: UTTC Private Placement. Management expects to raise additional
capital for the development of new online transactional products for both UTTC
and Ashton from future private placements or other sources. There can be no
assurances, however, that the Company will be able to raise such monies on a
timely basis or on terms acceptable to the Company, if at all. Management also
expects to generate revenues from the UTS(TM) system after the SEC approves the
PHLX rule change, upon which the Company can begin marketing the product to the
professional investment community. See Item 1: Description of Business:
Universal Trading Technologies Corporation and Government Regulations.
There can be no assurance, however, that the Company's actual cash
requirements will not exceed its anticipated cash requirements or that
additional cash requirements or additional financing will not be required. The
Company may require additional funds to provide working capital and to sustain
its operations until it generates positive cash flow from operations. The
Company's estimates of its cash requirements are forward-looking statements that
involve a number of risks and uncertainties.
CAPITAL EXPENDITURES
During the fiscal year ended March 31, 1997, the Company spent $1,104,336
for the acquisition of capital equipment (primarily computer hardware and
software for the UTS(TM) system) and for leasehold improvements.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
The results for the fiscal year ended March 31, 1997 are not comparable to
the prior fiscal year because:
* At the beginning of the fiscal year ended March 31, 1996, Ashton was a
development stage company and did not become an operating company
until it acquired a controlling but minority interest in CSI in June
1995;
* Ashton completed its Offering in the first quarter of the fiscal year
ended March 31, 1997. The proceeds enabled the Company to (i) build
the infrastructure (facilities, people, equipment etc.) required to
complete the development of the Ashton's ATED and UTTC's UTS(TM) and
(ii) acquire a majority interest in CSI.
ASHTON
During the year ended March 31, 1996, Ashton incurred $346,504 of
development costs for the design and development of ATED. Ashton also incurred
$438,555 of selling, general and administrative expenses which include $160,058
of executive compensation and $89,863 of professional services. Expenses for the
year ended March 31, 1997 are not comparable with the previous fiscal year for
the reasons given above.
UTTC
During the year ended March 31, 1996, UTTC incurred $1,571,748 of
development costs (including $1,349,952 related to the acquisition of UTTC by
Ashton) for the UTS(TM) system. UTTC also incurred $133,175 of labor costs.
Expenses for the year ended March 31, 1997 are not comparable with the previous
fiscal year for the reasons given above.
CSI
CSI's revenues for the years ended March 31, 1997 increased by $2,657,000,
or 72.5%, to approximately $6,324,000, from approximately $3,667,000 for the
year ended March 31, 1996. CSI recorded revenue of approximately $1,386,000 and
$314,000 from Ashton for the years ended March 31, 1997 and 1996, respectively.
This increase was attributable to an increase in commercial sales of $2,872,000
from approximately $2,260,000 for the year ended March 31, 1996 to approximately
$5,132,000 for the year ended March 31, 1997, while government revenue declined
by $215,000, from approximately $1,407,000 for the year ended March 31, 1996 to
approximately $1,192,000 for the year ended March 31, 1997. The increase in
commercial sales was primarily due to existing contracts with Motorola and
Ashton. There is no assurance that the existing contracts with Motorola will be
extended or new contracts will be executed. The decrease in government revenue
was primarily due to fewer government contracts.
Costs of revenues are direct costs, which include labor costs, subcontract
costs, material costs and other direct costs related to contract revenue and
overhead. Direct costs for the year ended March 31, 1997 increased by
$1,739,000, or 58.2%, to approximately $4,725,000, from approximately $2,986,000
for the year ended March 31, 1996. This change has occurred primarily due to the
higher concentration of commercial sales.
Operating expenses include selling and administrative, material handling
and bid and proposal expenses. Operating expenses for the year ended March 31,
1997 increased by $120,000, or 28.0%, to approximately $549,000, from
approximately $429,000 for the year ended March 31, 1996. Expressed as a
percentage of total revenues, operating expenses decreased for the year ended
March 31, 1997 to 8.7% from 11.7% for the year ended March 31, 1996. The
decrease is a result of continuing cost restraints and less bid and proposal
expenses.
Interest expense for the year ended March 31, 1997 decreased by $13,600, or
90.7%, to approximately $1,400, from approximately $15,000 for the year ended
March 31, 1996. This decrease was due to less of the credit facility being used.
See "Credit Facility" below. The credit facility is used primarily for accounts
receivable financing, with borrowing capped at $500,000 for fiscal year 1997. At
March 31, 1997, the outstanding balance on the credit line was zero. Future debt
levels of CSI will be determined by ongoing working capital needs, capital
expenditures and other financing requirements.
Income taxes for the year ended March 31, 1997 were calculated using
statutory rates and are payable to Ashton under a tax allocation agreement dated
March 27, 1997, under which Ashton and its Subsidiaries will file a consolidated
federal tax return.
Net income for the year ended March 31, 1997 increased by $357,000, or
146.9%, to approximately $600,000, from approximately $243,000 in the year ended
March 31, 1996, based upon increased revenues.
TAX ALLOCATION AGREEMENT
On or about March 27, 1997, the Company entered into an agreement with each
of its subsidiaries, CSI and UTTC (together with the Company, the "Affiliated
Group"), providing for the allocation of the consolidated tax liability of the
Affiliated Group among its members, for reimbursing the Company for payment of
such tax liability, for compensating any party for use of its losses or tax
credits, and for the allocation and payment of any refund arising from a
carryback of losses or tax credits from subsequent tax years.
SHORT-TERM LOAN AND SECURITY AGREEMENT
On or about February 18, 1997, the Company entered into a short-term loan
and security agreement with CSI pursuant to which the Company borrowed $500,000
from CSI secured by a promissory note, bearing interest at eight and one-quarter
percent (8 1/4%) due on or before November 18, 1997, and a Stock Pledge
Agreement in which the Company pledged all of its right, title and interest in a
percentage of CSI's common stock (approximately 50 percent of CSI's Class A
Shares and 50.6 percent of CSI's Class B Shares).
The Company believes that the transactions between the Company and its
officers, directors and other affiliates described above were on terms at least
as favorable to the Company as could be obtained from independent third parties.
The Company has adopted a policy that any future transactions between the
Company and its officers, directors or other affiliates will be reviewed on an
ongoing basis and be submitted to the Audit Committee or other comparable body
for review where appropriate. Such future transactions will be on terms at least
as favorable to the Company as could be obtained from independent third parties
and will be approved by a majority of the directors that are not interested in
such transactions.
CREDIT FACILITY
CSI has a line of credit arrangement with Sun Bank, National Association
effective September 5, 1996, under which it may borrow up to $500,000 at the
bank's prime rate. The borrowing capability is calculated based on 80% of
commercial accounts receivable less than 90 days and 90% of assigned government
receivables, but in no event can the borrowing exceed $500,000. The credit
facility must be retired 30 days annually and CSI must maintain, on a monthly
basis, minimum net worth, working capital and other financial ratios. It also
includes certain covenants restricting, among other things, mergers or
acquisitions, sale of assets, additional borrowings, affiliated transactions and
certain other matters. The borrowings are collateralized by all receivables,
contract rights, inventory and equipment. At March 31, 1997, CSI was in
compliance with all covenants of the credit facility and had no borrowings
outstanding.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
The Ashton Technology Group, Inc.
We have audited the accompanying consolidated balance sheet of The Ashton
Technology Group, Inc. and Subsidiaries as of March 31, 1997 and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period then ended. We have also audited the pro forma
consolidated balance sheet which gives effect to the receipt of proceeds from
the sale of convertible and nonconvertible notes as described in Note 13 to the
consolidated financial statements. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Ashton
Technology Group, Inc. and Subsidiaries as of March 31, 1997 and the results of
its operations and its cash flows for each of the two years in the period then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the pro forma balance sheet presents fairly the financial position of
The Ashton Technology Group, Inc. and Subsidiaries as it would have appeared at
March 31, 1997 had the transaction described in Note 13 been consummated at that
date.
/s/ Goldstein Golub Kessler & Company, P.C.
- -------------------------------------------
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
June 24, 1997, except for the ninth paragraph of Note 12,
as to which the date is June 26, 1997
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
===============================================================================
MARCH 31, PRO FORMA
1997 (NOTE 13)
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 60,841 $2,691,854
Contracts receivable, net of
allowance for doubtful accounts
of $62,500 in 1997 (Note 2) 1,483,163 1,483,163
Prepaid expenses and other
current assets 98,903 98,903
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,642,907 4,273,920
Property and Equipment, net
(Notes 1 and 3) 1,041,449 1,041,449
Goodwill, net (Notes 1 and 8) 575,581 575,581
Deferred Income Tax Asset,
net of valuation allowance
of $2,740,000 - -
Other Assets 106,693 475,680
- -------------------------------------------------------------------------------
TOTAL ASSETS $3,366,630 $6,366,630
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued
expenses (Note 4) $1,937,752 $1,937,752
Billings in excess of costs
and estimated earnings (Note 1) 52,722 52,722
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,990,474 1,990,474
Long-term Debt (Note 6) 13,000 3,013,000
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 2,003,474 5,003,474
- -------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
Minority Interest (Note 1) 300,279 300,279
- -------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock - $.01 par value;
authorized 1,000,000 shares,
none issued
Common stock - $.01 par value;
authorized 20,000,000 shares,
issued and outstanding
7,562,500 shares 75,625 75,625
Additional paid-in capital 10,482,197 10,482,197
Accumulated deficit (9,494,945) (9,494,945)
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,062,877 1,062,877
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,366,630 $6,366,630
===============================================================================
See Notes to Consolidated Financial Statements
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
===============================================================================
YEAR ENDED MARCH 31, 1996 1997
- -------------------------------------------------------------------------------
Net revenue (Notes 1 and 2) - $4,938,330
- -------------------------------------------------------------------------------
Costs and expenses:
Cost of revenue - 3,544,556
Development costs, including
$1,349,952 write-off of intangible
asset in 1996 (Note 8) $1,918,252 3,382,848
Selling, general and administrative
expenses (Note 12) 648,732 3,479,660
Depreciation and amortization - 280,678
- -------------------------------------------------------------------------------
Total costs and expenses 2,566,984 10,687,742
- -------------------------------------------------------------------------------
Other income (expenses):
Interest income - 144,341
Interest expense (66,727) (39,792)
Equity earnings in unconsolidated
investee (Note 8) 45,732 -
Corporate restructuring costs (Note 12) - (957,487)
- -------------------------------------------------------------------------------
Total other income (expenses) (20,995) (852,938)
- -------------------------------------------------------------------------------
Loss before provision for income taxes
and minority interest in
earnings of subsidiary (2,587,979) (6,602,350)
Provision for income taxes (Note 9) - 110,000
- -------------------------------------------------------------------------------
Loss before minority interest in
earnings of subsidiary (2,587,979) (6,712,350)
Minority interest in earnings of
subsidiary - 130,056
- -------------------------------------------------------------------------------
Net loss $(2,587,979) $(6,842,406)
===============================================================================
Net loss per common share $(.49) $(.93)
===============================================================================
Weighted average number of common
shares outstanding 5,240,000 7,341,314
===============================================================================
See Notes to Consolidated Financial Statements
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
ADDITIONAL SHAREHOLDERS'
NUMBER OF PAID-IN TREASURY ACCUMULATED SUBSCRIPTION EQUITY
SHARES AMOUNT CAPITAL STOCK DEFICIT RECEIVABLE (DEFICIENCY)
- ------------------------- --------- ------- ----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 2,650,000 $26,500 $ 47,509 - $ (64,560) $ (24,332) $ (14,883)
Issuance of common stock
in connection with
acquisition (Note 8) 2,640,000 26,400 1,293,600 - - - 1,320,000
Purchase of treasury stock
(Note 7) - - - $(300,000) - - (300,000)
Collection of receivable - - - - - 24,332 24,332
Net loss - - - - (2,587,979) - (2,587,979)
- ------------------------- --------- ------- ----------- -------- ------------ ------------ ------------
Balance at March 31, 1996 5,290,000 52,900 1,341,109 (300,000) (2,652,539) - (1,558,530)
Issuance of common stock and
warrants in initial public
offering 2,272,500 22,725 9,141,088 300,000 - - 9,463,813
Net loss - - - - (6,842,406) - (6,842,406)
- ------------------------- --------- ------- ----------- -------- ------------ ------------ ------------
Balance at March 31, 1997 7,562,500 $75,625 $10,482,197 $ - 0 - $(9,494,945) $ - 0 - $1,062,877
========================= ========= ======= =========== ======== ============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
===============================================================================
YEAR ENDED MARCH 31, 1996 1997
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(2,587,979) $(6,842,406)
Adjustments to reconcile net loss to net
cash used in operating activities:
Bad debt expense - 50,000
Depreciation and amortization 74,492 280,678
Write-off of intangible asset 1,349,952 -
Equity earnings in unconsolidated
investee (45,732) -
Minority interest in earnings
of subsidiary - 130,056
Changes in operating assets and
liabilities:
Increase in contracts receivable - (553,816)
Increase in prepaid expenses and
other current assets - (23,784)
Decrease in other assets - 60,392
Increase in accounts payable and
accrued expenses 1,067,327 468,576
Increase in billings in excess
of costs and estimated earnings - 52,722
- -------------------------------------------------------------------------------
NET CASH USED IN OPERATING
ACTIVITIES (141,940) (6,377,582)
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (21,014) (1,104,336)
Purchase of CSI net of cash acquired (679,024) (600,160)
- -------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (700,038) (1,704,496)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance costs for initial
public offering (614,856) (316,040)
Issuance costs for private placement (67,340) -
Net proceeds from the sale of stock
and warrants - 10,394,709
Proceeds from notes payable 1,530,863 -
Payments of notes payable - (1,966,771)
Collection of stock subscription
receivable 24,332 -
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 872,999 8,111,898
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 31,021 29,820
Cash and cash equivalents at beginning
of the year - 31,021
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 31,021 $60,841
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest - $84,796
===============================================================================
Income taxes - $5,694
===============================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITY:
Purchase of treasury stock in exchange
for note payable $ 300,000 -
===============================================================================
See Notes to Consolidated Financial Statements
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. ORGANIZATION, The accompanying consolidated financial
PRESENTATION, statements include the accounts of The Ashton
PRINCIPAL Technology Group, Inc. ("Ashton") and its
BUSINESS Subsidiaries, Universal Trading Technologies
ACTIVITY AND Corporation ("UTTC") and Computer Science
SIGNIFICANT Innovations Inc. ("CSI") (collectively the
ACCOUNTING "Company"). All significant intercompany
POLICIES: transactions and balances have been
eliminated. As described in Note 8, in
October 1995, Ashton acquired 80% of the
common stock of UTTC. The business
combination has been accounted for as a
purchase. The results of operations of UTTC
are included in the accompanying consolidated
financial statements since the date of
acquisition.
Additionally, as described in Note 8, in June
1995, Ashton acquired 650,798 Class A voting
shares and 16,726 Class B nonvoting common
shares of Computer Science Innovations, Inc.
("CSI"). On November 16, 1995, Ashton
acquired an additional 2,000 Class A voting
common shares and 42,000 Class B nonvoting
common shares which increased its investment
to 29% of the total number of common shares
outstanding. For the year ended March 31,
1996, this investment has been accounted for
by Ashton using the equity method. On May 2,
1996, the effective date of the Company's
initial public offering (the "Offering"),
Ashton purchased additional shares of Class A
voting and Class B nonvoting common stock of
CSI which enabled Ashton to own 80% of each
class of CSI's common stock. The results of
operations of CSI are included in the
accompanying consolidated financial
statements since May 2, 1996, the date of
acquisition.
The Company was founded to exploit
opportunities in the rapidly evolving
businesses of Internet and electronic
commerce through the application of its
skills and advanced technologies in
securities trading and information security.
The Company designs, develops and markets
online transactional systems, especially for
the securities industry, and information
security technologies. Ashton has designed
and developed the Ashton Technology
Encryption Device ("ATED") and UTTC has
designed and developed the Universal Trading
System ("UTS(TM)").
CSI's revenue on time and materials-type
contracts is recognized as work is performed.
Revenue from cost-reimbursement contracts is
recorded as costs are incurred and includes
estimated earned fees in the proportion that
costs incurred to date bear to total
estimated costs. CSI recognizes revenue from
long-term fixed-price contracts on the
percentage-of-completion method, measured by
the percentage of contract costs incurred to
date to estimated total contract costs for
each contract.
Cost of revenue includes all direct material
and labor costs and those indirect costs
related to contract performance. Provisions
for estimated losses on uncompleted
fixed-price contracts are made in the period
in which such losses are first estimated. The
cumulative effect of revisions to estimated
total contract costs and revenue is recorded
in the period in which the facts requiring
the revision become known. Claims, including
change orders, are reflected at estimated
recoverable amounts. An allowance for
doubtful accounts is recorded in the period
in which such accounts are determined to be
uncollectible.
Development costs are expensed as incurred
until the UTS(TM) and ATED models are
functional. Subsequent costs will be
capitalized and reported at the lower of
unamortized cost or net realizable value.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenue and expenses during the reporting
period. Actual results could differ from
those estimates.
The Company considers highly liquid
investments with an original maturity of
three months or less to be cash equivalents.
In February 1997, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128,
Earnings per Share. Management does not
believe SFAS No. 128 or any other recently
issued, but not yet effective, accounting
standards, if currently adopted, would have a
material effect on the accompanying
consolidated financial statements.
Depreciation of property and equipment is
provided for using the straight-line method
over the estimated useful life of the related
assets. Amortization of leasehold
improvements is provided for using the
straight-line method over the term of the
lease.
Offering costs are comprised primarily of
accounting, legal, printing and certain
underwriting fees. Upon consummation of the
Offering described in Note 5, these costs
were offset against the proceeds from the
transaction.
At each balance sheet date the Company
evaluates the period of amortization of
intangible assets. The factors used in
evaluating the period of amortization
include: (i) current operating results, (ii)
projected future operating results, and (iii)
any other material factors that affect the
continuity of the business.
Net loss per common share was computed based
upon the weighted average number of common
shares outstanding. For the year ended March
31, 1996, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83,
shares of common stock issued or stock
options granted during the 12-month period
preceding the date of the initial filing of a
Registration Statement at prices below the
Offering price have been included in the
weighted average number of shares outstanding
since inception.
In 1997, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation. The
Company has elected to apply APB Opinion No.
25 and related interpretations in accounting
for its stock options issued to employees and
has adopted the disclosure-only provisions of
SFAS No. 123.
2. CONTRACTS Contracts receivable consist of the following at March
RECEIVABLE AND 31, 1997:
MAJOR
CUSTOMERS: U.S. government-defense (prime and subcontracts):
Amounts billed $ 364,403
Retainages, representing unbilled
costs and estimated earnings on
progress completed 82,145
------------------------------------------------------
446,548
======================================================
Commercial and other governmental:
Amounts billed 1,086,732
Unbilled costs and estimated earnings
on progress completed 12,383
------------------------------------------------------
1,099,115
-------------------------------------------------------
Allowance for doubtful accounts (62,500)
------------------------------------------------------
$1,483,163
======================================================
There were no progress billings on U.S.
government fixed contracts.
The portions of revenue derived from
contracts with major customers for the
year ended March 31, 1997 were as follows:
One U.S. government agency 6%
------------------------------------------------------
One U.S. Armed Forces branch 5%
------------------------------------------------------
One U.S. government subcontract 1%
------------------------------------------------------
One commercial customer 63%
------------------------------------------------------
All U.S. government branches and agencies 23%
3. PROPERTY AND Property and equipment, at cost, consist
EQUIPMENT of the following as of March 31, 1997:
Estimated
Useful Life
------------------------------------------------------
Office equipment $188,887 3 to 5 years
Computer equipment 1,228,149 3 years
Furniture and fixtures 239,606 7 years
Leasehold improvements 140,552 Term of lease
------------------------------------------------------
1,797,194
Less accumulated
depreciation and
amortization 755,745
------------------------------------------------------
$1,041,449
===============================================================================
Depreciation and amortization expense for the years
ended March 31, 1996 and 1997 was $5,348 and $242,255,
respectively.
4. ACCOUNTS Accounts payable and accrued expenses consist of the
PAYABLE AND following:
ACCRUED
EXPENSES: Trade accounts payable $792,622
Accrued compensation 640,930
Accrued professional fees 281,639
Accrued other expenses 222,561
------------------------------------------------------
$1,937,752
=======================================================
5. INITIAL PUBLIC On May 2, 1996, the Company completed an Offering of
OFFERING: 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 tradeable. 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 Offering price, 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 Offering, the Company
received net proceeds of approximately $10,395,000 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, certain notes payable and related accrued
interest in existence through the date of the Offering
and provided working capital. The net proceeds were
also used to purchase the additional shares of CSI
stock as described in Note 8.
6. LONG-TERM In October 1995, the Company raised $650,000 by issuing
DEBT: 13 units through a private placement. Each unit
consisted of a $49,000 10% nonconvertible promissory
note due in April 1997 and a $1,000 10% convertible
promissory note due in October 1998. The $1,000
convertible notes are convertible into warrants to
purchase 20,000 shares of common stock through October
1998 at $8 per share. Interest is payable semiannually
on these notes. The nonconvertible notes were repaid in
May 1996 with the proceeds of the Offering (see Note
5).
7. NOTES PAYABLE At March 31, 1996, the Company had a note payable in
TO STOCK- the amount of $615,176 to The Dover Group Inc.
HOLDERS ("Dover"), a stockholder of the Company, which note was
issued in connection with the acquisition of the common
stock of CSI (see Note 8). In addition, during 1995,
Dover loaned UTTC $43,430.
As of March 31, 1996, the Company had a $100,000 loan
payable to Medford Financial, Inc. ("Medford"), a
company whose principals are stockholders of the
Company. Medford has agreed to provide certain
consulting services to the Company over a three-year
period.
In January 1996, the Company purchased 200,000 shares
of its common stock from a stockholder for an aggregate
purchase price of $300,000. The purchase price was paid
by Ashton with a promissory note.
In January 1996, an officer/stockholder loaned the
Company $150,000. Additionally, the company had other
stockholder loans totaling $36,165.
All of the loans mentioned above were repaid in May
1996 with the proceeds of the Offering (see Note 5).
8. ACQUISITIONS: In October 1995, Ashton acquired 4,000,000 common
shares of UTTC in exchange for 2,640,000 shares of
Ashton's common stock. This acquisition represents 80%
of the outstanding common shares of UTTC. The purchase
price of $1,320,000 resulted in an allocation of
approximately $1,349,952 to UTTC's UTS(TM), an
intangible asset with no alternative future use. This
amount has been considered to be a development cost
which has been charged to operations in the year ended
March 31, 1996.
In June 1995, Ashton acquired 650,798 Class A voting
common shares and 16,726 Class B nonvoting common
shares of CSI, which represents 26% of the total number
of common shares outstanding, 47% of the outstanding
voting shares and 1.5% of the outstanding nonvoting
shares of CSI for a purchase price of $667,524, paid in
cash. Dover advanced Ashton substantially all of the
funds for this acquisition. Additionally, Dover
received warrants to purchase 500,000 shares of the
Company's common stock at an exercise price of $8 per
share. The warrants are exercisable on or before
October 10, 1998. In November 1995, Ashton acquired an
additional 2,000 Class A voting common shares and
42,000 Class B nonvoting common shares for a purchase
price of $11,500, paid in cash. The purchases increased
Ashton's investment to 29% of the total number of
common shares outstanding.
In connection with the May 2, 1996 Offering as
described in Note 5, Ashton purchased an additional
469,155 shares of CSI's Class A voting stock and an
additional 1,557,210 shares of Class B nonvoting common
stock for $865,565. On June 11, 1996, Ashton acquired
an additional 12,053 of Class A voting common shares
and 1,261 Class B nonvoting common shares of CSI for
$6,100, and subsequently purchased additional shares.
After such purchases, Ashton now owns 83.18% of the
aggregate Class A and Class B common stock.
The total cumulative purchase price of $1,591,189 as of
March 31, 1997 in this step acquisition resulted in an
excess of cost over Ashton's proportionate share of its
equity in the fair value of the net assets of CSI
(goodwill) of approximately $640,000 which is being
amortized over 15 years. Amortization of goodwill for
the years ended March 31, 1996 and 1997 was $25,900 and
$38,423, respectively.
The following pro forma information presents the
results of operations of the Company as though the
acquisitions occurred on April 1, 1995 and 1996.
<PAGE>
Year ended March 31, 1996 1997
------------------------------------------------------
Net revenue $3,667,000 $5,341,000
Net loss (2,431,000) (6,813,000)
Loss per common share $(.46) $(.93)
The following is a condensed balance sheet and
statement of operations for CSI, the unconsolidated
investee, at and for the year ended March 31, 1996:
Current assets $ 1,048,097
Property and equipment, net 165,015
Other assets 18,712
------------------------------------------------------
Total assets $1,231,824
======================================================
Current liabilities $431,305
Stockholders' equity 800,519
------------------------------------------------------
Total liabilities and
stockholders' equity $1,231,824
======================================================
Revenue $3,666,864
Expenses 3,423,651
------------------------------------------------------
Net income $243,213
======================================================
Net income per common
share $.10
======================================================
Weighted average number of
common shares outstanding 2,491,234
======================================================
9. INCOME TAXES: The provision for income taxes consists of the
following for the year ended March 31, 1997:
Current - state $59,000
------------------------------------------------------
Deferred:
Federal 48,000
State 3,000
------------------------------------------------------
51,000
------------------------------------------------------
$110,000
======================================================
The company has net operating loss carryforwards at
March 31, 1997 of approximately $5,800,000, which will
begin to expire in 2011, available to reduce future
federal taxable income. Additionally, the income tax
basis of intangibles exceeds the basis for financial
reporting purposes by approximately $1,400,000. The
carryforwards and the temporary difference result in a
deferred tax asset of approximately $2,740,000 at March
31, 1997 for which the Company has provided a full
valuation allowance due to the uncertainty about the
future realization of this tax benefit.
The components of deferred income taxes at March 31,
1997 were as follows:
Net operating loss carryforward $2,200,000
Basis of intangible asset 540,000
Valuation allowance (2,740,000)
------------------------------------------------------
$-0-
======================================================
The difference between the income tax benefit computed
at the federal statutory rate and the actual provision
for income taxes is accounted for as follows:
Year ended March 31, 1996 1997
------------------------------------------------------
Tax benefit computed
at the federal
statutory rate $(880,000) $(2,290,000)
Change in valuation
allowance 880,000 2,290,000
State income taxes, net
of federal
income tax effect - 110,000
------------------------------------------------------
$-0- $110,000
======================================================
The Company files a consolidated federal income tax
return. In 1997, Ashton entered into an agreement with
CSI and UTTC. The agreement provides that any member of
the group which has taxable income must compensate any
other member for the use of net operating losses and
tax credits.
======================================================
10. RELATED PARTY During 1996, the Company paid approximately $314,000 to
TRANSACTIONS: CSI for the development of encryption coding and the
UTS(TM) on-line transaction system. These expenses are
reflected in development costs as of March 31, 1996.
11. EMPLOYEE Stock options are granted to employees at the
STOCK OPTIONS: discretion of the board of directors. A summary of the
status of the Company's employee stock options as of
March 31, 1996 and 1997 and changes during those years
are as follows:
1996 1997
------------------------------------------------------
Weighted- Weighted-
Average Average
Fixed Exercise Exercise
Options Options Price Options Price
------------------------------------------------------
Outstanding
at beginning
of year - - 350,000 $4.00
Granted
during year 350,000 $4.00 100,000 14.25
Outstanding
at end of
year 350,000 $4.00 450,000 $6.28
======================================================
The following table summarizes information about stock
options outstanding and exercisable at March 31, 1997:
Weighted-
Average
Range of Remaining
Exercise Number Contractual Exercise
Price Outstanding Life Price
------------------------------------------------------
$4.00-$14.25 450,000 9 years $6.28
======================================================
None of the above options were exercisable at March 31,
1997.
In addition, a summary of the status of UTTC's employee
stock options as of March 31, 1997 and changes during
the year ended is as follows:
Weighted-Average
Options Exercise Price
------------------------------------------------------
Granted during year
and outstanding at
end of year 400,000 $1.50
======================================================
The following table summarizes information about stock
options outstanding and exercisable at March 31, 1997:
Weighted-
Average
Range of Remaining
Exercise Number Contractual Exercise
Price Outstanding Life Price
------------------------------------------------------
$1.50 400,000 4.36 years $1.50
======================================================
None of the above options were exercisable at March 31,
1997.
Had the Company elected to recognize compensation cost
based on the fair value of the options granted at the
grant date as prescribed by SFAS No. 123, net loss and
loss per share would not have materially changed
because the options issued had no value at the grant
date based on an independent valuation of the Company.
Concurrent with the Offering, the Company registered
760,000 additional warrants to purchase common stock.
Such warrants are identical to the warrants described
in Notes 6 and 8 and were issuable automatically upon
the completion of the Offering in exchange for the
already existing outstanding common stock warrants.
12. COMMITMENTS, The Company leases office facilities under operating
CONTINGENCIES, leases expiring through May 2005. Future minimum
SETTLEMENTS operating lease payments are as follows:
AND
CORPORATE Year ending March 31,
RESTRUCTURING 1998 $ 441,000
COSTS: 1999 392,000
2000 337,000
2001 337,000
2002 154,000
Thereafter 501,000
------------------------------------------------------
$2,162,000
======================================================
Rent expense under these operating lease for the years
ended March 31, 1996 and 1997 totaled approximately
$24,000 and $390,000, respectively.
The Company has employment agreements which require the
Company to pay approximately $1,257,000 through
September 1999.
In September 1995, UTTC entered into an agreement with
the Philadelphia Stock Exchange ("PHLX") whereby the
PHLX has agreed to employ UTTC's UTS(TM) on its equity
trading floor. In connection with this agreement, UTTC
is required to reimburse the PHLX up to $100,000 for
the first year of the agreement for marketing costs
incurred by the PHLX. UTTC is also required to assume
up to $200,000 of the PHLX's initial technology
development costs in implementing the UTS(TM). UTTC is
required to contribute to a PHLX administered "claim
fund" for potential claims relating to the UTS(TM)
operations. UTTC is required to contribute $100,000
after commencement of the UTS(TM) trading and, if
necessary, to make additional contributions of up to
$100,000 per year to such claim fund. The PHLX is also
entitled to receive an annual royalty from UTTC of 3%
of annual gross revenue based on UTTC's average revenue
in the first three years of operations for each year
the PHLX agreement is in effect. These payments are
required to begin at the end of the second full year of
operation and continue for the life of the PHLX
agreement.
CSI has a line of credit arrangement with a bank under
which it may borrow up to $500,000, payable on demand.
The bank has limited CSI's borrowing availability under
the line of credit to the lesser of $500,000 or 80% of
billed contracts receivable less than 90 days from
invoice date ($881,821 at March 31, 1997). Interest is
charged at the bank's prime rate (8.5% at March 31,
1997). CSI must maintain minimum net worth, working
capital and maintain certain financial ratios. The
borrowings are collateralized by all contracts
receivable, contract rights, inventory and equipment.
Additionally, five specific government contracts have
also been assigned as additional collateral. At March
31, 1997, CSI had no borrowings under this line of
credit.
Each year, CSI's records are subject to Defense
Contract Audit Agency review. During March 1996, CSI's
records were reviewed as of March 31, 1995 and 1994. No
adjustments or substantive issues were raised during
the current year review.
On January 30, 1997, Ashton, along with UTTC, Fredric
W. Rittereiser ("Rittereiser") and Dover (of which
Rittereiser is the chairman) entered into a Settlement
Agreement related to a dispute with David N. Rosensaft
("Rosensaft") (a cofounder of UTTC) under which a
consulting agreement among Ashton, UTTC and Rosensaft
dated January 19, 1996 was deemed to be void ab initio
and each of the parties released and discharged each of
the other parties from any and all agreements and
claims which any of them have against any of the other
parties. The Settlement Agreement granted Rosensaft
registration rights under the Securities Act of 1933,
as amended (the "Securities Act") under certain terms
and conditions for the 333,333 shares of UTTC common
stock that he owns. Also on January 30, 1997, Ashton,
Dover, Rittereiser and Rosensaft entered into a Stock
Purchase Agreement under which Dover and Rittereiser or
his or its designee, agreed to purchase the 750,000
shares of Ashton common stock owned by Rosensaft on
April 10, 1997 for a total purchase price of $2,000,000
and Ashton granted Dover and Rittereiser or his or its
designees, registration rights under the Securities Act
under certain conditions for the 750,000 shares. On or
about April 10, 1997, Ashton advised Rosensaft that the
Rosensaft agreement was null and void and Rittereiser
and Dover declined to purchase the 750,000 shares.
On May 1, 1997, Rosensaft commenced an action in the
United States District Court for the Southern District
of New York entitled David N. Rosensaft v. The Ashton
Technology Group, Inc., UTTC, Dover and Fredric
Rittereiser (collectively the "Defendants") No. 97 Civ.
3138, asserting 10 claims against the Defendants
including breach of contract and securities fraud and
seeking, inter alia, specific performance of the
Settlement Agreement dated January 30, 1997, between
and among the parties or in the alternative, actual and
consequential damages in an amount to be proved at
trial in addition to punitive damages. On June 11,
1997, Rosensaft served a First Amended Complaint adding
three additional claims against the Defendants,
relating to Ashton's refusal to allow Rosensaft's sale
of his Ashton shares.
On June 26, 1997, the Defendants filed their answers
and counterclaims generally denying the allegations of
the First Amended Complaint and alleging six
counterclaims against Rosensaft including that (i)
Rosensaft acquired 1,100,000 shares of Ashton common
stock from Ashton on the basis of false and misleading
statements and common law fraud, and (ii) Rosensaft
breached his January 19, 1996 consulting agreement with
the Company (the "Agreement") by (a) failing to carry
out his duties as a consultant under the Agreement, (b)
violating the provisions of the Agreement restricting
his use of confidential information of the Company, (c)
failing to adhere to the noncompetition provisions of
the Agreement, (d) misappropriating for himself the
property rights of UTTC relating to the Company's
UTS(TM) and (e) failing to return to UTTC and/or Ashton
valuable property and information, including
confidential documents and computer equipment belonging
to UTTC and/or Ashton.
On October 22, 1996, the Company entered into a
settlement agreement (the "Settlement Agreement")
related to a dispute involving Robert A. Eprile, John
A. Blohm, Rittereiser, Dover, F.E. Weimmer, Jr., F.E.
Weimmer, Sr., F.E. Rittereiser, Sr., and Thomas
Rittereiser, as trustee for Alexis J. Rittereiser,
Amanda Weimmer and John Weimmer, Raymond T. Tate
("Tate"), Helen J. Tate, as trustee for the Andrew
Patrick Tate Trust, Helen J. Tate, as trustee for the
Susan Katherine Tate Burrowbridge Trust and Helen J.
Tate, as trustee for the Elizabeth Tate Winters Trust
(collectively 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, 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 of
UTTC, to fill the vacancy on the Company's board of
directors created by the resignation of 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 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 $.01 per share
(the "Common Stock"), from the Tate Trust for a total
purchase price of $4,500,000. Pursuant to the
Settlement Agreement and in consideration for $1,
Rittereiser granted Tate the option (the "Put Option"),
exercisable at any time during the five business days
following the exercise of the Call Option, to require
Rittereiser to purchase from Tate the 107,500 shares of
common stock of the Company owned, beneficially or
otherwise, by Tate for a total purchase price of
$483,750. Rittereiser did not exercise the Call Option
prior to its expiration.
As a result of the Call Option, Rittereiser was deemed
to beneficially own 1,000,000 shares, or approximately
13.2%, of the outstanding Common Stock of the Company
at March 31, 1997.
In addition, on October 22, 1996, Tate and the Company
also entered in a license agreement (the "License
Agreement"). Under the terms of the License Agreement,
the Company granted 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 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, 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 revenue
earned from the use of the Licensed Technology. Tate's
right to use the Licensed Technology will be exclusive,
provided 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. Tate may
assign the license to any person or entity controlled
by Tate.
Additionally, the Company and Tate also entered into a
consulting agreement, dated October 22, 1996 (the
"Consulting Agreement"). Under the terms of the
Consulting Agreement, the Company retained Tate to act
as a consultant to CSI 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 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 which was charged to operations
during the year ended March 31, 1997 and is included in
corporate restructuring costs. 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.
On October 24, 1996, the Securities and Exchange
Commission ("SEC") commenced a private investigation
concerning the circumstances under which Ashton's
subsidiary, UTTC, obtained a contract with the PHLX to
develop and install an electronic trading and pricing
system. Ashton provided testimony to the SEC on
February 12, 1997 through its chairman, Robert Eprile,
and has not been contacted about the matter since that
date. In March 1997, the SEC directed the PHLX to make
certain changes in its governance procedures and in
April 1997 the PHLX announced a reorganization of its
board of governors and changes in its governance
procedures.
13. SUBSEQUENT On April 18, 1997, UTTC completed a private placement
EVENTS: of $3,000,000 in notes, consisting of $2,550,000
nonconvertible and $450,000 convertible notes, to
accredited investors. The convertible notes are
convertible into 450,000 shares of UTTC common stock.
These notes bear interest at 9% per annum, payable on
January 31, annually, and are due January 31, 1999. The
Company received net proceeds of approximately
$2,600,000, after deducting debt issue costs of
approximately $400,000. The debt issue costs will be
amortized over the term of the notes.
The accompanying pro forma balance sheet presents the
financial position of the Company as it would have
appeared at March 31, 1997 had the notes been issued on
that date.
In May 1997, the Company formed a wholly owned
subsidiary, Gomez Advisors, Inc. ("Gomez"). Gomez will
provide banks, broker-dealers, insurance companies and
other financial intermediaries with advice concerning
the business potential of the Internet as a tool for
use in marketing and in the interactive distribution of
financial products. The range of services that will be
provided by Gomez include strategy development,
marketing, product and interface design, and
implementation planning.
14. QUARTERLY In the financial statements included in the Company's
RESULTS quarterly filings on Form 10-QSB for the year ended
(UNAUDITED) March 31, 1997, the Company did not eliminate
intercompany transactions between Ashton and its
Subsidiaries. After eliminating intercompany
transactions, the financial position and results of
operations of the Company as of and for the quarterly
periods were as follows:
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
As As As
Previously As Previously As Previously As
Reported Restated Reported Restated Reported Restated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets $7,788,861 $7,661,841 $6,075,412 $5,934,120 $4,594,863 $4,372,505
Liabilities 507,637 380,617 983,629 842,337 1,442,337 1,219,979
Stockholders' Equity Unchanged Unchanged Unchanged
Net Revenue 1,413,645 1,016,675 1,748,443 1,265,340 1,501,244 1,144,977
Total costs and expenses 2,230,930 1,833,960 4,029,901 3,546,798 2,667,722 2,311,455
Net Loss Unchanged Unchanged Unchanged
Loss per common share Unchanged Unchanged Unchanged
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 3, 1996, the Company, with the approval of its Board of Directors,
decided not to continue its relationship with its independent public
accountants, Goldstein Golub Kessler & Company, P.C. ("GGK"), which principal
executive offices are in New York, New York. GGK served as the Company's
independent public accountants for the fiscal year ended March 31, 1995 and for
the Offering. However, as the Company was located in Columbia, Maryland at that
time, the Board of Directors of the Company decided to engage a Maryland-based
accounting firm. GGK's reports on the financial statements of the Company did
not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
There were no disagreements with GGK on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved to the satisfaction of GGK, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report.
The Baltimore, Maryland office of Arthur Andersen LLP ("Andersen") was
engaged as the Company's independent public accountants effective June 3, 1996
and performed the audit for the fiscal year ended March 31, 1996. However, after
the principal executive offices of the Company were relocated to Philadelphia,
Pennsylvania, the Company decided to re-engage GGK. The decision to change
accountants was approved by the Company's Board of Directors. On April 30, 1997,
Andersen was dismissed as the principal independent accountants engaged in
auditing the financial statements of the Company. Andersen's report on the
financial statements of the Company for the 1996 fiscal year (which was the only
year for which Andersen acted as the Company's principal independent
accountants) did not contain an adverse opinion or a disclaimer of opinion and
was not modified as to uncertainty, audit scope or accounting principles. There
were no disagreements with Andersen on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which,
if not resolved to the satisfaction of Andersen, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
report.
On April 30, 1997, GGK was re-engaged as principal independent accountants
to audit the financial statements of the Company and its subsidiaries. As noted,
GGK was the Company's auditor for its fiscal year ended March 31, 1995 and for
Ashton's Offering.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning each of the
directors and executive officers of Ashton:
NAME AGE POSITION
Robert A. Eprile 43 Chairman of the Board and Treasurer
Fredric W. Rittereiser 60 President, Chief Executive Officer
and Director
John A. Blohm 51 Executive Vice President,
Secretary and Director
Fred S. Weingard 43 Executive Vice President and Director
Robert A. Eprile is a co-founder of UTTC and has been involved in the
development of the UTS(TM) system since 1993. He has been President and Chief
Executive Officer of UTTC since its inception; and has been Chairman of the
Board and Treasurer since October 1986. He has served as a Director of Ashton
since October 1995; from 1986 to 1994, Mr. Eprile was President of Eprile &
Associates, a management consulting firm specializing in the turn-around of
troubled companies and the application of quantitative techniques to finance and
trading. Mr. Eprile's clients have included major U.S. securities exchanges,
commercial, investment and merchant banks, mutual fund and money management
firms and companies involved in finance, marketing and real estate. From 1992 to
1993, Mr. Eprile was also Interim Chief Operating Officer of TW ComCorp., a
telecommunications distribution company where he managed a successful
turn-around. Mr. Eprile received an M.B.A. degree from Stanford University
Graduate School of Business and a B.A. degree from Oberlin College.
Fredric W. Rittereiser has been President and Chief Executive Officer of
Ashton since October 1996 and a member of the Board since December 1996. Mr.
Rittereiser has been active as an independent management consultant since 1990,
serving mainly companies involved in the financial services industry, having
served in senior management positions with a number of investment banking firms
prior to his becoming an independent management consultant. He also has
extensive experience in the development and introduction of electronic
securities trading systems, having served as President, Chief Operating Officer
and Director of Instinet Corporation, a publicly held corporation, from 1983
through 1985.
John A. Blohm has served as Executive Vice President and a Director of
Ashton since December 1994, is a co-founder of CSI(R) and has served as Chairman
of the Board of Directors of CSI(R) since 1983 and is a former President and
Chief Executive Officer of CSI(R). He has over 27 years of experience in systems
development integration and engineering. Before co-founding CSI(R), Mr. Blohm
was the Section Head of Real Time Software for Harris Corporation, Government
Systems Division. Mr. Blohm serves on several alumni and advisory boards,
including The Johns Hopkins University Board of the Society of Engineering
Alumni and the Florida Institute of Technology School of Business Board of
Overseers. He received his M.S. degree from The American University and a
Bachelor of Engineering Science degree from The Johns Hopkins University.
Fred S. Weingard has been Executive Vice President of Technology and
Advanced Computing Programs since July 1996 and a Director since October 1996.
Mr. Weingard was employed at Booz Allen & Hamilton Inc. from 1986 through June
1996. From June 1991 through June 1996 he served as a principal at that firm. In
addition, Mr. Weingard is a Professional Engineer in Mechanical Engineering and
is registered in New York State and Washington State. Mr. Weingard was the
founder and director of Booz Allen's Advanced Computational Technologies &
System. Mr. Weingard is a nationally recognized expert in the field of neural
networks and has been an invited panelist/lecturer for government, industry,
academia, and professional societies. He has authored over 12 scientific papers
and publications. He is the sole inventor of a fundamentally new neural network
called Self-Organizing Analog fields (SOAF) capable of discovering natural
structure in unlabeled spatiotemporal data (US patent No. 5,179,596, issued
January 12, 1993). A second related patent (US patent No. 5,493,688) was granted
to Mr. Weingard on February 20, 1996. Mr. Weingard is also credited with
inventing five premiere Booz Allen proprietary technologies/products. He has a
degree in Engineering Physics and an M.E. degree in Nuclear Engineering from
Cornell University, and an M.S. degree in Computer Science from George
Washington University.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount of all compensation paid by
Ashton during the years ended March 31, 1996 and March 31, 1997 to Ashton's
Chairman Robert Eprile, former Chairman, President and Chief Executive Officer
Raymond T. Tate, and to Ashton's new Chairman, since October 26, 1996, Robert A.
Eprile, Ashton's President and Chief Executive Officer Fredric W. Rittereiser,
Executive Vice President John A. Blohm, and Executive Vice President Fred S.
Weingard.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
COMPENSATION ------------------- ---------
- ------------ RESTRICTED NUMBER LTIP ALL
NAME AND STOCK OF PAYOUTS OTHER
PRINCIPAL POSITION YEAR SALARY($) FRINGE($) OTHER($) TOTAL AWARDS OPTIONS ($) COMP.($)
- ------------------------- ---- --------- --------- -------- ----- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond T. Tate, 1996 50,000 -0- 78,808(1) 128,808 -0- -0- -0- -0-
former Chairman, 1997 143,937 4,500 531,063(2) 679,500 -0- -0- -0- -0-
President, and Chief
Executive Officer
Robert A. Eprile,(3) 1996 37,500 -0- -0- 37,500 -0-(4) -0- -0- -0-
Chairman, Ashton 1997 92,308 -0- -0- 92,308 -0-(4) -0- -0- -0-
President and CEO, UTTC
Fredric W. Rittereiser,(3) 1996 -0- -0- -0- -0- -0- -0- -0- -0-
President and CEO, Ashton 1997 -0- -0- -0- -0- -0- -0- -0- -0-
Chairman, UTTC
John A. Blohm, (3) 1996 115,773 -0- -0- 115,773 -0- 350,000(5) -0- -0-
Executive Vice President 1997 76,945 1,410 -0- 78,355 -0- -0- -0- -0-
Fred S. Weingard, 1996 -0- -0- -0- -0- -0- -0- -0- -0-
Executive Vice President 1997 215,192 -0- -0- 215,192 -0- 100,000(6) -0- -0-
</TABLE>
- ---------------------------
(1) Represents payment of the premium of a life insurance policy for the
benefit of the family of Mr. Tate in the amount of $1,500,000.
(2) Represents payments of the premium of a life insurance policy for the
benefit of the family of Mr. Tate until the date of the Settlement
Agreement on October 22, 1996 and certain expenditures that benefited Mr.
Tate personally for which he was provided a Form 1099 and $252,000 in
additional funds shown in the Restructure Costs agreed to under the
Settlement Agreement of October 22, 1996, of which $53,269 was paid in the
fiscal year ended March 31, 1997. This figure does not reflect $250,000
paid to Mr. Tate by Mr. Rittereiser and The Dover Group for a "Call Option"
on the Tate stock per the Settlement Agreement pursuant to the terms of
which Mr. Tate resigned.
(3) Robert A. Eprile, Fredric W. Rittereiser and John A. Blohm volunteered not
to take any cash compensation from the Company since taking over management
of the Company in November 1996.
(4) Does not include 1,100,000 shares of Common Stock received by Mr. Eprile
from Ashton in exchange for 1,666,667 shares of common stock of UTTC on
October 25, 1995.
(5) On January 31, 1996, Ashton's Board of Directors granted Mr. Blohm options
to purchase 350,000 shares of Common Stock at a purchase price of $4.00 per
share. These options shall vest on April 1, 1997 and become exercisable in
annual installments of 70,000 options on April 1, 1997, 70,000 options on
April 1, 1998 and 210,000 options on April 1, 1999 and shall expire on
April 1, 2006.
(6) On June 21, 1996, Mr. Weingard was granted options to purchase 100,000
shares of Common Stock at a purchase price of $14.25 per share. These
options shall vest on April 1, 1997 and become exercisable in annual
installments of 20,000 options on April 1, 1997, 20,000 options on April 1,
1998 and 60,000 options on April 1, 1999 and shall expire on April 1, 2006.
These options will terminate in the event that Mr. Weingard is not
continuously employed by the Company from the date of grant through June
21, 1997.
Since inception, Ashton has not granted stock appreciation rights or
options (except those granted to John A. Blohm and Fred S. Weingard) and does
not have a defined benefit or actuarial plan.
OPTION GRANTS TABLE
The following table sets forth information with respect to individual
grants of stock options during the year ended March 31, 1997 of each of the
executive officers named in the summary compensation table above. Ashton did not
grant any stock options or stock appreciation rights during the year ended March
31, 1996 except for stock options to John A. Blohm and did not grant any in the
year ended March 31, 1997 except for stock options to Fred S. Weingard.
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDED MARCH 31, 1997
POTENTIAL REALIZABLE
AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
- ---------------------------------------------------------------------------------------------- ---------------------
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES
OPTIONS IN YEAR EXERCISE
GRANTED ENDED PRICE EXPIRATION
NAME (#) 3/31/97(1) ($/SHARE) DATE 5%($) 10%($)
- ------------------ ----------- --------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Fred S. Weingard 100,000 100% 14.25 4/01/06 N/A N/A N/A
</TABLE>
(1) The percentage of total options granted to employees in the fiscal year is
based upon options granted to all officers, directors, and employees.
(2) The potential realizable value of each grant of options assumes that the
market price of the Common Stock appreciates in value from the date of
grant to the end of the option term at annualized rates of 5% and 10%,
respectively, and after subtracting the exercise price from the potential
realizable value.
AGGREGATED OPTION EXERCISES IN YEAR ENDED MARCH 31, 1997 AND YEAR END OPTION
VALUES
No executive officer named in the Summary Compensation Table exercised any
options during the years ended March 31, 1996 and March 31, 1997. The
information provided in the table below with respect to each of the executive
officers named in the Summary Compensation Table provides information which
reflects that no options were exercised during the year ended March 31, 1997 and
provides information as to an assumed value of $4.50 at the end of the year
ended March 31, 1997 and value of unexercised options.
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNEXERCISED OPTIONS VALUE OF UNEXERCISED
ACQUIRED ON VALUE AT FY-END (#) OPTIONS AT FY-END ($)
NAME EXERCISES REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------- ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
John A. Blohm -0- -0- -0-/350,000 -0-/-0-
Fred S. Weingard -0- -0- -0-/100,000 -0-/-0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ASHTON
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by (i) each person who is known by the Company to
own beneficially more than five percent of the Common Stock, (ii) each of
Ashton's officers and directors and (iii) all officers and directors as a group:
NUMBER OF SHARES OF
COMMON STOCK PERCENT
NAME /ADDRESS OF STOCKHOLDER PRESENTLY OWNED OWNED (1)
John A. Blohm 82,500(2) 1.1(2)
c/o The Ashton Technology Group, Inc.
1900 Market Street
Suite 701
Philadelphia, PA 19103
Robert A. Eprile 750,000 9.9
c/o The Ashton Technology Group, Inc.
1900 Market Street
Suite 701
Philadelphia, PA 19103
Fredric W. Rittereiser -0-(3) -0-
c/o The Ashton Technology Group, Inc.
1900 Market Street
Suite 701
Philadelphia, PA 19103
Fred S. Weingard 20,000(4) 0.3(4)
c/o The Ashton Technology Group, Inc.
1900 Market Street
Suite 701
Philadelphia, PA 19103
All officers and directors of the 852,500(5) 11.1(5)
Company and its subsidiaries as a
group (4 persons)
Raymond T. Tate 1,107,500(6) 14.6
17299 Pond Road
Ashton, Maryland 20861
The Dover Group, Inc. 1,078,500(7) 13.8(7)
70 East Water Street
Toms River, NJ 08753
David N. Rosensaft 750,000(8) 9.9
214 East 68th Street
Suite 120
New York, NY 10021
Medford Financial Inc. 400,000(9) 5.3
26 Highpoint Drive
Medford, NJ 08055
(1) Assumes 7,562,500 shares of Common Stock outstanding.
(2) Includes 70,000 shares of Common Stock issuable upon exercise of options to
purchase Common Stock held by John A. Blohm, which are exercisable on April
1, 1997. Pursuant to Securities Exchange Act Rule 13d-3(d)(1)(i), the
70,000 shares issuable upon exercise of options shall be deemed outstanding
for the purpose of computing the percentage of outstanding Common Stock
owned by John A. Blohm. Thus, 7,632,500 shares of Common Stock are
outstanding for purposes of computing the percentage of outstanding Common
Stock owned by John A. Blohm.
(3) See Item 12: Certain Relationships and Related Transactions.
(4) Includes 20,000 shares of Common Stock issuable upon exercise of options to
purchase Common Stock held by Fred S. Weingard, which are exercisable on
April 1, 1997. Pursuant to Securities Exchange Act Rule 13d-3(d)(1)(i), the
20,000 shares issuable upon exercise of options shall be deemed outstanding
for the purpose of computing the percentage of outstanding Common Stock
owned by Fred S. Weingard. Thus, 7,582,500 shares of Common Stock are
outstanding for purposes of computing the percentage of outstanding Common
Stock owned by Fred S. Weingard.
(5) Includes 70,000 shares and 20,000 shares of Common Stock issuable upon
exercise of options to purchase Common Stock held by John A. Blohm and Fred
S. Weingard, respectively, as explained in footnotes 2 and 4 above, which
are exercisable on April 1, 1997. Pursuant to Securities Exchange Act Rule
13d-3(d)(1)(i), the 90,000 shares issuable upon exercise of options shall
be deemed outstanding for the purpose of computing the percentage of
outstanding Common Stock owned by all officers and directors of the Company
and its subsidiaries as a group. Thus, 7,652,500 shares of Common Stock are
outstanding for purposes of computing the percentage of outstanding Common
Stock owned by all officers and directors of the Company and its
subsidiaries as a group.
(6) Includes 1,000,000 shares of Common Stock held in trust for the benefit of
three of Mr. Tate's adult children for which his wife serves as trustee.
Mr. Tate disclaims beneficial ownership of such shares of Common Stock.
(7) Includes 240,000 shares of Common Stock issuable upon exercise of the
warrants held by Dover. Also includes 325,000 shares of Common Stock held
by members of the extended Rittereiser and Weimmer families and family
trusts that control Dover held as follows: (i) Dr. F. E. Weimmer, Jr.,
President and Director of Dover, owns 10,000 shares of Common Stock, (ii)
F. E. Weimmer, Sr., Director of Dover, owns 130,000 shares of Common Stock,
(iii) F. E. Rittereiser, Sr., Director of Dover, owns 75,000 shares of
Common Stock, (iv) T. Rittereiser, Director of Dover, holds 100,000 shares
of Common Stock as trustee for A. J. Rittereiser and 10,000 shares of
Common Stock as trustee for A. Weimmer and J. Weimmer. Pursuant to
Securities Exchange Act Rule 13d-3(d)(1)(i), the 240,000 shares issuable
upon exercise of warrants shall be deemed outstanding for the purpose of
computing the percentage of outstanding Common Stock owned by Dover. Thus,
7,802,500 Shares of Common Stock are outstanding for purposes of computing
the percentage of outstanding Common Stock owned by Dover.
(8) See Item 3: Legal Proceedings.
(9) Consists of Shares of Common Stock beneficially owned by Vincent J. Casella
(152,000 shares), Vincent Vendette (152,000 shares), Louis Morales (76,000
shares), and Robert Eme (20,000 shares), each of whom is a principal of
Medford Financial, Inc.
UTTC
The following table sets forth certain information regarding the
beneficial ownership of UTTC's common stock as of the date hereof by (i) each of
the Company's executive officers and directors; and (ii) all officers and
directors as a group.
NUMBER OF SHARES OF UTTC APPROXIMATE
COMMON STOCK PERCENT OF UTTC'S
NAME AND ADDRESS OF STOCKHOLDER PRESENTLY OWNED OUTSTANDING STOCK
- ------------------------------- ------------------------ -----------------
Robert A. Eprile 333,333 6.7%
All officers and directors of ___ ___
the Company and its subsidiaries
as a group
CSI
No officers of the Company are beneficial owners of CSI's common stock as
of the date hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RAYMOND T. TATE
On October 22, 1996, Ashton entered into a settlement agreement (the
"Settlement Agreement") with Robert A. Eprile, John A. Blohm, Fredric W.
Rittereiser ("Mr. Rittereiser"), The Dover Group, Inc., F.E. Weimmer, Jr., F.E.
Weimmer, Sr., F.E. Rittereiser, Sr. and Thomas Rittereiser, as trustee for
Alexis J. Rittereiser, Amanda Weimmer and John Weimmer (collectively, the "Group
Members"), Raymond T. Tate ("Mr. Tate"), Helen J. Tate, as trustee for the
Andrew Patrick Tate Trust, Helen J. Tate, as trustee for the Susan Katherine
Tate Burrowbridge Trust and Helen J. Tate, as trustee for the Elizabeth Tate
Winters Trust (collectively, 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. In addition, pursuant to the Settlement Agreement, on October 22,
1996, the Board of Directors of the Company elected Fred S. Weingard, Executive
Vice President of UTTC, 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 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.
The Call Option was not exercised and expired on June 3, 1997. Mr. Tate
subsequently filed a Schedule 13D with the SEC, indicating his intention to sell
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, exclusive (subject to the payment
by Mr. Tate of a license fee) 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 CSI 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.
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 certain actions, including authorization of the
Company to reimburse the Group Members for any and all legal services rendered
on behalf of the Group Members in connection with or relating to the Settlement
Agreement, transactions contemplated thereby and the disputes settled thereby.
DAVID N. ROSENSAFT
On January 30, 1997, Ashton, along with UTTC, Mr. Rittereiser and The Dover
Group, Inc. ("Dover") (of which Mr. Rittereiser was previously the Chairman)
entered into a Settlement Agreement (the "Rosensaft Agreement") with David N.
Rosensaft ("Rosensaft") (a co-founder of UTTC) under which the consulting
agreement between Ashton, UTTC and Rosensaft dated January 19, 1996 was deemed
to be void ab initio and each of the parties released and discharged each of the
other parties from any and all agreements and claims which any of them have
against any of the other parties. The Rosensaft Agreement granted Rosensaft
registration rights under the Securities Act of 1933, as amended (the
"Securities Act") under certain terms and conditions for the 333,333 shares of
UTTC common stock that he owns. Also on January 30, 1997, Ashton, Dover,
Rittereiser and Rosensaft entered into a Stock Purchase Agreement under which
Dover, Rittereiser or his or its designee, agreed to purchase the 750,000 shares
of Ashton common stock owned by Rosensaft on April 10, 1997 for a total purchase
price of $2,000,000 and Ashton granted Dover, Rittereiser or his or its
designee, registration rights under the Securities Act under certain conditions
for the 750,000 shares. On or about April 10, 1997, Ashton advised Rosensaft
that the Rosensaft Agreement was null and void, and Rittereiser and Dover
declined to purchase the 750,000 shares. On May 1, 1997, Rosensaft commenced an
action in the United States District Court for the Southern District of New York
entitled "David N. Rosensaft v. The Ashton Technology Group, Inc., Universal
Trading Technologies Corporation, The Dover Group, Inc. and Fredric W.
Rittereiser" No. 97 Civ. 3138. See Item 3: Legal Proceedings, above.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Sequentially
Exhibit Numbered
No. Description Page
- ------- ----------- ------------
1 Form of Underwriting Agreement between The Ashton Technology *
Group, Inc. ("Ashton") and First United Equities
Corporation. (1)
1.1 Form of Consulting Agreement. (1) *
2 Agreement and Plan of Reorganization, dated as of October *
25, 1995, among Ashton, Universal Trading Technologies Corp.
("UTTC"), Robert A. Eprile ("Eprile"), David N. Rosensaft
("Rosensaft"), The Dover Group, Inc. ("Dover") and Medford
Financial Inc. (1)
3. Certificate of Incorporation of Ashton filed February 16, *
1994. (1)
3.1 Certificate of Amendment of Ashton filed October 27, 1995. *
(1)
3.1A Certificate of Amendment of Ashton filed December 7, 1995. *
(1)
3.2 Certificate of Amendment of Ashton filed in February 1996. *
(1)
3.3 Bylaws of Ashton. (1) *
3.4 Amendment to Bylaws of Ashton, dated October 22, 1996. See 50
(3).
4. Specimen of Common Stock. (1) *
4.1 Form of Representative's Warrant Agreement (including *
Specimen of Redeemable Common Stock Purchase Warrant). (1)
4.2 Form of Warrant Agreement (including Specimen of Redeemable *
Common Stock Purchase Warrant). (1)
4.3A Form of 9% Subordinated Non-Convertible Promissory Note 52
issued pursuant to UTTC Confidential Private Placement
dated December 26, 1996.
4.3B Form of 9% Subordinated Convertible Promissory Note 60
convertible into Shares of UTTC Common Stock at $1.00 per
share issued pursuant to UTTC Confidential Private Placement
dated December 26, 1996.
5 Opinion re: legality. (1) *
10 Agreement, dated as of September 18, 1995, between UTTC and *
the Philadelphia Stock Exchange. (1)
10.1 Employment Agreement dated as of January 1, 1996, between *
Ashton and Raymond T. Tate ("Tate"). (1)
10.2 Employment Agreement, dated as of January 22, 1996, between *
UTTC and Eprile. (1)
10.3 Agreement dated October 27, 1995, between Information *
Security Systems Incorporated and Ashton. (1)
10.4 Agreement, dated as of March 7, 1995, among Dover, Ashton, *
Eprile and Rosensaft. (1)
10.5 Agreement, dated as of November 29, 1995, between Ashton and *
Computer Science Innovations, Inc. ("CSI"). (1)
10.5A Agreement, dated February 7, 1996 between Ashton and CSI. *
(1)
10.6 Agreement, dated as of January 19, 1996, among Ashton, UTTC *
and Rosensaft. (1)
10.7 Escrow Agreement, dated as of January 19, 1996, among *
Ashton, Rosensaft and First United Equities Corporation. (1)
10.8 Stock Purchase Agreement, dated as of January 19, 1996, *
between Ashton and Rosensaft. (1)
10.9 Assignment and Termination Agreement, dated as of January *
19, 1996, among Dover, Ashton, Eprile and Rosensaft. (1)
10.10 Promissory note, dated as of January 19, 1996, in principal *
amount of $300,000 issued by Ashton in favor of Rosensaft.
(1)
10.11 Agreement, dated as of August 24, 1995, between Motorola, *
Inc. and CSI, as amended. (1)
10.12 Letter, dated December 8, 1995, from CSI to Ashton regarding *
issuance of Common Stock of CSI. (1)
10.12A Letter, dated March 20, 1996, from George Milligan to Ashton *
regarding the transfer of Common Stock of CSI. (1)
10.13 Sample CSI Stockholder Letters, dated February 6, 1995 and *
January 18, 1996, from Ashton to certain CSI Shareholders.
(1)
10.13A Sample CSI Stockholder Letter, dated March 27, 1996, from *
Ashton to certain CSI Shareholders. (1)
10.13B Sample CSI Stockholder Letter dated April 25, 1996, from *
Ashton to certain CSI Shareholders. (1)
10.14 Agreement, dated April 30, 1995, between Dover and Medford *
regarding consulting services to UTTC. (1)
10.15 Lease Agreement, dated September 8, 1995, between Columbia *
Mall, Inc. and Ashton. (1)
10.16 Lease Agreement, dated April 22, 1992, between Overlook *
Development, Inc. and CSI. (1)
10.17 Promissory Note, dated January 31, 1996, in principal amount *
of $150,000 issued by Ashton in favor of John A. Blohm. (1)
10.18 Form of 10% Subordinated Promissory Note due April 10, 1997, *
dated October 10, 1995, issued by Ashton pursuant to a
private placement. (1)
10.19 Form of 10% Subordinated Convertible Promissory Note due *
October 10, 1998 dated October 10, 1995, issued by Ashton
pursuant to a private placement (including Form of Warrant
issued upon conversion of the note not pursuant to a public
offering). (1)
10.20 Promissory Note, dated October 1, 1995, in principal amount *
of $43,430 issued by UTTC in favor of Dover and guaranteed
by Ashton. (1)
10.21 Promissory Note, dated October 26, 1995, in principal amount *
of $100,000 issued by Ashton in favor of Medford. (1)
10.22 Promissory Note, dated October 1, 1995, in principal amount *
of $615,175.83 issued by Ashton in favor of Dover. (1)
10.23 Common Stock Purchase Warrant of Ashton, dated June 27, *
1995, held by Dover. (1)
10.24 Common Stock Purchase Option of Ashton, dated January 30, *
1996, held by John A. Blohm. (1)
10.25 Letter agreement, dated March 21, 1996, from Ashton to CSI *
regarding software for ATED, including original letter
agreement of December 11, 1995 as Exhibit A thereto. (1)
10.26 Promissory Note, dated April 16, 1996 in principal amount of *
$250,000 issued by Ashton in favor of Ronnie J. Adams. (1)
10.27 Pledge and Security Agreement, dated April 15, 1996, between *
Dover and Ronnie J. Adams. (1)
10.28 Option to purchase Common Stock, dated as of March 15, 1996, *
between Rosensaft and Dover. (1)
10.29 Option to Purchase Common Stock, dated as of March 15, 1996, *
between Eprile and Dover. (1)
10.29A Agreement dated April 24, 1996 between Dover and Robert A. *
Eprile relating to Exhibit 10.29. (1)
10.30 Form of Assignment Agreement, dated April 16, 1996, between *
Dover and Antebe Investment Gp. Limited. (1)
10.31 Employment Agreement between Fred S. Weingard and UTTC, *
dated June 21, 1996. (4)
10.32 Settlement Agreement, dated October 22, 1996, by and among *
the Company, Raymond T. Tate, Helen J. Tate, as trustee for
the Andrew Patrick Tate Trust, Helen J. Tate, as trustee for
the Susan Katherine Tate Burrowbridge Trust, Helen J. Tate,
as trustee for the Elizabeth Tate Winters Trust and Robert
A. Eprile, John A. Blohm, Fredric W. Rittereiser, The Dover
Group, Inc., F.E. Weimmer, Jr., F.E. Weimmer, Sr., F.E.
Rittereiser, Sr. and, Thomas Rittereiser, as trustee for
Alexis J. Rittereiser, Amanda Weimmer and John Weimmer. (3)
10.33 License Agreement dated October 22, 1996, between the *
Company and Tate. (3)
10.34 Consulting Agreement dated October 22, 1996, between the *
Company and Tate. (3)
10.35 Settlement Agreement by and among Ashton, UTTC, *
Rittereiser, Dover and Rosensaft, dated January 30, 1997.
(5)(7)
10.36 Stock Purchase Agreement by and among Ashton, Dover, *
Rittereiser, and Rosensaft, dated January 30, 1997. (5)
10.37 Loan Agreement between CSI and Sun Bank, National 70
Association dated January 8, 1991, as amended September 5,
1996.
10.38 Short-Term Loan and Security Agreement between Ashton 138
(Borrower) and CSI (Lender), dated February 18, 1997.
10.39 Tax Allocation Agreement, between Ashton, CSI and UTTC, 166
dated March 27, 1997.
10.40 Letters from Ashton to Alliant Techsystems, dated January 170
23, 1996, March 29, 1996 and August 1, 1996.
10.41 Contracts between Motorola, Inc. and CSI: (1) Task Order No. 178
1, effective January 16, 1996; (2) Change Order/Contract
Amendment No. 2, dated February 26, 1996; (3) Change
Order/Contract Amendment No. 3, dated January 12, 1996; (4)
Change Order/Contract Amendment No. 4, dated August 12,
1996; (5) Contract between Motorola, Inc. Government and
Space Technology Group Satellite Communications Division and
CSI, effective January 1, 1997.
10.42 Letters from Ashton to CSI re: ATED, dated May 15, 1996, 199
December 16, 1996, February 5, 1997.
10.43 Letters from Ashton to CSI re: Universal Trading System 206
("UTS(TM)"), dated March 22, 1996, May 15, 1996, December
16, 1996, February 5, 1997.
16.1 Letter for Changes in Registrant's Certifying Accountant, *
dated June 18, 1996. (2)
16.2 Letter from Arthur Andersen LLP to the Securities and *
Exchange Commission regarding change in Certifying
Accountant, dated May 5, 1997 and received May 14, 1997. (8)
21 Subsidiaries of Ashton. 213
23 Consent of Goldstein Golub Kessler & Company, P.C. (1) *
23.1 Consent of Lester Morse, P.C. (Included in Exhibit 5). (1) *
23.2 Consents of Dr. Ruth M. Davis and Vice Admiral Albert J. *
Baciocco, Jr. (1)
27 Financial Data Schedule. 215
99.1 Press Release of the Company re: Raymond Tate Steps Dover as *
Chairman and President of Ashton, dated October 1996. (3)
99.2 Press Release of the Company, dated April 8, 1997 re: Ashton *
Completes Development of Initial Online Trading Product for
the Financial Securities Industry. (6)
* Incorporated by reference as indicated in the applicable footnote.
(1) Incorporated by reference to the Company's Form SB-2 Registration Statement
No. 33-1182.
(2) Incorporated by reference to Form 8-K, filed June 18, 1996.
(3) Incorporated by reference to Form 8-K, dated October 22, 1996.
(4) Incorporated by reference to Form 10-QSB, for the period ended September
30, 1996.
(5) Incorporated by reference to Form 10-QSB, for the period ended December 31,
1996.
(6) Incorporated by reference to Form 8-K, dated April 15, 1997.
(7) Incorporated by reference to Amendment No. 1 to Form 10-QSB for the period
ended December 31, 1996, filed April 18, 1997.
(8) Incorporated by reference to Form 8-K, dated April 30, 1997.
(b) REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the quarterly period ended
March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of July 14, 1997.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
--------------------------------------
Fredric W. Rittereiser
Chief Executive Officer, President and
Director
By: /s/ Robert A. Eprile
--------------------------------------
Robert A. Eprile
Chairman of the Board and Treasurer
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of July 14, 1997.
/s/ Fredric W. Rittereiser /s/ Robert A. Eprile
- --------------------------------- -------------------------------------
Fredric W. Rittereiser Robert A. Eprile
Chief Executive Officer, Chairman of the Board and Treasurer
President and Director
/s/ John A. Blohm /s/ Fred S. Weingard
- ---------------------------------- -------------------------------------
John A. Blohm Fred S. Weingard
Executive Vice President Executive Vice President and Director
and Director
At a meeting of the Board of Directors of The Ashton Technology Group, Inc.
held on October 22, 1996, the first paragraph of Article V, Section 6 of the
By-Laws of Ashton was duly amended to provide in its entirety as follows:
"The chairman of the board shall preside at each meeting of the
stockholders and of the board and shall be an ex officio member of all
committees of the board. He shall perform all duties incident to the office of
chairman of the board and such duties as may from time to time be assigned to
him by the board of directors.
The president shall be the chief executive officer of the Corporation and
shall have the general and active supervision and direction over the business
operations and affairs of the Corporation and over its several officers, agents
and employees, subject, however, to the direction of the chairman of the board
and the control of the board of directors. At the request of the chairman of the
board, or in the case of his absence or inability to act, the president shall
perform the duties of the chairman of the board, including presiding at meetings
of stockholders and directors and when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the chairman of the board. In
general, the president shall have such other powers and shall perform such other
duties as usually pertain to the office of president or as may be assigned to
him, from time to time, by the board, the chairman of the board or these
by-laws."
Note No. 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY
STATE. THIS NOTE MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT OR
AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
9% SUBORDINATED NON-CONVERTIBLE PROMISSORY NOTE DUE JANUARY 31, 1999
$___________ U.S. April 18, 1997
UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a Delaware
corporation (the "Company"), for value received, promises to pay to the order of
_______________ ________________________ at _________________________________ or
at the offices of the Company, the sum of $_________ U.S. on JANUARY 31, 1999
with interest from the date hereof on the unpaid principal hereof until maturity
(whether as stated or by acceleration), according to the tenor hereof, at a rate
of 9% per annum (and after such maturity or demand at a rate per annum equal to
9%) until such principal is paid in full. Interest shall be payable annually in
arrears on JANUARY 31, 1998 and on JANUARY 31, 1999 or upon the earlier of the
prepayment or due date of the note . Interest shall be calculated on the basis
of a 360-day year for actual days elapsed. This note is one of a series of 9%
subordinated non-convertible promissory notes that have been delivered to
investors in a Private Placement by the Company, all of which notes are
hereinafter referred to as the "Notes". The Notes are direct, unsecured
obligations of the Company.
The Company for itself, its successors and assigns, covenants and agrees,
and each holder of the Notes, by his acceptance hereof, likewise covenants and
agrees, that the payment of the principal of, premium (if any) and interest on,
the Notes is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of all
"Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of the assets and liabilities
of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holders of the
Notes receive any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by the Notes;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of the
Notes would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holders of the Notes before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holders of the
Notes shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on the Notes shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holders of the Notes, be deemed
to be a payment by the Company to or on account of the Notes. The subordination
provisions of the Notes are intended solely for the purpose of defining the
relative rights of the holders of the Notes, on the one hand, and the holders of
the Senior Indebtedness, on the other hand.
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, the obligation of the Company, which is unconditional and
absolute, to pay to the holders of the Notes the principal of (and premium, if
any) and interest on the Notes as and when the same shall become due and payable
in accordance with its terms, or to affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the holders of the
Notes from exercising all remedies otherwise permitted by applicable law upon
default under the Notes, subject to the rights, if any, under the subordination
provisions of the Notes of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the Company referred to in
the subordination provisions of the Notes, the holders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holders of the
Notes for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of the Notes.
No payments on account of principal, premium, if any, or interest on the
Notes, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on the Notes, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on the Notes; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of the Notes, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during the continuance of any default specified in the immediately
preceding paragraph (not cured or waived), payments at any time of principal of,
and premium or interest on, the Notes.
The term "Senior Indebtedness" shall mean the principal of, and premium (if
any) on, and interest on all indebtedness of the Company (other than the Notes),
whether outstanding on the date of the Notes or hereafter created for money
borrowed by the Company or other monetary obligations of the Company (whether
the same be evidenced by debentures or notes (other than the Notes) or evidenced
by a letter of credit, loan agreement or an indenture or similar instrument)
from, owing to, or guaranteed to, banks, trust companies, leasing companies,
insurance companies or other institutional lenders and any renewal, extension
refunding, amendment or modifications of any such Senior Indebtedness, including
without limitation of the foregoing, purchase money mortgages, mortgages made or
given or guaranteed by the Company as mortgagor or guarantor, and assumed or
guaranteed mortgages, upon property, but excluding any indebtedness to trade
creditors or suppliers on open account for work, labor, services and materials
and excluding any indebtedness which by the terms of the instrument creating or
evidencing the same is stated to be not superior in right of payment to the
Notes. During the continuation of any default in the payment of principal or
interest on any Senior Indebtedness, no payment of principal or interest may be
made by the Company on the Notes. The Notes contain no limitation on the amount
of additional Senior Indebtedness or other indebtedness that may be issued or
incurred. However, the Company will not in the future until the Notes have been
repaid in full incur indebtedness that is senior to the Notes other than Senior
Indebtedness; provided, however, that nothing shall prohibit the Company from
incurring secured indebtedness.
The transferability of the Notes is restricted under the Federal and state
securities laws.
NO SALE, OFFER TO SELL OR TRANSFER OF THE NOTES SHALL BE MADE UNLESS A
REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED,
WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE TO SUCH
TRANSFER.
THE NOTES ARE NOT CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
<PAGE>
ARTICLE I
REDEMPTION
1.1 Subject to the subordination provisions of the Notes, the Company may,
at its option, redeem the Notes in whole and not in part, at 100% of the face
value of the Notes plus accrued and unpaid interest to such date by giving
written notice to the holders of the Notes to that effect at least 30 calendar
days prior to the redemption date.
Notice of redemption to the holders of the Notes shall be mailed by the
Company by first class mail, postage prepaid, at least 30 and not more than 60
days prior to the redemption date, to the holders of Notes, at their last
addresses as they shall appear in the books of Registration, but failure of a
Note holder to receive such notice shall not affect the validity of the
proceedings for the redemption of any of the Notes.
1.2 Upon the giving of notice of redemption as above provided, the Notes
shall become due and payable on the date and at the place stated in such notice
at the applicable redemption price, together with interest accrued to the date
fixed for redemption, and on and after such date fixed for redemption (unless
the Company shall make default in the payment of such Notes at the redemption),
interest on the Notes so called for redemption shall cease to accrue and such
Notes shall be deemed not to be outstanding.
1.3 Upon the completion by the Company of a private placement or public
offering wherein the Company receives gross proceeds of at least $10,000,000
U.S. in any one transaction, the Company will promptly notify its noteholders
that it will redeem the Notes at 100% of the face amount of the Notes plus
accrued and unpaid interest. Such notice will provide for the redemption of the
Notes six months after the completion of such offering.
ARTICLE II
VOTING RIGHTS
2.1 The holders of the Notes shall not be entitled to notice of any
stockholders' meetings or possess any right to vote upon the election of
directors or upon any other matter.
ARTICLE III
DEFAULT
3.1 Except as expressly provided herein, the Company waives protest, demand
for payment and notice of default for non-payment.
3.2. The holders of not less than 50% by amount of the Notes may consent to
change any terms covering the Notes except those terms relating to interest
rate, payment dates and maturity date which may be changed only by unanimous
consent of the Note holders.
The holders of not less than fifty (50%) percent of the principal amount of
the Notes by notice in writing sent by registered mail to the Company may
declare the principal amount of all the Notes to be forthwith due and payable,
and upon any such declaration the same shall become immediately due and payable,
in the following events:
(a) If default shall be made in the payment of any installment of interest
on any of the Notes when and as the same shall become due and payable, as herein
provided, after allowance for a grace period of fifteen (15) days and such
default shall continue for a period of an additional fifteen (15) days after
written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the principal of any of the
Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary bankruptcy, or
shall apply for or consent to the appointment of a receiver for itself or any of
its property, or shall make an assignment for the benefit of its creditors, or
shall go into voluntary liquidation or be dissolved, or shall admit in writing
its inability to pay its debts generally as they mature, or shall institute
proceedings for reorganization, readjustment, arrangement, composition or
similar relief under any bankruptcy, insolvency or other applicable law, or
shall file an answer in any such proceedings against it joining in seeking such
relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for the
appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof; or
(e) If one or more judgments, decrees or orders for the payment of money in
excess of $100,000 U.S. in the aggregate shall be rendered against the Company
and/or its subsidiaries, and such judgments, decrees, or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal.
ARTICLE IV
MISCELLANEOUS
4.1 Time for payment extended by law shall be included in computation of
interest.
4.2 The Notes shall be governed by and construed in accordance with laws of
the State of New York.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, the Notes, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 The Company is prohibited from declaring any cash dividends prior to
payment in full of the Notes.
4.5 Notwithstanding anything contained herein to the contrary, the Notes
may not be disposed of except in compliance with all applicable federal and
state securities laws. In this respect, before selling or otherwise disposing of
any Notes, the holder of such Notes shall give five business days prior written
notice to the Company of his intention to do so. The notice by the holder shall
specify the Notes proposed to be sold or otherwise disposed of and describe in
reasonable detail the amount of the proposed sale or other disposition and shall
be accompanied by an opinion (in form and substance reasonably satisfactory to
the Company's counsel) of the holder's securities counsel addressed to the
Company as to whether the proposed sale or other disposition may be effected
without the filing of a Registration Statement under the Securities Act of 1933,
as amended (the "Act"), covering the Notes proposed to be sold or otherwise
disposed of. If in the opinion of such counsel, and of counsel for the Company,
no such registration action is necessary, the holder may sell or otherwise of
dispose of such Notes in the manner described by him in the notice given to the
Company. (Copies of any documents which the holder or his counsel files with the
Securities and Exchange Commission regarding the sale or other disposition will
immediately be provided by him or his counsel to the Company.) If, in the
opinion of counsel for the Company registration of such Notes under the Act is
necessary, no such sale or other disposition may be effected.
The holder of the Notes may not sell or otherwise transfer the Notes
without the transferee agreeing to be bound by the provisions of the
Subscription Agreement pursuant to which the holder of the Notes is bound. A
copy of such Subscription Agreement may be obtained from the Company at its
principal executive offices.
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By:______________________________
Robert A. Eprile, President
Note No. 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY
STATE. THIS NOTE MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT OR
AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
9% SUBORDINATED CONVERTIBLE PROMISSORY NOTE DUE
JANUARY 31, 1999
$_________ U.S. April 18, 1997
UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), for value received, promises to pay to the order of
_______________________________ at ____________________________ or at the
offices of the Company, the sum of $___________ U.S. on JANUARY 31, 1999 with
interest from the date hereof on the unpaid principal hereof until maturity
(whether as stated or by acceleration), according to the tenor hereof, at a rate
of 9% per annum (and after such maturity or demand at a rate per annum equal to
9%) until such principal is paid in full. Interest shall be payable annually in
arrears on JANUARY 31, 1998 and on JANUARY 31, 1999 or upon the earlier due date
of the note. Interest shall be calculated on the basis of a 360-day year for
actual days elapsed. This note is one of a series of 9% subordinated convertible
promissory notes that have been delivered to investors in a Private Placement by
the Company, all of which notes are hereinafter referred to as the "Notes". The
Notes are direct, unsecured obligations of the Company.
The Company for itself, its successors and assigns, covenants and agrees,
and each holder of the Notes, by his acceptance hereof, likewise covenants and
agrees, that the payment of the principal of, premium (if any) and interest on,
the Notes is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of all
"Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of the assets and liabilities
of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holders of the
Notes receive any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by the Notes;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of the
Notes would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holders of the Notes before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holders of the
Notes shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on the Notes shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holders of the Notes, be deemed
to be a payment by the Company to or on account of the Notes. The subordination
provisions of the Notes are intended solely for the purpose of defining the
relative rights of the holder of the Notes, on the one hand, and the holder of
the Senior Indebtedness, on the other hand.
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holder of the Notes, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of the Notes the principal of (and premium, if
any) and interest on the Notes as and when the same shall become due and payable
in accordance with its terms, or to affect the relative rights of the holders of
the Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the holders of the
Notes from exercising all remedies otherwise permitted by applicable law upon
default under the Notes, subject to the rights, if any, under the subordination
provisions of the Notes of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the Company referred to in
the subordination provisions of the Notes, the holders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holders of the
Notes for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of the Notes.
No payments on account of principal, premium, if any, or interest on the
Notes, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on the Notes, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on the Notes; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of the Notes, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during the continuance of any default specified in the immediately
preceding paragraph (not cured or waived), payments at any time of principal of,
and premium or interest on, the Notes.
The term "Senior Indebtedness" shall mean the principal of, and premium (if
any) on, and interest on all indebtedness of the Company (other than the Notes),
whether outstanding on the date of the Notes or hereafter created for money
borrowed by the Company or other monetary obligations of the Company (whether
the same be evidenced by debentures or notes (other than the Notes) or evidenced
by a letter of credit, loan agreement or an indenture or similar instrument)
from, owing to, or guaranteed to, banks, trust companies, leasing companies,
insurance companies or other institutional lenders and any renewal, extension
refunding, amendment or modifications of any such Senior Indebtedness, including
without limitation of the foregoing, purchase money mortgages, mortgages made or
given or guaranteed by the Company as mortgagor or guarantor, and assumed or
guaranteed mortgages, upon property, but excluding any indebtedness to trade
creditors or suppliers on open account for work, labor, services and materials
and excluding any indebtedness which by the terms of the instrument creating or
evidencing the same is stated to be not superior in right of payment to the
Notes. During the continuation of any default in the payment of principal or
interest on any Senior Indebtedness, no payment of principal or interest may be
made by the Company on the Notes. The Notes contain no limitation on the amount
of additional Senior Indebtedness or other indebtedness that may be issued or
incurred. However, the Company will not in the future until the Notes have been
repaid in full incur indebtedness that is senior to the Notes other than Senior
Indebtedness; provided, however, that nothing shall prohibit the Company from
incurring secured indebtedness.
The transferability of the Notes is restricted under federal and state
securities laws.
NO SALE, OFFER TO SELL OR TRANSFER OF THE NOTES SHALL BE MADE UNLESS A
REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED,
WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE TO SUCH
TRANSFER.
THE NOTES ARE CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
<PAGE>
ARTICLE I
CONVERSION OF NOTES
1.1 Commencing eighteen months from April 18, 1997, the principal of the
Notes is convertible at a price of $1.00 per share. In the event that the Notes
become due and payable prior to October 18, 1998, as provided in 4.1 of Article
IV, then the Company will notify the holders of the Notes of their right to
convert the Notes at least thirty days prior to the due date of the Notes. In
the event that the Notes are converted, the holder shall be entitled to receive
accrued but unpaid interest through the conversion date of the Notes.
For the purpose of this Article, the term "Common Stock" shall mean the
capital stock of the Company of the class authorized and designated as Common
Stock at the date hereof or as such stock may, by change or reclassification, be
constituted from time to time.
1.2. The Company shall not be required to issue fractions of shares of
Common Stock upon conversions of the Notes. If more than one Note shall be
surrendered for conversion at one time by the same holder, the number of shares
of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Notes so
surrendered. If any fractional interest in a share of Common Stock would
otherwise be deliverable upon the conversion of any Note or Notes, the Company
shall make adjustment therefor by rounding to the nearest whole share.
1.3 The issue of Common Stock certificates on conversions of Notes shall be
made without charge to the holder for such certificates or any tax in respect of
the issue thereof. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of any certificate in any name other than that of the holder of the
Notes being converted, and the Company shall not be required to issue or deliver
any such shares unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Company shall at all times reserve and keep available out of its
authorized but unissued stock for the purpose of effecting conversions of the
Notes such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect such exercises and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect such exercises at the exercise price then in effect the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
1.4. The conversion rate of the Notes as defined in 1.1 shall be adjusted
from time to time as follows: in the event that the Company shall, at any time
prior to the conversion of the Notes: (i) declare or pay to the holders of the
Common Stock a dividend payable in any kind of shares of stock of the Company;
or (ii) change or divide or otherwise reclassify its Common Stock into the same
or a different number of shares with or without par value, or into shares of any
class or classes; or (iii) consolidate or merge with, or transfer its property
as an entirety or substantially as an entirety to, any other corporation; or
(iv) make any distribution of its assets to holders of its Common Stock as a
liquidation or partial liquidation dividend or by way of return of capital;
then, upon the subsequent conversion of the Notes, each holder thereof shall
receive for the conversion price, in addition to or in substitution for the
shares of Common Stock to which it would otherwise be entitled upon such
exercise, such additional shares of stock or scrip of the Company, or such
reclassified shares of stock of the Company, or such shares of the securities or
property of the Company resulting from such consolidation or merger or transfer,
or such assets of the Company, which it would have been entitled to receive had
it converted the Notes prior to the happening of any of the foregoing events.
ARTICLE II
VOTING RIGHTS
2.1 The holders of the Notes shall not be entitled to notice of any
stockholders' meetings or possess any right to vote upon the election of
directors or upon any other matter.
ARTICLE III
DEFAULT
3.1 Except as expressly provided herein, the Company waives protest, demand
for payment and notice of default for non-payment.
3.2. The holders of not less than 50% by amount of the Notes may consent to
change any terms covering the Notes except those terms relating to interest
rate, payment dates, conversion and maturity date which may be changed only by
unanimous consent of the Note holders.
The holders of not less than fifty (50%) percent of the principal amount of
the Notes by notice in writing sent by registered mail to the Company may
declare the principal amount of all the Notes to be forthwith due and payable,
and upon any such declaration the same shall become immediately due and payable,
in the following events:
(a) If default shall be made in the payment of any installment of interest
on any of the Notes when and as the same shall become due and payable, as herein
provided, after allowance for a grace period of fifteen (15) days and such
default shall continue for a period of an additional fifteen (15) days after
written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the principal of any of the
Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary bankruptcy, or
shall apply for or consent to the appointment of a receiver for itself or any of
its property, or shall make an assignment for the benefit of its creditors, or
shall go into voluntary liquidation or be dissolved, or shall admit in writing
its inability to pay its debts generally as they mature, or shall institute
proceedings for reorganization, readjustment, arrangement, composition or
similar relief under any bankruptcy, insolvency or other applicable law, or
shall file an answer in any such proceedings against it joining in seeking such
relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for the
appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof; or
(e) If one or more judgments, decrees or orders for the payment of money in
excess of $100,000 U.S. in the aggregate shall be rendered against the Company
and/or its subsidiaries, and such judgments, decrees, or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal.
ARTICLE IV
REDEMPTION
4.1 The Notes may not be redeemed by the Company prior to January 31, 1999
except as provided in 4.2 of Article IV.
4.2 Upon the completion by the Company of a private placement or public
offering wherein the Company receives gross proceeds of at least $10,000,000
U.S. in any one transaction, the Company will promptly notify its noteholders
that it will redeem the Notes at 100% of the face amount of the Notes plus
accrued and unpaid interest. Such notice will provide for the redemption of the
Notes six months after the completion of such offering.
ARTICLE V
REGISTRATION RIGHTS
5.1 The Confidential Private Placement Memorandum dated December 26, 1996
contains the following registration rights that have been granted by the
Company.
"The Company, at its sole cost, may be required to register
with the SEC the shares underlying the Convertible Notes sold
in this offering, on one occasion only, commencing 12 months
after the initial closing of this offering and expiring four
years thereafter, at the request of the holders of at least
25% of the Convertible Notes or the shares issued upon
conversion of the Convertible Notes sold in the Offering.
Also, commencing 12 months after the initial closing of the
offering and expiring four years thereafter, the holders of
the Convertible Notes or the shares issued upon conversion of
the Convertible Notes sold will have the right to notice of
any filing of a registration statement by the Company and the
right to have their shares underlying the Convertible Notes
included in any such registration statement at the sole cost
of the Company. However, in the event the Company makes an
initial public offering of securities, the underwriter of such
offering may request the right to defer the public sale of the
shares of Common Stock underlying the Convertible Notes for a
period of at least six months following the closing of the
Company's initial public offering if necessary to effectuate
the Company's initial public offering. The Company will have
the right to grant the underwriter's request if it is deemed
necessary to effectuate the Company's initial public offering.
The Notes themselves will have no registration rights."
ARTICLE VI
MISCELLANEOUS
6.1 Time for payment extended by law shall be included in computation of
interest.
6.2 The Notes shall be governed by and construed in accordance with laws of
the State of New York.
6.3 No recourse shall be had for the payment of the principal of, or
interest on, the Notes, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
6.4 UTTC is prohibited from declaring any cash dividends prior to payment
in full of the Notes.
6.5 Notwithstanding anything contained herein to the contrary, the Notes
may not be disposed of except in compliance with all applicable federal and
state securities laws. In this respect, before selling or otherwise disposing of
the Notes, the holder shall give five business days prior written notice to the
Company of his intention to do so. The notice by the holder shall specify the
Notes proposed to be sold or otherwise disposed of and describe in reasonable
detail the amount of the proposed sale or other disposition and shall be
accompanied by an opinion (in form and substance reasonably satisfactory to the
Company's counsel) of the holder's securities counsel addressed to the Company
as to whether the proposed sale or other disposition may be effected without the
filing of a Registration Statement under the Securities Act of 1933, as amended
(the "Act"), covering the Notes proposed to be sold or otherwise disposed of. If
in the opinion of such counsel, and of counsel for the Company, no such
registration action is necessary, the holder, may sell or otherwise dispose of
such Notes in the manner described by him in the notice given to the Company.
(Copies of any documents which the holder or his counsel files with the
Securities and Exchange Commission regarding the sale or other disposition will
immediately be provided by him or his counsel to the Company.) If, in the
opinion of counsel for the Company registration of such Notes under the Act is
necessary, no such sale or other disposition may be effected by him other than
as contemplated by a Registration Statement filed under the Act which has become
effective under such Act.
The holder of the Notes may not sell or otherwise transfer the Notes
purchased hereunder without the transferee agreeing to be bound by the
provisions of the Subscription Agreement pursuant to which the holder of the
Notes is bound. A copy of such Subscription Agreement may be obtained from the
Company at its principal executive offices.
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By:________________________________
Robert A. Eprile, President
EXHIBIT 10.37
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into this 8th day of January,
1991, by and between COMPUTER SCIENCE INNOVATIONS, INC., as (the "Company") and
SUN BANK, NATIONAL ASSOCIATION, a National Banking Association, with its
principal banking offices located in Orlando, Orange County, Florida (the
"Bank").
WITNESSETH:
WHEREAS, the Company wishes to borrower from the Bank the sum of
$1,000,000.00 on a revolving line of credit as an operating line, hereinafter
referred to as Loan "A"; and the sum of $500,000.00 as a further revolving line
of credit to support the Company's Egyptian Contract, hereinafter referred to as
Loan "B"; and
WHEREAS, the Bank is willing to make such loans upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and conditions contained herein, the Company and Bank agree as
follows:
ARTICLE ONE
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Definitions. For the purposes of this Agreement, the
following terms shall have the respective meanings specified in this Section
1.01 (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) "Agreement" shall mean this Loan Agreement.
(b) "Bank Office" shall mean any branch office of the Bank located in
Brevard County, Florida, which office is an office of the Bank and not a
separate and distinct entity from the Bank.
(c) "Current Assets" shall mean those assets which in the regular course of
business of the Company and its subsidiaries on a consolidated basis will be
readily and quickly realized or converted into cash, all in accordance with GAAP
within the applicable accounting or time period, together with such additional
assets as may readily be converted into cash without impairing the business of
the Company and its subsidiaries and shall include cash, temporary investments,
receivables, inventories and pre-payments, but shall exclude loans to
stockholders.
(d) "Current Liabilities" shall mean those liabilities of the Company and
its subsidiaries on a consolidated basis or any portion thereof. Current
liabilities shall be defined as current maturities of long term debt plus notes
payable less than one (1) year, plus accounts payable, plus taxes payable, plus
accrued expenses, and any other liabilities due or that shall become due within
a twelve (12) month period.
(e) "Debt to Net Worth Ratio" shall mean the ratio of total liabilities to
Tangible Net Worth.
(f) "Due Date" shall mean the date any payment of principal or interest is
due and payable on the Loan or Note.
(g) "Event of Default" shall mean an event of default specified in Article
Seven of this Agreement.
(h) "GAAP" shall mean generally accepted accounting principles consistently
applied to the particular item.
(i) "Interest Coverage Ratio" shall mean earnings before interest expense
and taxes divided by interest expense.
(j) "Loan" shall mean the following credit facilities made to the Company
by the Bank pursuant to an in accordance with the terms of this Loan Agreement:
l) Revolving Line of Credit in the amount of $1,000,000.00 (Loan "A")
2) Revolving Line of Credit in the amount of $500,000.00 (Loan "B")
(k) "Loan Documents" shall mean this Agreement, the Notes, the Security
Agreement, UCC Financing Statements, Collateral Assignment of Contract Rights,
Landlord Lien Waivers, Loan Commitment and all of the other documents,
agreement, certificates, schedules, notes, statements and opinions, however
described, referenced herein or executed or delivered pursuant hereto or in
connection with or arising with the Loan or the transactions contemplated by
this Agreement.
(l) "Loans from Stockholders" shall mean all loans or other advances made
to the Company from one or more Stockholder from time to time.
(m) "Loan to Stockholders" shall mean all loans or other advances made by
the Company to one or more Stockholders from time to time.
(n) "Note" shall mean the Company's Promissory Note or Notes evidencing the
Loan substantially in the form of Exhibit "A" attached hereto.
(o) "Obligations" shall mean, individually and collectively, the payment
and performance of duties, obligations and liabilities of the Company to the
Bank as described in or required by the Loan Documents.
(p) "Person" shall mean any individual, joint venturer, partnership, firm,
corporation, trust, unincorporated organization or other organizational entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
(q) "Prime Rate" shall mean the "annual interest rate announced by Sun
Bank, Inc., from time to time as the Prime Rate (which interest rate is only a
benchmark, is purely discretionary and is not necessarily the best or lowest
rate charged borrowing customers of any subsidiary bank of Sun Banks Inc.). Any
such change in the Prime Rate will increase or decrease the periodic payments."
NOTE: Any change in the Prime Rate shall be effective at the beginning of the
business day on which such change is announced.
(r) "Principal Place of Business" shall mean the offices of the Company at
which its records are kept at 1280 Clearmont Street, N.E., Palm Bay, Florida
32905.
(s) "Total Liabilities" shall mean the aggregate amount of all liabilities
of the Company and its subsidiaries on a consolidated basis as determined by
GAAP.
(t) "Tangible Net Worth" shall mean the excess of (a) the tangible assets
of the Company on a consolidated basis which, in accordance with GAAP, are
tangible assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper, over (b) all liabilities, excluding
minority interest, provided, however, that (i) inventory shall be taken into
account on the basis of the cost or current market value, whichever is lower,
(ii) in no event shall there be included as such tangible assets patents,
trademarks, tradenames, copyrights, licenses, goodwill or treasury stock or any
securities or liabilities of the Company unless the same are readily marketable
in the United States of America, and are entitled to be used as a credit against
federal income tax liabilities, (iii) securities included as such tangible
assets shall be taken into account at their current market price or cost,
whichever is lower, and (iv) any write-up in the book value of any assets shall
not be taken into account.
(u) "Year" shall mean the calendar year from January through December 31,
inclusive.
(v) "Current Maturities of Long Term Debt" shall mean that portion of
installment or term debt that must be paid within twelve (12) months from the
balance sheet date. The obligation shall be shown separately from Bank notes
payable in accordance with GAAP.
(w) "Amortization" shall mean the process of charging off an intangible
over a period of years according to GAAP.
(x) "Commitment" shall mean the Bank's commitment letter dated August 6,
l990 and further amended August l0, l990, a copy of which is attached hereto as
Exhibit "B" and by reference made a part hereof.
Section l.02. Accounting Terms. All accounting terms used herein shall be
construed in accordance with GAAP consistently applied.
ARTICLE TWO
AMOUNT AND TERMS OF THE LOAN
Section 2.0l. The Loan. The Bank agrees to lend or make available to the
Company, the following credit facilities:
(a) A Revolving Loan in the aggregate principal amount of $1,000,00.00
(Loan "A"). The purpose of this Loan is to make available to the Company an
operating line.
(b) A further Revolving Line of Credit in the aggregate principal amount of
$500,000.00 (Loan "B"). The purpose of Loan "B" is to make available to the
Company, the sum of $500,000.00 as working capital for the Company's contract
with the Egyptian Government. Prior to the funding of any monies under this
Revolving Line of Credit, the Bank shall receive for its review and approval, a
fully executed contract between the Company and the Egyptian Government or the
appropriate U.S. Agency acting on their behalf, which contract shall provide a
statement of work and shall be assignable as collateral as provided for in
Section 6.02 of this Agreement.
Section 2.02. Interest on The Note. The Loan shall be evidenced by the
Notes attached hereto as Exhibit "A" and shall be due and payable in accordance
with and as required by the terms and conditions contained therein and as
hereinafter provided in Section 2.07. The Company shall not be liable under the
Notes except with respect to funds actually advanced to the Company by the Bank
pursuant to the terms hereof. The Note interest on the Notes evidencing each of
the credit facilities shall be paid as follows:
(a) The note for Loan "A" in the amount of $1,000,000 shall bear interest
from the date thereof on the unpaid principal balance thereof from time to time
outstanding at a fluctuating interest rate per annum equal to the lesser of (i)
the interest: rate announced by Sun Bank, Inc., from time to time as the Prime
Rate (as herein defined) plus .75%, or (ii) the maximum rate of interest
permitted by law. Each change in the fluctuating interest rate on the Note due
to a change in the Prime Rate shall be effective as of the opening of business
for the Bank on the date of such change in the Prime Rate.
(b) The note for Loan "B" in the amount of $500,000.00 shall bear interest
from the date thereof on the unpaid principal balance thereof from time to time
outstanding at a fluctuating interest rate per annum equal to the lesser of (i)
the interest rate announced by Sun Bank, Inc., from time to time as the Prime
Rate (as herein defined) plus .75% or (ii) the maximum rate of interest
permitted by law. Each change in the fluctuating interest rate on the Note due
to a change in the Prime Rate shall be effective as of the opening of business
for the Bank on the date of such change in the Prime Rate.
Section 2.03. Calculation of Interest. Interest due on the Loan shall be
calculated on a 360 day year. The interest due on any date for payment of
interest hereunder shall be that interest to the extent accrued as of midnight
on the last calendar day immediately prior to that interest payment date.
Notwithstanding anything herein or in any Loan Document to the contrary, the sum
of all interest and all other amounts deemed interest under Florida or other
applicable law which may be collected by the Bank hereunder shall not exceed the
maximum lawful interest rate permitted by such law from time to time. The Bank
and the Company intend and agree that under no circumstance shall the Company be
required to pay interest on the Loans or on any other Obligations at a rate in
excess of the maximum interest rate permitted by applicable law in effect from
time to time, and in the event any such interest is received or charged by the
Bank in excess of the rate, the Company shall be entitled to an immediate refund
of any such excess interest by a credit to and payment toward the unpaid balance
of the Loan (such credit to be considered to have been made at the time of the
payment of the excess interest) with any excess interest not so credited to be
immediately paid to the Company by the Bank.
Section 2.04. Payment of Note. The Company shall pay the Notes as
heretofore described with interest at the rate set forth in Section 2.02 as
follows:
(a) Loan "A". Interest only shall be payable monthly on the principal
balance due and owing from time to time. The principal balance shall be due and
payable upon demand and the Bank shall conduct an annual review on or before
June 30, 1991. The principal balance shall be paid in full for a period of at
least thirty (30) days during the first twelve months and for each twelve month
period thereafter during which the credit continues to be made available by the
Bank to the Company. In the event that the amount advanced by the Bank to the
Company from time to time, exceeds $750,000.00, the Company shall maintain a
borrowing formula wherein 70% of the current to 90 day account receivable shall
have a value equal to or greater than $750,000.00. In the event that the value
of the accounts receivable as heretofore determined, becomes less than the
amount advanced by the Bank to the Company in excess of $750,000.00, then in
such event, the Company shall immediately forthwith reduce the outstanding
balance of the line of credit to an amount equal to the value of the accounts
receivable according to the borrowing formula. The calculation of the accounts
receivable in accordance with the borrowing formula will be based on the last
month's report of receivables as provided for in Section 4.0l (ii).
(b) Loan "B". Interest only shall be payable monthly on the principal
balance due and owing from time to time. The principal balance shall be due and
payable upon demand and the Bank shall conduct an annual review on or before
June 30, 1991.
Section 2.05. Method of Prepayment. The Company may at any time prepay all
or any part of the principal amount of the Loans Outstanding without
premium or penalty.
Section 2.06. Set-off. The Company hereby grants to the Bank a lien on, and
a security interest in, the deposit balances, accounts, items, certificates of
Deposit and monies of the Company in the possession of or on deposit with the
Bank of any Bank Office to secure and as collateral for the payment and
performance of the obligations created by the Loans. The Bank, upon giving
written notice, shall immediately appropriate and set-off against and apply the
same to the Obligations when and as due and payable.
Section 2.07. Application of Payments. All payments made on the Note shall
be applied first to interest accrued to the date of payment and next to the
unpaid principal balance provided, however, in the event an Event of Default
occurs, payment shall be applied first to any costs or expenses, including
reasonable attorneys fees, that the Bank may incur in exercising its rights
under the Loan Documents, as the Bank may determine.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
Section 3.0l. Organization, Corporate Powers, etc. The Company (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida, (ii) has all requisite power and authority, corporate
and otherwise to own its properties and assets and to carry on its business as
now conducted and proposed to be conducted, (iii) is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
its properties or assets owned or the nature of their activities conducted makes
such qualification necessary including the State of Florida, and (iv) has the
corporate power and authority to execute and deliver, and to perform its
obligations under this Agreement, the Note, and the other Loan Documents.
Section 3.02. Authorization of Loan, etc. The execution, delivery and
performance of the Loan Documents by the Company, to the extent applicable, (a)
have been duly authorized by all requisite corporate action (no shareholder
action being required pursuant to applicable law) and (b) will not (i) violate
(A) any provision of law, any governmental rule or regulation, any order of any
court or other agency of government or the Articles of Incorporation or By-Laws
of the Company, to the extent applicable or (B) any provision of any indenture,
agreement or other instrument to which the Company, to the extent applicable, is
a party or by which it or any of its properties or assets are bound, (ii) be in
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or (iii) result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of the Company
other than as permitted by the terms hereof.
Section 3.03. Agreements.
(a) The Company is not a party to any agreement, indenture, lease or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule or regulation materially and
adversely affecting its business, properties, assets, operations or condition
(financial or otherwise). There are no unrealized losses with respect to any
such agreement, indenture, lease or instrument.
(b) The Company is not in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any material agreement or instrument to which it is a party.
(c) The Company enjoys peaceful and undisturbed possession in all material
respects under all leases as to which the Company is a lessee and all such
leases are valid and subsisting and in full force and effect.
Section 3.04. Tax Returns and Payments. All federal, state and local tax
returns and reports of the Company required to be filed have been filed, and all
taxes, assessments, fees and other governmental charges upon the Company, or
upon any of its properties, assets, incomes or franchises, which are due and
payable in accordance with such returns and reports, have been paid, other than
those presently (a) payable without penalty or interest, or (b) contested in
good faith and by appropriate and lawful proceedings prosecuted diligently. The
aggregate amount of the taxes, assessments, charges and levies so contested is
not material to the condition (financial or otherwise) and operations of the
Company. The charges, accruals, and reserves on the books of the Company in
respect of federal, state and local taxes for all fiscal periods to date are
adequate and the Company knows of no other unpaid assessment for additional
federal, state or local taxes for any such fiscal period or of any basis
therefor. The Company has and will establish all necessary reserves and make all
payments required of it to be set aside or made in regard to all F.I.C.A.,
withholding, sales or excise, and all other similar federal, state and local
taxes.
Section 3.05. Financial Conditions.
(a) All balance sheets, statements of profit and loss, and other financial
data that have been given to the Bank with respect to the Company:
(i) are complete and correct in all material respects;
(ii) accurately present the financial condition of the Company and the
results of their operation as of the dates and for the periods for which
the same have been furnished;
(iii) have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods covered
thereby: and
(iv) disclose all known liabilities, direct or contingent, as of their
respective dates.
(b) There have been no adverse changes in the business, properties,
condition (financial or otherwise, of Company, or any other party obligated to
Bank under the Loan Documents) and there has been no change in the structure or
ownership of said parties. The financial statements submitted to Bank in
connection with the Loan were true and correct as the date of submission and
remain true and correct as of the date hereof.
(c) There are no judgments, decrees, actions, suits or proceedings,
including without limitation, bankruptcy proceedings, pending or threatened
against or affecting the Company, or the property, before any Court, Arbitrator
or Governmental Department or agency which may result in any materially adverse
change in the financial condition of the Company, or any other party obligated
to the Bank under the Loan Documents or which would materially and adversely
affect the collateral or this loan transaction.
Section 3.06. Commitment Letter. The Company further warrants and
represents that it has complied with each of the terms of the Bank's Commitment
and that there exists no condition or outstanding requirement of the commitment
letter which has not been fulfilled in its entirety as an integral part of this
loan.
ARTICLE FOUR
COVENANTS OF THE COMPANY
Section 4.0l. Affirmative Covenants. The Company covenants, for so long
as any of the principal amount of or interest on the Notes is outstanding and
unpaid or any duty or obligation of the Company hereunder or under any of the
other Obligations remains unpaid or unperformed, as follows:
(a) Accounting: Financial Statements; Etc. The Company will deliver to the
Bank copies of each of the following:
(i) The Company will submit year-end unqualified audited financial
statements prepared by a CPA acceptable to the Bank for the Company, within
ninety (90) days of the end of the Company's fiscal year unless extended in
writing by the Bank.
(ii) The Company shall submit to the Bank on or before the 15th of
each month, (except for the fiscal year end report which shall be provided
within twenty-five (25) days following the end of the fiscal year) the
prior month's balance sheet, income statement, report of accounts
receivable aging and accounts payable aging, contract status, proposal
status, backlog and orders secured, as well as other relevant information
concerning the business activity and financial condition of the Company. A
certificate will be furnished with each monthly report signed by the
President or the Executive Vice President of the Company certifying that
the foregoing information is true and correct and that all conditions of
this Loan Agreement are being complied with or if not, what the exceptions
are.
(iii) With reasonable promptness, such other data and information as
from time to time may be reasonably required by the Bank in regard to the
Company.
All financial statements shall be in form and substance as reasonably
requested by the Bank.
(b) Inspection. The Company will permit the Bank to visit and inspect any
of the properties and Places of Business of the Company, including its or their
respective books and records (and to make extracts therefrom), and to discuss
their respective affairs, finances and accounts with their respective officers,
all at such reasonable times and as often as may reasonably be requested
provided that the Bank shall not be permitted to inspect secured, restricted or
otherwise classified areas, without the express permission of the Company. The
Company shall keep all books and records in an unclassified or unrestricted area
of the Company's property, so that such books and records shall, at all times,
be available for inspection by the Bank as herein provided.
(c) Maintenance of Corporate Existence: Compliance With Laws. The Company
shall at all times preserve and maintain in full force and effect is corporate
existence, powers, rights, licenses, permits and franchises in the jurisdiction
of its incorporation; continue to conduct and operate its business substantially
as conducted and operated during the present and preceding fiscal year of the
Company; operate in full compliance with all applicable laws, statutes,
regulations, certificates of authority and orders in respect of the conduct of
its business; and qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is necessary or appropriate in view of
its business and operations.
(d) Notice of Default. The Company shall immediately notify the Bank in
writing upon the happening, occurrence or existence of any Event of Default, or
any event or condition which with the passage of time or giving of notice, or
both, would constitute an Event of Default, and shall provide the Bank with such
written notice, a detailed statement by a responsible officer of the Company of
all relevant facts and the action being taken or proposed to be taken by the
Company with respect thereto.
(e) Notice of Suit, Proceedings, Adverse Change. The Company shall promptly
give the Bank notice in writing (a) of all known threatened or actual actions or
suits (at law or in equity) and of all threatened or actual investigations or
proceedings by or before any court, arbitrator or any governmental department,
commission, board, bureau, agency or other instrumentality, state, federal or
foreign, affecting the Company, the rights or other properties of the Company,
(i) which involves potential liability of the Company in an amount in excess of
$500,000.00 or (ii) which the President or Executive Vice-President of the
Company believe in good faith is likely to materially and adversely affect the
financial condition of the Company or to impair the right or ability of the
Company to carry on its businesses as now conducted or to pay the Obligations or
perform the duties under the Loan Documents and which the Company has knowledge;
(b) or any material adverse change in the condition (financial or otherwise) of
the Company; and (c) of any seizure or levy upon any part of the properties of
the Company under any process or by a receiver.
(f) Checking Accounts. The Company shall maintain all depository accounts
with the Bank or at a Bank Office, or any other banking affiliate of Sun Bank,
N.A., except for those non-primary accounts maintained outside of the State of
Florida.
(g) Insurance. The Company shall procure and maintain and comply with such
insurance and policies of insurance (including without limitation public
liability and product and manufacturer's liability insurance with minimum
coverage of $1,000,000.00) as may be required by law and such other insurance as
is customarily maintained by companies similarly situated, or as the Bank may
from time to time reasonably request and which are customarily required for
commercial enterprises of the kind and nature similar to that of the Company. In
particular, the following insurance policies will be obtained and maintained in
full force and effect throughout the term of this Agreement.
(i) As a requirement of the loan commitment and pursuant to the terms and
conditions of this Loan Agreement, the Company shall maintain in full force and
effect, during the term of this Loan, life insurance policies on the lives of
the following persons in the amounts as indicated: indicated:
John A. Blohm $500,000.00
James C. Schaffer $500,000.00
The Company shall be designated as the irrevocable beneficiary thereof as
long as there remains an outstanding balance on the loans or an obligation on
the part of the Bank to fund the loans.
(ii) Appropriate hazard insurance and flood insurance, if applicable,
covering all real property, inventory, and equipment of the Company in the face
amount of not less than $1,000,000.00. The Company shall furnish to the Bank
certificates reflecting said insurance. The Bank agrees that the Company may
negotiate the settlement of any claims for damages less than $100,000.00,
provided that the proceeds realized from the settlement of such claims are used
to replace or refurbish equipment, inventory or property damaged and which is
the subject matter of the claim of loss. In the event that the claim for damages
exceeds $100,000.00, the Bank, in its sole discretion, may elect to apply the
insurance proceeds towards the reduction of the principal and interest
obligations of the loans.
(iii) The Company shall designate as additional loss payee the Bank as
follows: Sun Bank, National Association, its successors and assigns, Post Office
Box 1630, Melbourne, Florida 32902-1630 Attention: Commercial Loans.
(h) Debts, Taxes and Liabilities. The Company shall pay and discharge (i)
all of its indebtedness and obligations in accordance with their terms and
before they shall become in default, (ii) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income and profits or
against its properties, prior to the date on which penalties attach thereto, and
(iii) all lawful claims which, if unpaid, might become a lien or charge upon any
of its properties; provided, however, that the Company shall not be required to
pay any such indebtedness, obligation, tax, assessment, charge, levy or claim
which is being contested in good faith by appropriate and lawful proceedings
diligently pursued and for which adequate reserves have been set aside on its
books. The Company shall also set aside and/or pay as and when due all monies
required to be set aside and/or paid by any federal, state or local statute or
agency in regard to F.I.C.A., withholding, sales or excise or other similar
taxes.
(i) Notification of Change of Name or Business Location. The Company shall
notify the Bank of each change in the name of the Company and of each change of
the location of the Principal Place of Business and any Places of Business
provided, however, the Principal Place of Business may not be kept out of or
removed from Brevard County, Florida without the prior written consent of the
Bank.
(j) Minimum Financial Criteria. The Company shall maintain the following
minimum financial criteria:
(i) Current Ratio. For the Company, it shall maintain a minimum current
ratio of 1.50:1. Current ratio shall be defined as Current Assets divided by
Current Liabilities.
(ii) Minimum Working Capital. The minimum working capital shall
$700,000.00. Working Capital shall be defined as Current Assets
minus Current Liabilities.
(iii) Minimum Tangible Net Worth. Minimum Tangible Net Worth shall be
$1,250,000.00.
(iv) Minimum Interest Coverage Ratio. At all times that the average loan
outstandings exceed $750,000.00, the minimum interest coverage ratio shall be
not less than 1.50:1. In the event the outstandings are less than $750,000.00,
the minimum interest coverage ratio shall be not less than 2.00:1. This ratio
shall be monitored on a year to date fiscal quarter basis.
(k) Maximum Financial Criteria. The Company shall maintain the following
maximum financial criteria:
(i) Maximum Debt to Net Worth Ratio. At all such times as combined
principal balance outstanding on Loan "A" and Loan "B" exceeds $750,000.00, the
maximum Debt to Net Worth Ratio shall be 1.70:1. In the event that the combined
outstanding principal balance of Loan "A" and Loan "B" is less than $750,000.00,
then the maximum Debt to Net Worth Ratio shall be maintained at 1.45:1.
Section 4.02. Negative Covenants. The Company covenants, for so long as any
of the principal amount of or interest on the Notes is outstanding and unpaid or
any Obligations remain unpaid or unperformed, as follows:
(a) Sale of Assets. The Company will not sell, lease, assign, transfer or
otherwise pledge or encumber or dispose of any assets, other than as worn out,
obsolete, traded in on new equipment, or in the normal course of business
without the express written consent of the Bank.
(b) Change in Ownership of Principal Stockholders. The Company shall make
no change in the position of John Blohm as President and James C. Schaffer as
Executive Vice-President and officers of the Company or in the ownership of
stock by the foregoing officers without the prior written consent of the Bank.
In the event that the aforesaid President or Executive Vice-President resign
from the Company without the prior written consent of the Bank, such resignation
shall constitute a default under the terms and conditions of the Loan Documents.
(c) Merger or Consolidation. The Company will not consolidate with or merge
into any other corporation, or permit another corporation to merge into it, or
acquire in a transaction analogous in purpose or effect to a merger or
consolidation all or substantially all the properties or assets of any other
entity without the Bank's prior written consent which shall not be unreasonably
withheld.
(d) Additional Indebtedness. The Company shall not incur any new
obligations except for trade accounts payable in the ordinary course of
business, capital leases in excess of $20,000.00 (cumulative on an annual
basis), and taxes without the prior written consent of the Bank. In the event
stockholder loans to the Company are made, such indebtedness shall be
subordinated, in writing, to the Company's indebtedness to the Bank.
(e) Hypothecation. The Company will not, without the Bank's prior written
consent, voluntarily or involuntarily hypothecate, mortgage, pledge, or subject
to a lien, security interest or other encumbrance of any nature whatsoever any
of its real or personal property now owned or hereafter acquired.
(f) Other Agreements. The Company will not enter into any arrangements,
contractual or otherwise, which would materially and adversely affect its or
their duties or the rights of the Bank under the Loan Documents or which is
inconsistent with or limits or abrogates the Loan Documents.
(g) Fiscal Year. The Company will not change its fiscal year from a year
ending March 31 without reasonable notice to the Bank.
(h) Loans to Stockholders. The Company shall make no loans to the principal
stockholders without the prior written consent of the Bank.
ARTICLE FIVE
CONDITIONS OF LENDING
The obligations of the Bank to lend hereunder and advance any monies under
the Note and to make any Advance under Section 2.03 from time to time are
subject to the following conditions precedent:
Section 5.01. Representations and Warranties. The representations and
warranties set forth in the Loan Documents are true and correct on and as of the
date hereof, and on the date of each Advance hereunder.
Section 5.02. No Default. On the date hereof and on the date of each
Advance, the Company shall be in compliance with all the terms and provisions
set forth in the Loan Documents on its or their part to be observed or
performed, and no Event of Default nor any event that, upon notice or lapse of
time or both would constitute such an Event of Default, shall have occurred and
be continuing at such time.
Section 5.03. Officer's Certificate. Substantially simultaneously with the
execution hereof, and with the submission of each financial statement hereunder
and on such other dates as the Bank may request, the Company shall deliver to
the Bank a certificate, dated as of the date given, and signed by a responsible
officer of the Company, confirming compliance with all of the conditions of this
Agreement by the Company.
Section 5.04. Loan Documents. The Company shall have delivered or caused to
be delivered to the Bank all the Loan Documents, in form and substance
satisfactory to the Bank, as the Bank may request and all of the Loan Documents
are in full force and effect.
Section 5.05. Supporting Documents. On or prior to the date hereof, the
Bank shall have received the following supporting documents, all of which shall
be satisfactory in form and substance to the Bank:
(a) A certificate or certificates, dated as of the date hereof, of (i) the
Secretary or any Assistant Secretary of the Company certifying (A) that attached
thereto is a true and correct copy of certain resolutions adopted by the Board
of Directors of the Company authorizing the execution, delivery and performance
of the Loan Documents and the performance of the Company's obligations and the
borrowings thereunder, which resolutions have not been altered or amended in any
respect, and remain in full force and effect at all times since their adoption:
(B) that attached thereto is a true and correct copy of the Certificate of
Incorporation of the Company, that such Certificate of Incorporation has not
been altered or amended, and no other charter documents have been filed, since
the date of the filing of the last amendment thereto or other charter document
as indicated on the certificate of the Secretary of State of the State of
Florida attached thereto; and (C) the incumbency and signatures of the officers
of the Company signing the Loan Documents and any report, certificate, letter or
other instrument or document furnished by the Company in connection therewith,
and (ii) another authorized officer of the Company certifying the incumbency and
signature of the Secretary or Assistant Secretary of the Company;
(b) A certificate of the Florida Secretary of State dated as of a recent
date, as to the good standing of the Company;
(c) A copy of the corporate By-Laws certified by the Secretary as a true
and correct copy;
(d) Such additional supporting or similar documents as the Bank may
reasonably request in regard to the Company.
ARTICLE SIX
COLLATERAL
Section 6.01. Security Agreement. The Company has executed a Security
Agreement and UCC-1 Financing Statements for the purpose of pledging all of its
accounts, contract rights, inventory and equipment to secure the repayment of
the indebtedness represented by Notes "A" and "B". The company agrees to execute
any and all further documents necessary to properly perfect the Bank's security
interest therein.
Section 6.02. Collateral Assignment. The company has further executed a
collateral assignment of contract rights and proceeds arising out of the
contract between the Company and the Egyptian Government. A Summary of which is
attached hereto as Exhibit "C".
Section 6.03. Cross Collateral. The collateral is also pledged as security
for all other liabilities (primary, secondary, direct, contingent, sole, joint
or several), due to become due or which may hereafter be contracted or acquired,
of the Company, to the Bank. Further, any other collateral, whether real or
personal, held by the Bank on any liability due or to become due, or which may
hereafter be contracted, or acquired with or from the Company shall also
constitute additional collateral to further secure the Note.
ARTICLE SEVEN
EVENTS OF DEFAULT
Section 7.01. Events of Default. The following each and all are Events of
Default hereunder:
(a) Monetary Default. If the Company shall default in any payment of the
principal or interest on the Loan when and as the same shall become due and
payable, whether at maturity, by acceleration at the discretion of the Bank or
otherwise; or
(b) Non-Monetary Default. If the Company shall default in the performance
of or compliance with any term or covenant contained in the Loan Documents
(other than a term or covenant a default in the performance of which or
non-compliance with which is elsewhere specifically dealt with) which default or
non-compliance shall continue and not be cured within thirty (30) days of
written notice thereof to the Company by the Bank; or
(c) False Misrepresentation. If any representation or warranty made in
writing by or on behalf of the Company or in any other Loan Document shall prove
to have been knowingly false or incorrect in any material respect on the date as
of which made or reaffirmed; or
(d) Bankruptcy. If the Company shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodial receiver or trustee for any of them or a
substantial part of their assets, or shall commence any proceeding under any
bankruptcy reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against any of them, in which an
order for relief is entered or which remains undismissed for a period of thirty
days (30) days or more; or
(e) Litigation against the Company. Any suit shall be filed which could
reasonably be expected to substantially impair the ability of the Company to
perform the obligations under and by virtue of the loan documents.
Section 7.02. Failure to disprove default. Should Bank reasonably suspect
the occurrence of one or more of the aforesaid Events of Default and the
Company, upon request of the Bank, shall fail to provide evidence reasonably
satisfactory to Bank that such Event or Events of Default have not, in fact,
occurred, then such Event shall be deemed to have occurred.
Section 7.03. Cross Defaults. A default under any Loan Document, including
a default under this Agreement, shall be and constitute a default under all
outstanding loans to the Company by the Bank, and further, a default under any
of the outstanding loans to the Company by the Bank shall be and constitute a
default under this Agreement and each and all of the Loan Documents, subject
however to the thirty (30) days notice and right to cure non-compliance with
respect to non-monetary defaults as delineated in Section 7.01(b), above.
ARTICLE EIGHT
RIGHTS UPON DEFAULT
Upon the occurrence of any Event of Default, the Bank shall have and may
exercise any or all of the rights set forth herein provided, however, the Bank
shall be under no duty or obligation to do so:
Section 8.01. Acceleration. To declare the indebtedness evidenced by the
Note and all other Obligations to be forthwith due and payable, whereupon the
Note and all other Obligations shall become forthwith due and payable, both as
to principal and interest, without presentment, demand, protest or any other
notice or grace period of any kind, all of which are hereby expressly waived,
anything contained herein or in the Notes or in such other Obligations to the
contrary notwithstanding.
Section 8.02. Right of Setoff. To exercise its right of setoff as permitted
under Section 2.06.
Section 8.03. Application of Proceeds. Any and all proceeds resulting from
the exercise of any and all of the foregoing remedies shall be applied (i) first
to the cost and expenses, including reasonable attorneys fees incurred by the
Bank in connection with the exercise of its remedies; (ii) second, to the
expenses of curing the default that has occurred, in the event that the Bank
elects, in its sole discretion (and without obligation to do so) to cure the
default that has occurred; (iii) third, to the satisfaction of the obligations
of the Company to the Bank, including without limitations, the payment of the
principal of, and interest on the indebtedness evidenced by the Notes, in any
order selected by Bank; and (iv) fourth, the remainder, if any, to the Company
or any other person lawfully entitled thereto.
ARTICLE NINE
MISCELLANEOUS
Section 9.01. No Waiver, Cumulative Remedies. No failure or delay on the
part of the Bank in exercising any right, power or remedy hereunder, or under
the Note or the other Loan Documents shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder or thereunder. The remedies herein and therein provided are
cumulative and not exclusive of any remedies provided by law or in equity.
Section 9.02. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement, the Note or the other Loan Documents,
nor consent to any departure by the company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 9.03. Addresses for Notices, Etc. All notices, requests, demands
and other communications provided for hereunder shall be in writing (including
telex or telegraphic communications) and shall be deemed to have been given (i)
in the case of delivery, when addressed to the other party and delivered to the
address set forth below, (ii) in the case of mailing, three days after said
notice has been deposited, postage prepaid, in the United States Mails by
certified or registered mail, return receipt requested, and (iii) in all other
cases when received by the party. The address to which matters may be sent or
delivered to each party are as follows:
If to the Company: Computer Science Innovations, Inc
1280 Clearmont Street, N.E.
Palm Bay, FL 32905
Attn: John Blohm
If the Bank: Sun Bank, National Association
Post Office Box 1630
Melbourne, Florida 32901
Attn: Commercial Loan
Department Manager
With a Copy to: Bruce Mitchell, Esq.
Reinman, Harrell, Graham, et al.
1825 S. Riverside Drive
Melbourne, FL 32901
Each party may change the address to which matters are to be sent or
delivered as set forth above by giving written notice of such change in the
manner set forth above.
Section 9.04. Applicable Law. This Agreement, and each of the Loan
Documents and transactions contemplated herein (unless specifically stipulated
to the contrary in such document) shall be governed by and interpreted in
accordance with the laws of the State of Florida.
Section 9.05. Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained herein or made
in writing by the Company in connection herewith shall survive the execution and
delivery of this Agreement, the Note and the other Loan Documents and be true
and correct during the term of the Loan.
Section 9.06. Time of the Essence. Time is of the essence of this
Agreement, the Note and the other Loan Documents.
Section 9.07. Headings. The headings in this Agreement are intended to be
for convenience of reference only, and shall not define or limit the scope,
extent or intent or otherwise affect the meaning of any portion hereof.
Section 9.08. Severability. In case any one or more of the provisions
contained in this Agreement, the Note or the other Loan Documents shall for any
reason be held to be invalid, illegal or unenforceable in any respect, the same
shall not affect any other provision of this Agreement, the Note or the other
Loan Documents, but this Agreement, the Note and the other Loan Documents shall
be construed as if such invalid or illegal or unenforceable provision had never
been contained therein.
Section 9.09. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 9.10. Conflict. In the event any conflict arises between the terms
of this Agreement and the terms of any other Loan Document including the Note,
the Bank shall have the option of selecting which conditions shall govern the
loan relationship evidenced by this Agreement and, if the Bank does not so
indicate, the terms of this Agreement shall govern in all instances of such
conflict.
Section 9.11. Term. The term of this Agreement shall be for such period of
time until the Loan and Note have been repaid in full, the Company has no
further right to request any Advance on the Loan and all Obligations have been
paid to the Bank in full.
Section 9.12. No Third Party Beneficiary. This Agreement is solely between
the parties hereto and no person not a party to this Agreement shall have any
rights or privileges hereunder either as a third party beneficiary or otherwise.
Section 9.13. No Partnership or Joint Venture. Nothing herein or the acts
of the parties hereto shall be construed to create a partnership or joint
venture between the Company and the Bank, nor to create any obligation on the
part of the Bank as to the Company.
Section 9.14. Successors and Assigns Included in Partner. Whenever in this
Agreement one of the parties hereto is named or referred to, the legal
representative, successors, successors in title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by and on behalf of the company or by and on behalf of the Bank shall bind and
inure to the benefit of their respective legal representatives, successors,
successors in title, and assigns, whether so expressed or not.
Section 9.15. Assignment. The Notes, this Agreement and the other Loan
Documents may be endorsed, assigned and/or transferred in whole or in part by
the Bank and any such holder and assignee of same shall succeed to and be
possessed of the rights of the Bank under all of the same to the extent
transferred and assigned. Bank may grant participation in all or a portion of
its interest in the loan. Company shall not assign any of their rights nor
delegate any of their duties hereunder or under any of the other Loan Documents
without the prior express written consent of the Bank.
Section 9.16. Costs and Attorney Fees. If an Event of Default occurs under
Agreement or a default occurs under other Loan Document, then, in that event,
the Company agrees to promptly pay to the Bank, upon demand therefore, all
costs, expenses and attorneys fees incurred or paid by the Bank in enforcing its
rights under this Agreement or any Loan Document. As used herein, costs,
expenses and attorneys fees include costs, expenses and attorney's fees incurred
or paid by the Bank in regard to any appellate proceedings.
Section 9.17. Entire Assignment. Except as otherwise expressly provided
herein, this Agreement and the other Loan Documents embody the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed, sealed and delivered, as applicable, by their duly authorized
officers on the day and year first above written.
Signed, sealed and delivered in the SUN BANK, NATIONAL ASSOCIATION
presence of:
___________________________________ By: ___________________________________
____________________________________ Attest:________________________________
(As to Bank)
COMPUTER SCIENCE INNOVATIONS, INC.,
a Florida Corporation
_____________________________________ By: /s/ John Blohm
-----------------------------------
John A. Blohm, President
_____________________________________ By: /s/ James Schaffer
(As to Company) -----------------------------------
James C. Schaffer
Executive Vice President
Sun Bank [logo]
PROMISSORY NOTE
$1,000,000.00 January ___1991
The undersigned (whether one or more hereinafter called "Maker"),
jointly and severally, promise(s) to pay to the order of Sun Bank, National
Association (herein called "Bank") at its offices located at Melbourne Florida,
ONE MILLION and 00/100 DOLLARS ($1,000,000.00), together with interest from the
date hereof at the rate hereinafter provided, and applicable fees in the
following manner:
REPAYMENT SCHEDULE:
|---| Single Payment Principal Due in Full On:
Interest Payable:
|---| Installment Payment (Including interest): In __________ ______________
(No.) (Period)
Installments of $_________ commencing on __________,
19__, and on the same day of each successive
___________ thereafter, together with FINAL
PAYMENT of $___________, due and payable on
______________, 19__.
|---| Installment Payment (plus interest): ___________ ____________________
(No.) (Period)
Principal Installments of $___________, plus
interest, commencing on ___________, 19__, and on
the same day of each successive ___________
thereafter, together with a FINAL PAYMENT of
$___________, plus accrued interest due and payable
on ______________, 19__.
|---| Multiple Payment: Principal and interest are payable as follows:
_____________________________________________
_____________________________________________
| X | ON DEMAND Principal payable ON DEMAND with interest payable
monthly commencing on February 1, 1991 and each
month thereafter.
------
THE INTEREST RATE IS AS FOLLOWS: |---| If checked here, the interest rate
provided herein shall be computed on the basis of a 360 day year and shall be
calculated for the actual number of days elapsed.
VARIABLE INTEREST RATE:
|---| Not Applicable
| X | Applicable, provided however that the interest rate charged
hereunder shall never exceed the maximum rate allowed, from time to time, by
law. If applicable, the interest rate stated herein shall, from time to time,
automatically increase or decrease so that at all times it shall be equivalent
to (check appropriate box and complete):
| X | .75% over the annual interest rate announced by Sun Banks, Inc., from
from time to time, as the prime rate (which interest rate is only a
bench mark, is purely discretionary and is not necessarily the best or
lowest rate charged borrowing customers of any subsidiary bank of Sun
Banks, Inc.). Any such change in prime rate will increase or decrease
your periodic interest payments. Any change in prime rate shall be
effective at the beginning of the business day on which such change is
announced; or,
|---| -----% over the ---------------------------------------------------------
- --------------------------------------------------------------------------------
FIXED RATE |---| Applicable at ___% per annum, simple interest.
LATE CHARGE FEE | X | Not Applicable.
SERVICE FEE | X | If checked here, if a payment is late, you will be
charged 5% of the payment. A service fee of the lesser of
$50.00 or 2 percent of the principal amount of this loan,
which will not be refunded in the event of prepayment.
In the event any installment of principal or interest or any part
thereof is not paid when it becomes due, or in the event of any default
thereunder, the principal sum remaining unpaid hereunder, together with all
accrued and past due interest thereon, shall immediately and without notice
become due and payable at the election of the holder at any time thereafter.
Notwithstanding any rate of interest provided herein, the interest rate
on any payment or payments of principal or interest, or any part thereof, which
is not made when due shall, thereafter, be at the maximum rate allowed, from
time to time, by law. Minimum interest of $10.00 on any single payment loan or
$15.00 on any installment loan will be charged on loans not exceeding $50,000.
This note is | x | SECURED |---| UNSECURED (Notwithstanding the fact
that this note is marked 'unsecured', Maker understands and agrees that any
other security interest the Bank now holds or may hereafter acquire from the
Maker may secure this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: all accounts, contract rights, inventory and equipment of Borrower
(including all cash, stock and other dividends and all rights to subscribe for
securities incident to, declared, or granted in connection with such property
and including any returned or unearned premiums from any insurance financed
hereunder), which property, together with all additions and substitutions
hereafter pledged or deposited with Bank is called the Collateral. The
Collateral is also pledged as security for all other liabilities (primary,
secondary, direct, contingent, sole, joint, or several), due or to become due or
which may be hereafter contracted or acquired, of each Maker (including each
Maker and any other person) to Bank. The surrender of this note, upon payment or
otherwise, shall not affect the right of Bank to retain the Collateral for such
other liabilities.
Maker understands and agrees that the additional agreements and
provisions on the reverse side hereof, hereby incorporated by reference,
constitute agreements of the Maker and a part of this note. Maker acknowledges
receipt of a completed copy of this note.
NOTICE TO COSIGNER: You are being asked to guarantee this debt. Think
carefully before you do. If the Borrower doesn't pay the debt, you will have to.
Be sure you can afford to pay if you have to, and that you want to accept this
responsibility.
You may have to pay up to the full amount of the debt if the borrower
does not pay. You may also have to pay late fees or collection costs, which
increase this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you that
can be used against the borrower, such as suing you, garnishing your wages, etc.
If this debt is ever in default, that fact may become a part of your credit
record.
This notice is not the contract that makes you liable for the debt.
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation.
Address: 1280 Clearmont St., N.E. By: /s/ John Blohm (Seal) 8 January 1991
Palm Bay, FL 32905 ------------------------ --------------
John A. Blohm, President Date
By: /s/ James C. Schaffer (Seal)8 January 1991
------------------------ --------------
James C. Schaffer, Date
Exec. Vice-President
================================================================================
Sun Bank [logo]
PROMISSORY NOTE
$1,000,000.00 January 8, 1991
- ------------- ---------------
The undersigned (whether one or more hereinafter called "Maker"),
jointly and severally, promise(s) to pay to the order of Sun Bank, National
Association (herein called "Bank") at its offices located at Melbourne Florida,
ONE MILLION and 00/100 DOLLARS ($1,000,000.00), together with interest from the
date hereof at the rate hereinafter provided, and applicable fees in the
following manner:
REPAYMENT SCHEDULE:
|_| Single Payment Principal Due in Full On: -------------------------
Interest Payable: ---------------------------------
|_| Installment Payment (Including interest): In _________ ______________
(No.) (Period)
Installments of $___________ commencing on
___________, 19__, and on the same day of each
successive ___________ thereafter, together with
FINAL PAYMENT of $___________, due and payable on
______________, 19__.
|_| Installment Payment (plus interest): ___________ ___________________
(No.) (Period)
Principal installments of $___________, plus
interest, commencing on ___________, 19__, and on
the same day of each successive ___________
thereafter, together with a FINAL PAYMENT of
$___________, plus accrued interest due and payable
on ______________, 19__.
|_| Multiple Payment Principal and interest are payable as follows:
_____________________________________________
_____________________________________________
|X| ON DEMAND Principal payable ON DEMAND with interest payable
monthly commencing on February 1, 1991 and each
month thereafter.
THE INTEREST RATE IS AS FOLLOWS: |_| If checked here, the interest
rate provided herein shall be computed on the basis of a 360 day year and shall
be calculated for the actual number of days elapsed. VARIABLE INTEREST RATE:
|_| Not Applicable |_| Applicable, provided however that the interest
rate charged hereunder shall never exceed the maximum rate allowed, from time to
time, by law.
|_|.75% over the annual interest rate announced by Sun Banks, Inc., from time to
time, as the prime rate (which interest rate is only a bench mark, is purely
discretionary and is not necessarily the best or lowest rate charged borrowing
customers of any subsidiary bank of Sun Banks, Inc.). Any such change in prime
rate will increase or decrease your periodic interest payments. Any change in
prime rate shall be effective at the beginning of the business day on which such
change is announced; or,
|_| _____% over the
___________________________________________________________
- ---------------------------------------------------------------------------
FIXED RATE |_| Applicable at _% per annum, simple interest. Not Applicable. LATE
CHARGE FEE |_| If checked here, if a payment is late, you will be charged 5%
SERVICE FEE of the payment.
|_| A service fee of the lesser of $50.00 or 2 percent of the principal amount
of this loan, which will not be refunded in the event of prepayment.
In the event any installment of principal or interest or any part thereof
is not paid when it becomes due, or in the event of any default thereunder, the
principal sum remaining unpaid hereunder, together with all accrued and past due
interest thereon, shall immediately and without notice become due and payable at
the election of the holder at any time thereafter.
Notwithstanding any rate of interest provided herein, the interest rate on
any payment or payments of principal or interest, or any part thereof, which is
not made when due shall, thereafter, be at the maximum rate allowed, from time
to time, by law. Minimum interest of $10.00 on any single payment loan or $15.00
on any installment loan will be charged on loans not exceeding $50,000.
This note is |X| SECURED |_| UNSECURED (Notwithstanding the fact that this
note is marked 'unsecured', Maker understands and agrees that any other security
interest the Bank now holds or may hereafter acquire from the Maker may secure
this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: all accounts, inventory and equipment of Borrower (including all cash,
stock and other dividends and all rights to subscribe for securities incident
to, declared, or granted in connection with such property and including any
returned or unearned premiums from any insurance financed hereunder), which
property, together with all additions and substitutions hereafter pledged or
deposited with Bank is called the Collateral. The Collateral is also pledged as
security for all other liabilities (primary, secondary, direct, contingent,
sole, joint, or several), due or to become due or which may be hereafter
contracted or acquired, of each Maker (including each Maker and any other
person) to Bank. The surrender of this note, upon payment or otherwise, shall
not affect the right of Bank to retain the Collateral for such other
liabilities. Maker understands and agrees that the additional agreements and
provisions on the reverse side hereof, hereby incorporated by reference,
constitute agreements of the Maker and a part of this note. Maker acknowledges
receipt of a completed copy of this note.
- --------------------------------------------------------------------------------
Notice to Cosigner: You are being asked to guarantee this debt. Think carefully
before you do. If the Borrower doesn't pay the debt, you will have to. Be sure
you can afford to pay if you have to, and that you want to accept
responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you that
can be used against the borrower, such as suing you, garnishing your wages, etc.
If this debt is ever in default, that fact may become a part of your credit
record.
This notice is not the contract that makes you liable for the debt.
- -------------------------------------------------------------------------------
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation. Address: 1280
Clearmont St., N.E. By: /s/ John Blohm (Seal) 8 January 1991 Palm Beach, FL
32905 ------------------ -------------- John A. Blohm, President Date
By: /s/ James C. Schaffer (Seal) 8 January 1991
James C. Schaffer, Exec. Vice-President Date
======================== ============================ =========================
<PAGE>
If the variable interest rate is not applicable and if this note is
payable on demand, Bank reserves, and is hereby granted the right, to adjust the
interest rate from time to time by furnishing Maker with written notice of such
adjusted rate, provided, however, that no such adjusted rate shall exceed the
maximum rate allowed, from time to time, by law.
Additions to, reductions or exchanges of, or substitutions for the
Collateral, payments on account of this note or increases of the same, or other
loans made partially or wholly upon the Collateral, may from time to time, be
made without affecting the provisions of this note.
If Bank deems itself insecure, or upon the happening of any of the
following events, each of which shall constitute a default hereunder, all
liabilities of each Maker to Bank shall thereupon or thereafter, at the option
of the Bank, without notice or demand, become due and payable: (a) failure of
any Obligor (which term shall mean and include each Maker, endorser, surety and
guarantor of this note) to perform any agreement hereunder, to pay interest
hereon when due or requested or demanded or to pay any other liability
whatsoever to Bank when due; (b) the death of any Obligor; (c) the filing of any
petition under the Bankruptcy Code or any similar federal or state statute, by
or against any Obligor; (d) an application for the appointment of a receiver or
the making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) the entry of a judgment against any Obligor; (f)
the issuing of any writ of attachment or writ of garnishment, or the filing of
any lien, against the property of any Obligor; (g) the taking of possession of
any substantial part of the property of any Obligor at the instance of any
governmental authority; (h) the dissolution, merger, consolidation, or
reorganization of any Obligor; (i) the assignment by any Maker of any equity in
any of the Collateral without the written consent of Bank.
Bank is hereby given a lien upon and a security interest in all
property of each Maker now or at any time hereafter in the possession of Bank in
any capacity whatsoever, including but not limited to any balance or share of
any deposit, trust, or agent account as security for the payment of this note,
and a similar lien upon and security interest in all such property of each Maker
as security for the payment of all other liabilities of each Maker to Bank
(including liabilities of each Maker and any other person); and Bank shall have
the same rights as to such property as it has with respect to the Collateral.
If Bank deems itself insecure or upon the occurrence of any default
hereunder Bank shall have the remedies of a secured party under the Uniform
Commercial Code and, without limiting the generality of the foregoing, Bank
shall have the right, immediately and without further action by it, to set off
against this note all money owed by Bank in any capacity to each or any Obligor,
whether or not due, and also to set off against all other liabilities of each
Maker to Bank all money owed by Bank in any capacity to each or any Maker; and
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
even though such a charge is made or entered on the books of Bank subsequent
thereto. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the Bank will
give Maker reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or any other intended disposition
thereof is to be made. The requirement of reasonable notice shall be met if such
notice is mailed, postage prepaid, to any Maker at the address given below or at
any other address shown on the records of the Bank, at least five days before
the time of the sale or disposition. Upon disposition of any Collateral after
the occurrence of any default hereunder, Maker shall be and remain liable for
any deficiency; and Bank shall account to Maker for any surplus, but Bank shall
have the right to apply all or any part of such surplus (or to hold the same as
a reserve against) any and all other liability of each or any Maker to bank. The
Obligors, jointly and severally, promise and agree to pay all costs and expenses
of collection and reasonable attorneys' fee, including costs, expenses and
reasonable attorneys' fees on appeal, if collected by legal proceedings or
through an attorney at law. Maker hereby waives any right to a trial by jury in
any civil action arising out of, or based upon, this note or the Collateral.
Bank shall exercise reasonable care in the custody and preservation of
the Collateral to the extent required by applicable statute and shall be deemed
to have exercised reasonable care if it takes such action for that purpose as
Maker shall reasonably request in writing, but no omission to do any act not
requested by Maker shall be deemed a failure to exercise reasonable care, and no
omission to comply with any request of Maker shall of itself be deemed a failure
to exercise reasonable care. Bank shall not be bound to take any steps necessary
to preserve any rights in the Collateral against prior parties and Maker shall
take all necessary steps for such purposes. Bank or its nominee need not collect
interest on or principal of any Collateral or give any notice with respect to
it.
If the Collateral shall at any time become unsatisfactory to Bank,
Maker shall within one day after demand pledge and deposit with Bank as part of
the Collateral additional property which is satisfactory to Bank.
Bank shall have the right, which may be exercised at any time whether
or not this note is due, to notify the Obligors on any collateral to make
payment to Bank on any amounts due or to become due thereon. In the event of any
default hereunder, Bank shall thereafter have, but shall not be limited to, the
following rights: (i) to pledge or transfer this note and the Collateral and
Bank shall thereupon be relieved of all duties and responsibilities hereunder
and relieved from any and all liability with respect to any Collateral so
pledged or transferred, and any pledgee or transferee shall for all purposes
stand in the place of Bank hereunder and have all the rights of Bank hereunder;
(ii) to transfer the whole or any part of the Collateral into the name of itself
or its nominee; (iii) to vote the Collateral; (iv) to demand, sue for, collect,
or make any compromise or settlement it deems desirable with reference to the
Collateral; and (v) to take control of any proceeds of Collateral.
No delay or omission on the part of Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this note. Presentment, demand, protest, notice of dishonor, and extension
of time without notice are hereby waived by each and every Obligor. Any notice
to Maker shall be sufficiently served for all purposes if placed in the mail,
postage prepaid, addressed to or left upon the premises at, the address shown
below or any other address shown on the Bank's records.
- --------------------------------------------------------------------------------
GUARANTY
In addition to the liability as endorsers, which the undersigned hereby
assume, for value received and intending to be legally bound, the undersigned
(and if more than one, each of them jointly and severally) (a) hereby become
surety to the payee of the within note, its successors, endorsees and assigns,
for the payment of the within note, and hereby unconditionally guarantee the
payment of the within note and all extensions or renewals thereof and all sums
payable under or by virtue thereof including, without limitation, all amounts of
principal and interest and all expenses (including attorney's fees) incurred in
the collection thereof, the enforcement of rights thereunder or with respect to
any security therefor and the enforcement thereof, and waive presentment,
demand, notice of dishonor, protest and all other notices whatsoever; and (b)
consent and agree (i) that all or any of the Collateral may be exchanged,
released, surrendered or sold from time to time, (ii) that the payment of the
note, or any of the liabilities of the Maker thereof, may be extended or said
note renewed any number of times and for any period (whether or not longer than
the original period of said note), (iii) that the holder of said note may grant
any releases, compromises or indulgences with respect to said note or any
extensions or renewals thereof or any security therefor or to any party liable
thereunder or hereunder (including but not limited to failure or refusal to
exercise one or more of the rights or remedies provided by said note), and (iv)
that any of the provisions of said note may be modified; all without notice to
or consent of and without affecting the liability of the undersigned as
endorsers and sureties, and further consent and agree that any of the
undersigned may be sued by the holder hereof with or without joining any of the
other endorsers or makers of said note and without first or contemporaneously
suing any such other persons, or otherwise seeking or proceeding to collect from
them or any of them, and without first or contemporaneously undertaking to
enforce any rights with respect to any security.
- -------------------------------------------------------------------------------
The undersigned acknowledges having received and read the NOTICE TO
CO-SIGNER appearing on the reverse side hereof.
- -------------------------------------------------------------------------------
_____________________________(DATE) ___________________________(SEAL)
_____________________________(DATE) ___________________________(SEAL)
_____________________________(DATE) ___________________________(SEAL)
FLORIDA DOCUMENTARY STAMP TAX REQUIRED BY LAW IN THE AMOUNT OF $____________
HAS BEEN PAID OR WILL BE PAID DIRECTLY TO THE DEPARTMENT OF REVENUE. CERTIFICATE
OF REGISTRATION # _____.
<PAGE>
Sun Bank [logo]
CORPORATE BORROWING RESOLUTION
SUN BANK, NATIONAL ASSOCIATION
(Name of Bank)
I, the undersigned, hereby certify to said Bank that I am the duly
elected Secretary of COMPUTER SCIENCE INNOVATIONS, INC., A Florida Corporation
Located at Palm Bay City; Florida State, a corporation duly organized and
existing under the laws of the State of Florida; that the following is a true
and correct copy of resolutions adopted by the board of directors of said
corporation at a meeting duly held on the 6th day of August, 1990; that said
meeting was called and held pursuant to law at which a quorum was present; and
that said resolutions are in full force and effect and have not been rescinded
or modified.
RESOLVED, that the following officers (insert titles only) President
and Executive Vice-President of this corporation, or any (insert number required
to sign) 2 of them are hereby authorized; from time to time; to borrow money on
behalf of this corporation from said Bank in such amounts, for such lengths of
time and at such rates of interest and upon such terms and conditions as said
officer or officers may deem expedient, provided that the aggregate amount of
such borrowing, pursuant to this resolution, shall not at any one time exceed
the sum of ONE MILLION and 00/100 Dollars ($1,000,000.00), in addition to such
amounts as may be otherwise authorized; to execute and deliver to said Bank, in
the name of and on behalf of this corporation, negotiable or non-negotiable
notes or demands, letters of credit and other like obligations of this
corporation, indemnity agreements, guaranty agreements and other agreements,
assignments, endorsements, hypothecations and warehouse and other type receipts,
and any and all other instruments or documents considered by said Bank to be
necessary or proper in connection with any transaction, or transactions, between
or through said Bank and this corporation; to sell, re-register, pledge,
hypothecate, assign, transfer or set over, as security or otherwise for any
notes or obligations of this corporation, any and all properties, securities or
other assets now or hereafter belonging to this corporation, and to discount to
said Bank any and all such notes and other obligations issued to or owned by
this corporation, and to endorse same for such purpose, and that the said Bank
shall not be responsible for or required to see to the application of any of the
funds of this corporation deposited with or checked out, or borrowed from it, or
secured by the discount of notes and obligations to it as hereinbefore provided,
and all such transactions shall be conclusively presumed to be legally binding
upon this corporation; and
FURTHER RESOLVED, that the foregoing officers are hereby authorized,
from time to time, to enter in and sign on behalf of this corporation, an
agreement or agreements, as they may be amended or supplemented from time to
time, and such further documents as may be contemplated thereby, for the lease
of equipment from Lender, for such equipment, for such length of time, for such
rental and upon such terms and conditions as said officer or officers may deem
expedient from time to time, provided that the aggregate amount of rent payable
under all such leases of equipment shall not exceed $ N/A ; and
FURTHER RESOLVED, that the Secretary (or any other officer of this
corporation) shall certify to said Bank the names of the presently duly elected
and qualified officers of this corporation and shall from time to time hereafter
as changes in the personnel of said officers are made, immediately certify such
changes to the Bank, and said Bank shall be fully protected in relying on such
certifications and shall be indemnified and saved harmless from any claims,
demands, expenses, loss, or damage resulting from, or growing out of, honoring
the signature of any officer so certified, or refusing to honor any signature
not so certified; and
FURTHER RESOLVED, that the foregoing resolutions shall remain in full
force and effect until express written notice of their prospective amendment of
rescission shall have been furnished to and received by said Bank, and that
receipt of such notice shall not affect any action taken by the Bank prior
thereto; and
FURTHER RESOLVED, that the Secretary be, and he hereby is authorized
and directed to certify to said Bank the foregoing resolutions and to certify
that the provisions thereof are in conformity with the Charter and By-laws of
this corporation and that said resolutions are in full force and effect and have
not been rescinded or modified.
I further certify that there is no provision in the Charter or By-laws
of said corporation limiting the power of the Board of Directors to pass the
foregoing resolutions; that the same are in conformity with the provisions of
said Charter and By-laws; and that I am the custodian of the minutes of said
Board of Directors.
I further certify that the following are the names and official
signatures of the duly elected, qualified and acting officers of said
corporation: and that the corporate seal impressed hereon is the true corporate
seal of said corporation.
NAME OFFICIAL SIGNATURE
President John A. Blohm /s/ John Blohm
Exec. Vice President James C. Schaffer /s/ James C. Schaffer
Vice-President
Secretary___________________________________ ______________________________
Assistant Secretary_________________________ ______________________________
Treasurer___________________________________ ______________________________
Assistant Treasurer_________________________ ______________________________
IN WITNESS WHEREOF, I have hereunto subscribed my name as Secretary and
affixed the seal of said corporation, pursuant to due and lawful corporate
authority this the 8th day of January, 1991.
(Corporate Seal) /s/ James C. Schaffer
Secretary James C. Schaffer
<PAGE>
- ---------------------------
Contract No.
SECURITY AGREEMENT
(INVENTORY AND ACCOUNTS)
THIS ASSIGNMENT AND AGREEMENT made January, 1991, by and between SUN BANK,
NATIONAL ASSOCIATION
(Name of Secured Party)
herein called "Bank", and
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation
(Name(s) of Borrower(s))
of 1280 Clearmont Street, N.E., Palm Bay Brevard County, Florida
- --------------------------------------------------------------------------
(Name and Street) (City) (County) (State)
herein called "Borrower",
In consideration of loans or advances made or to be made by Bank to
Borrower, and for other value received by Borrower, the parties hereto,
intending to be legally bound, agree as follows:
1. As used herein: (a) "Account" means an immediate right to payment
for goods sold and for goods leased and for services rendered, or any of them,
and includes a right to payment under a contract whether or not it has been
earned by performance. "Qualified Account" means an Account which has been due
less than ninety (90) days; (b) "Inventory" means goods held for sale or lease
or being processed for sale or lease in Borrower's business, as now or hereafter
conducted, including all materials, goods and work in process, finished goods,
and other tangible property now owned or hereafter acquired and held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Borrower's business; (c) "Goods" means all articles of tangible
personal property, sold, supplied, or otherwise disposed of, represented by an
Account; (d) "Purchaser" includes the buyer of goods from Borrower, the customer
for which services have been rendered or materials furnished by Borrower, or the
party with whom Borrower has contracted; (e) "Borrower" includes all
corporations and all individuals executing this agreement as parties hereto and
all members of a partnership when Borrower is a partnership, each of whom shall
be jointly and severally liable individually and as partners hereunder; (f)
"security interest" means an interest in property which secures payment or
performance of an obligation; (g) "liability" or "liabilities" includes all
liabilities (primary, secondary, direct, contingent, sole, joint or several) due
or to become due or that may be hereafter contracted or acquired, of Borrower
(including any Borrower and any other person) to Bank.
2. Bank will from time to time hereafter lend Borrower, on the security
of Accounts and Inventory, or any of them, acceptable to Bank, such amounts as
Bank may determine from time to time, at such rates of interest and payable and
on such terms as Bank may from time to time specify or require, and Bank may
require that such loans, or any of them, be evidenced by one or more promissory
notes of the Borrower in form satisfactory to Bank. For the convenience of the
Borrower, the Bank may make loans and advances to the Borrower under any
promissory note the principal face amount of which is in excess of the actual
unpaid principal balance at such time.
3. As security for the payment of all loans and advances now or in the
future made hereunder and for all Borrower's liabilities, including any
extensions, renewals, or changes in form of any thereof, Borrower hereby assigns
to Bank and grants to Bank a security interest in: (a) all Accounts and
Inventory owned by Borrower at the date of this agreement; (b) all Accounts and
Inventory at any time hereafter acquired by Borrower; and (c) all proceeds of
all such Accounts and Inventory.
4. So long as any liability to Bank is outstanding, Borrower will not
without the prior written consent of Bank borrow from anyone except Bank on the
security of, or pledge or grant any security interest in, any Account or any of
Borrower's Inventory to anyone except Bank, or permit any lien or encumbrance to
attach to any of the foregoing, or any levy to be made thereon, or any financing
statement (except Bank's financing statement) to be on file with respect
thereto.
5. Borrower represents and warrants that the location where it keeps
the bulk of its Inventory is at the address specified in the preamble to this
agreement, unless a different address has been specified in the following space:
Same
(No. and Street) (City) (County) (State)
and that the office where it keeps its records concerning all of its Accounts is
at the address specified in the preamble to this agreement, unless a different
address has been specified in the following space:
Same
(No. and Street) (City) (County) (State)
Borrower will immediately notify Bank in writing of any change in the location
of the place of business where the bulk of its Inventory is located or any
change in the location of the place of business where the records concerning its
Accounts are kept.
6. Borrower will (a) maintain Accounts and Inventory in such quantities
that at all times 70 % of the face amount of its Qualified Accounts, less
allowable discount, plus 0 % of the cost or wholesale market value, whichever is
lower, of its Inventory, plus 100% of the balance in the Cash Collateral Account
hereinafter referred to, or such other percentages thereof as may from time to
time be fixed by Bank upon notice to Borrower, shall be at least equal to
Borrower's liabilities to Bank; and Borrower will pay to Bank, in reduction of
its liabilities, such sums as may be necessary from time to time to maintain
such ratio; (b) collect its Accounts and sell its Inventory only in the ordinary
course of business; (c) furnish Bank at the time of each borrowing, and at such
other intervals as Bank may prescribe, with a Borrower's Certificate (in such
form as Bank may from time to time specify or require) showing the aggregate
face amount of its Qualified Accounts and the aggregate cost and wholesale
market value of its Inventory; (d) keep accurate and complete records of its
Accounts and Inventory; (e) pay and discharge when due all taxes, levies and
other charges on its Inventory; (f) keep its Inventory insured in amounts not
less than the full insurable value thereof, for the benefit of Bank (to whom
loss shall be payable by New York Standard or Union Standard endorsements), in
such companies and against such risks as may be satisfactory to or required by
Bank; pay the cost of all such insurance; and deliver certificates evidencing
such insurance to Bank; and Borrower assigns to Bank all right to receive
proceeds of such insurance.
7. Unless Bank notifies Borrower in writing that it dispenses with any
one or more of the following requirements, Borrower will (a) give Bank
assignments, in form acceptable to Bank, of specific Accounts or groups of
Accounts, and of moneys due and to become due under specific contracts; (b)
furnish to Bank a copy of the invoice applicable to each Account assigned to
Bank or arising out of a contract, bearing a statement that such Account has
been assigned to Bank and such additional statements as Bank may require; (c)
furnish Bank at the time of each borrowing, and at such other intervals as Bank
may prescribe or require, with a schedule (in such form as Bank may from time to
time specify or require) of Borrower's Inventory and Qualified Accounts which
describe the same, or such thereof as Bank may require, together with such other
information relating thereto as the Bank may specify or require; (d) make no
change in any assigned Accounts or in any Account arising out of a contract
assigned to Bank, and make no material change in the terms of any such contract;
(e) furnish to Bank all information received by Borrower affecting the financial
standing of any Purchaser whose Account has been assigned to Bank; (f) receive
as the sole property of Bank and hold as trustees for Bank all moneys, checks,
notes, drafts, and other property (herein called "items of payment")
representing the proceeds of any Account or Inventory in which Bank has a
security interest, which comes into the possession of Borrower; and deposit all
such items of payment immediately in the exact form received in a special
account of Borrower in Bank entitled "Cash Collateral Account" in which account
Bank shall have a security interest to secure all Borrower's liabilities and
with respect to which account Bank alone shall have power of withdrawal; (g) pay
Bank the amount loaned against any Account assigned to Bank where the goods are
returned by the Purchaser, or where the contract is canceled or terminated; (h)
immediately notify Bank if any of its contracts arise out of contracts with the
United States or any department, agency, or instrumentality thereof, and execute
any instruments and take any steps required by Bank in order that all moneys due
and to become due under any such contract shall be assigned to Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act; (i)
deliver to Bank with appropriate endorsement or assignment, as Bank may require,
any instrument or chattel paper representing an Account. Any permission granted
to Borrower by Bank to omit any of the requirements of this paragraph 7 may be
revoked by Bank at any time.
8. Borrower will promptly, if requested by Bank, (a) mark its records
evidencing its Accounts in a manner satisfactory to Bank so as to show the same
have been assigned to Bank; (b) pay Bank the unpaid portion of any assigned
Account if Bank shall at any time reject the Account as unsatisfactory, which
right Bank shall have and may exercise at any time and for any reason
whatsoever, and until such payment is made by Borrower, Bank may retain any such
Account as security and may charge any deposit account of Borrower with any such
amounts; (c) join with Bank in executing a financing statement, notice
affidavit, or similar instrument in form satisfactory to Bank, and such other
instruments as Bank may from time to time request; and pay the cost of filing
the same in any public office deemed advisable by Bank; and (d) give Bank such
financial statements, reports, certificates, lists of Purchasers (showing names,
addresses, and amounts owing), and other data concerning its Accounts,
contracts, collections, inventory and other matters as Bank may from time to
time specify; and permit Bank or its nominee to examine all of Borrower's
records relating thereto at any time, and to make extracts therefrom, and to
inspect and check Borrower's Inventory.
9. Borrower warrants (a) in connection with each Account covered by the
agreement: (i) it constitutes a Qualified Account as defined herein is not
evidenced by a judgment, an instrument or chattel paper (except such judgment as
has been assigned to Bank, and except such instrument or chattel paper as has
been endorsed and delivered to Bank), and represents a bona fide transaction and
Borrower has possession of (and will promptly deliver to Bank upon Bank's
request) or has delivered to Bank shipping or delivery receipts evidencing
shipment or delivery of the goods and, if representing services, the services
have been fully performed; (ii) the amount shown on Borrower's books and on any
invoice or statement delivered to Bank is owing to Borrower; (iii) the title of
Borrower to the Account and, except as against the Purchaser, to any goods is
absolute; (iv) the Account has not been transferred to any other person, and no
person, except Borrower, has any claim thereto, or, with the sole exception of
Purchaser, to the goods; (v) no partial payment has been made by anyone; and
(vi) no set-off or counterclaim to such Account exists and no agreement has been
made with any person under which any deduction or discount may be claimed,
except regular discounts allowed by Borrower for prompt payments; (vii) it
arises under an existing binding written contract between Borrower and
Purchaser; and (b) in connection with its Inventory: that Borrower is and will
be the absolute owner thereof, free and clear of all encumbrances and security
interests other than the Bank's security interest.
10. Borrower shall pay Bank such interest as may be specified in any
note evidencing a loan or advance made hereunder and such service charges as may
be agreed upon and shall pay to Bank all costs and expenses, including
attorneys' fees, incurred by it in the preservation or collection of collateral.
Changes in interest rate and service charges may be made by Bank from time to
time, notwithstanding the interest rate specified in any note evidencing a loan
or advance hereunder, upon notice to Borrower and shall become effective on the
date therein specified.
11. Bank shall have the right at any time and from time to time,
without notice, to (a) apply any part or all the moneys in the Cash Collateral
Account representing collected items against any liability of borrower to Bank,
and Bank shall upon demand by Borrower make such application against such
liability or liabilities as Bank may itself select; (b) release to Borrower such
part of the moneys in the Cash Collateral Account as Bank may elect; (c) charge
to Borrower's deposit account any item of payment credited to the Cash
Collateral Account which is dishonored by the drawee or maker thereof; (d)
endorse all items of payment which may come into its hands payable to Borrower;
(e) notify Purchasers that Accounts have been assigned to Bank, forward invoices
to Purchasers, directing them to make payments to Bank, collect all Accounts in
its or Borrower's name, and take control of any cash or non-cash proceeds of
Accounts and of any Inventory; (f) compromise, extend, or renew any Account or
deal with the same as it may deem advisable; (g) make exchanges, substitutions
or surrenders of collateral; (h) insure inventory to its satisfaction if
Borrower fails to do so and pay for the same, and pay, for the account of
Borrower, any taxes, levies, or other charges affecting Borrower's inventory or
upon or on account of the Security Agreement or any liability or any writing
evidencing any liability, which Borrower fails to pay, and any such payment
shall constitute a liability of Borrower.
12. Until default, Borrower may use its inventory in any lawful manner
not inconsistent with this agreement and with the terms of insurance thereon;
may sell its inventory in the ordinary course of business; and may use and
consume any raw materials or supplies, the use and consumption of which is
necessary in order to carry on Borrower's business.
13. If at any time any warranty, representation, certificate or
statement of Borrower is not true, or if any liability or any part or
installment thereof or interest thereon is not paid when due, or if any event of
default as defined in any note or other evidence of liability held by Bank
should occur, or if Borrower should fail to observe or perform any agreement or
term hereof, or if Bank at any time feels insecure for any reason whatsoever,
Bank may, at its option, thereupon or thereafter declare all liabilities of
Borrower to Bank, or any of them selected by Bank (notwithstanding any
provisions thereof), immediately due and payable without demand or notice of any
kind and the same thereupon shall immediately become and be due and payable
without demand or notice (but with such adjustments, if any, with respect to
interest or other charges as may be provided for in the promissory note or other
writing evidencing such liability), and Bank may, in addition to any other
rights and remedies which it may have, immediately and without demand, exercise
any and all the rights and remedies granted to a secured party upon default
under the Florida Uniform Commercial Code; and upon request or demand of Bank,
Borrower shall, at its expense, assemble Borrower's Inventory and make it
available to Bank at a convenient place acceptable to Bank; and Borrower shall
promptly pay to Bank any and all costs and expenses, including legal expenses
and reasonable attorney's fees incurred or paid by Bank in protecting and
enforcing liabilities and the rights of Bank hereunder, including Bank's right
to take possession of Borrower's Inventory and the proceeds of Accounts and
Inventory, and to hold, prepare for sale, sell and dispose of such Inventory.
Any notice of sale, disposition or other intended action by Bank, sent to
Borrower at the address specified in the preamble to this agreement, or such
other address of Borrower as may from time to time be shown on Bank's records,
at least five days prior to such action, shall constitute reasonable notice to
Borrower. Upon disposition by Bank of any property in which Bank has a security
interest hereunder, or upon collection by Bank of the proceeds of Accounts,
Borrower shall be and remain liable for any deficiency; and Bank shall account
to Borrower for any surplus, but Bank shall have the right to apply all or any
part of such surplus (or to hold the same as a reserve against) all or any
liabilities of Borrower to Bank, whether or not they, or any of them, be then
due, without marshalling of assets and in such order of application as Bank may
from time to time elect.
14. Borrower waives protest of all commercial paper at any time held by
Bank on which borrower is in any way liable, notice of non-payment at maturity
of any and all Accounts, and except where required hereby or by law, notice of
action taken by Bank; and hereby ratifies and confirms whatever Bank may do.
15. No waiver by Bank of any default shall operate as a waiver of any
other default or of the same default on a future occasion. No delay or omission
on the part of Bank in exercising any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by Bank of any right or remedy shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. Time is of the essence of this agreement. The provisions of
this agreement are cumulative and in addition to the provisions of any liability
and any note or other writing evidencing any liability secured by this
agreement, and Bank shall have all the benefits, rights and remedies of and
under any liability and any note or other writing evidencing any liability
secured hereby. If more than one party shall execute this agreement, the term
"Borrower" shall mean all parties signing this agreement and each of them, and
all such parties shall be jointly and severally obligated and liable hereunder.
The singular pronoun, when used herein, shall include the plural, and the neuter
shall include the masculine and feminine. All rights of Bank hereunder shall
inure to the benefit of its successors and assigns; and all obligations of
Borrower shall bind the heirs, executors, administrators, successors and assigns
of each Borrower.
16. Borrower releases Bank from all claims for loss or damage caused by
any failure to collect any account or enforce any contract or by any act or
omission on the part of Bank, its officers, agents and employees, except willful
misconduct.
17. This agreement may be terminated by either party giving the other
written notice of intention to terminate on a date named in said notice, mailed
to the last known address of the party to whom such notice is addressed; but no
such termination shall in any way affect the rights and liabilities of the
parties hereunder relating to loans or advances made, Accounts, Inventory or
other property pledged prior to the date named in such notice.
18. This agreement has been delivered in the State of Florida and shall
be construed in accordance with the laws of Florida. Wherever possible, each
provision of this agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
agreement.
IN WITNESS WHEREOF, this agreement has been duly executed as of the
date hereinabove first written.
Signed, sealed and delivered in the COMPUTER SCIENCE INNOVATIONS, INC.,
presence of a Florida Corporation
By: /s/ John Blohm (SEAL)
John A. Blohm, President
By: /s/ James C. Schaffer (SEAL)
James C. Schaffer, Executive
Vice-President
(CORPORATE SEAL)
ATTEST: Sun Bank, National Association
(Name of Bank)
By: (SEAL)
As its Cashier As its President
BANK
<PAGE>
SUN
BANK [logo]
- --------------------
Contract No.
SECURITY AGREEMENT
(EQUIPMENT AND CONSUMER GOODS)
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation
(Name(s) of Borrower(s))
(and if more than one, each of them jointly and severally), hereinafter called
"Borrower", of 1280 Clearmont Street, N.E.,
(No. and Street)
Palm Bay Brevard County, Florida ,
- ----------------------------------------------------------
(City) (County) (State)
for value received and intending to be legally bound, hereby grants to
SUN BANK, NATIONAL ASSOCIATION, Florida,
(Name of Secured Party)
hereinafter called "Secured Party", a security interest in the following
property: All equipment of Borrower
- ----------- ------ ----------------- --------------- ------------ --------------
Year/ Manufacturer or Description of Model Number Manufacturer's
New or Used Model Make (Trade Name) Collateral or Series Serial No.
- ----------- ------ ----------------- --------------- ------------ --------------
- ----------- ------ ----------------- --------------- ------------ --------------
- ----------- ------ ----------------- --------------- ------------ --------------
- ----------- ------ ----------------- --------------- ------------ --------------
together with all increases, parts, fittings, accessories, equipment, and
special tools now or hereafter affixed to any or any part thereof or used in
connection with any thereof, and all replacements of all or any part thereof
plus any returned or unearned premiums from any insurance financed by the
Secured Party in conjunction with this transaction (all of which is hereinafter
called "Collateral"), to secure the payment of a promissory note or notes
executed by Borrower in the amount of ONE MILLION and 00/100 Dollars
($1,000,000.00), of even date herewith, and any and all extensions,
modifications or renewals thereof, and also to secure the performance by
Borrower of the agreements hereinafter set forth, and all other liabilities or
obligations (primary, secondary, direct, contingent, sole, joint or several)
due, or to become due or which may be hereafter contracted or acquired of each
Borrower to Secured Party (the foregoing hereinafter being called the
"liabilities").
Borrower hereby agrees that:
1. (a) Borrower is the owner of the Collateral clear of all liens and
security interests except the security interest granted hereby; (b) Borrower has
the right and power to make this Agreement; and (c) the Collateral is used or
acquired for use primarily for the purpose checked: personal, family or
household purposes; |_| farm purposes; or |_| business purposes; and (d) if the
Collateral consists of "household goods" as defined in 12 C.F.R. 227.12(d) or if
otherwise checked here |_| then the Collateral is being acquired with the
proceeds of the loan provided for in or secured by this Agreement, and the
proceeds will be used for no other purpose, and Borrower hereby authorizes
Secured Party to disburse the proceeds or any part thereof directly to the
seller of the Collateral or to the insurance agent or broker, or both, as shown
on Secured Party's records.
2. (a) The Collateral will be kept at 1280 Clearmont Street, N.E.,
(No. and Street)
Palm Bay, Brevard County, FL
(City) (County) (State)
or if left blank, at the address shown at the beginning of this agreement;
Borrower will promptly notify Secured Party of any change in the location of the
Collateral within said state; and Borrower will not remove the Collateral from
said state without the written consent of Secured Party. (b) if the Collateral
is used or acquired for use primarily for personal, family or household
purposes, or for farm purposes, Borrower's residence in Florida is that shown at
the beginning of this agreement and Borrower will immediately notify Secured
Party of any change in the location of said residence.
3. (a) If the Collateral is acquired or used primarily for
business use and is of a type normally used in more than one state, whether or
not so used, and Borrower has a place of business in more than one state,
the chief place of business of Borrower is: 1280 Clearmont Street, N.E.,
(No. and Street)
Palm Bay, Brevard County, Florida
(City) (County) (State)
or, if left blank, is that shown at the beginning of this agreement, and
Borrower will immediately notify Secured Party in writing of any change in
Borrower's chief place of business; and (b) if certificates of title are issued
or outstanding with respect to any of the Collateral, Borrower will promptly
cause the interest of Secured Party to be properly noted thereon and deliver
such certificates of title to Secured Party.
4. Borrower will defend the Collateral against the claims and
demands of all persons, other than Secured Party, at any time claiming the same
or a ______.
5. No Financing Statement covering any Collateral or any proceeds
thereof is on file in any public office; Borrower authorizes Secured Party to
file, in ______ this authorization will be given effect, a Financing Statement
signed only by the Secured Party describing the Collateral in the same manner as
it is described ______ from time to time at the request of Secured Party,
execute one or more Financing Statements and such other documents (and pay the
cost of filing or recon______ public offices deemed necessary or desirable by
the Secured Party) and do such other acts and things, all as the Secured Party
may request to establish______ enforceable first priority security interest in
the Collateral (free of all other liens and claims whatsoever) to secure the
payment of the liabilities.
6. Borrower will not (a) permit any liens or security interest other
than Secured Party's security interest, to attach to any of the Collateral; (b)
permit a______ to be levied upon under legal process; (c) sell, transfer, lease,
or otherwise dispose of any of the Collateral or any interest therein, or offer
so to do, without the p______ of Secured Party; (d) permit anything to be done
that may impair the value of any of the Collateral or the security intended to
be afforded by this agreement ______ Collateral to be or become a fixture (and
it is expressly covenanted, warranted and agreed, that the Collateral, and every
part thereof, whether affixed to any re______ and remain personal property), or
to become an accession to other goods or property.
7. Borrower will (a) at all times keep the Collateral insured in
amounts not less than the full insurable value thereof, against loss, damage,
theft, and ______ Secured Party may require in such companies, under such
policies, in such form and for such periods, as shall be satisfactory to Secured
Party, and each ______provide, by New York Standard or Union Standard
endorsement, that loss thereunder and proceeds payable thereunder shall be
payable to Secured Party ______ appear (and Secured Party may apply any proceeds
of such insurance which may be received by Secured Party toward payment of the
liabilities, whether due ______ order of application as Secured Party may
determine) and each such policy shall provide for a minimum of 10 days written
cancellation notice to Secured Party ______ policy shall, if Secured Party so
requests, be deposited with Secured Party; and Secured Party may act as attorney
for Borrower in obtaining, adjusting, settling ______such insurance and
endorsing any drafts; (b) at all times keep the Collateral free from any adverse
lien, security interest, or encumbrance and in good order and ______ waste or
destroy the Collateral or any part thereof.
8. (a) Borrower will not use the Collateral or permit the same to be
used in violation of any statute, law or ordinance; and Secured Party may
examine ______ Collateral at any time, wherever located. (b) Borrower will pay
promptly when due all taxes and assessments upon the Collateral or for its use
of operation or upon ______or upon any note or notes or other writing evidencing
the liabilities, or any of them.
9. At its option, Secured Party may discharge taxes, liens or security
interests or other encumbrances at any time levied or placed on the Collateral
______ insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral. Borrower agrees to reimburse Secured Party on
demand for an______ or any expense incurred, by Secured Party, pursuant to the
foregoing authorization, together with interest thereon at the highest lawful
rate and each such pay______ thereon shall be secured by this Security
Agreement. Until default, Borrower may have possession of Collateral and use it
in any lawful manner not inco______ agreement and not inconsistent with any
policy of insurance thereon.
10. Borrower shall be in default under this agreement upon the
happening of any of the following events or conditions: (a) failure or omission
to pay whe______ (or any instalment thereof or interest thereon), or default in
the payment or performance of any obligation, covenant, agreement, or liability
contained or referred______ any warranty, representation, or statement made or
furnished to Secured Party by or on behalf of any Borrower proves to have been
false in any material respects ______furnished; (c) loss, theft substantial
damage, destruction, sale, or encumbrance to or of any of the Collateral, or the
making of any levy, seizure, or attachment th______ (d) any Obligor (which term
as used herein, shall mean each Borrower and each other party primarily or
secondarily or contingently liable on any of the lia______ insolvent or unable
to pay debts as they mature or makes an assignment for the benefit of creditors,
or any proceeding (including any proceeding in bankruptcy) ______ against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature; (e) entry of any judgment against any Obligor; (f) death of any ______
natural person, or of any partner of any Obligor which is a partnership; (g)
dissolution, merger or consolidation, or transfer of a substantial part of the
property of a______ is a corporation or a partnership; (h) appointment of a
receiver for the Collateral or any part thereof or for any property in which any
Borrower has an interest; (i) ______ used by anyone to transport or store goods
the possession, transportation or use of which is illegal.
11. Upon the occurrence of any such default or at any time thereafter,
or whenever the Secured Party feels insecure for any reason whatsoever, Secured
______ option, declare all liabilities secured hereby, or any of them
(notwithstanding any provisions thereof), immediately due and payable without
demand or notice of a______ same thereupon shall immediately become and be due
and payable without demand or notice (but with such adjustments, if any, with
respect to interest or other ______ be provided for in the promissory note or
other writing evidencing such liability), and Secured Party shall have and may
exercise from time to time any and all right ______ of a Secured Party under the
Uniform Commercial Code and any and all rights and remedies available to it
under any other applicable law; and upon request or demand ______ Party,
Borrower shall, at its expense, assemble the Collateral and make it available to
the Secured Party at a convenient place acceptable to Secured Party; and ______
promptly pay all costs of Secured Party of collection of any and all
liabilities, and enforcement of any rights hereunder, including reasonable
attorneys' fees and ______ and expenses of any repairs to any of the Collateral
and expenses of any repairs to any realty or other property to which any of the
Collateral may be affixed. Any ______ disposition or other intended action by
Secured Party, sent to Borrower at the address of Borrower specified above or at
any other address shown on the records of ______ at least five days prior to
such action, shall constitute reasonable notice to Borrower. In the event of
repossession, Borrower authorizes Secured Party to take in______ personal
property found in or on the Collateral and to hold the same until claimed by
Borrower at the principal place of business of Secured Party, and in the event
______ property is not claimed within a reasonable time by Borrower, Secured
Party is authorized to dispose of same. Expenses of retaking, holding, preparing
for sale, selling______ shall include Secured Party's reasonable attorneys' fees
and legal expenses. Any excess or surplus of proceeds of any disposition of any
of the Collateral may ______ Secured Party toward payment of such of the
liabilities, without marshalling of assets and in such order of application, as
Secured Party may from time to time ______.
12. No waiver by Secured Party of any default shall operate as a waiver
of any other default or of the same default on a future occasion. No delay or
omission______ Secured Party in exercising any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by Secured Party of any
right or remedy shall prec______ or further exercise thereof or the exercise of
any other right or remedy. Time is of the essence of this agreement. The
provisions of this agreement are cumulative an______ the provisions of any note
secured by this agreement, and Secured Party shall have all the benefits, rights
and remedies of and under any note secured hereby. If ______ party shall execute
this agreement, the term "Borrower" shall mean all parties signing this
agreement and each of them, and all such parties shall be jointly ______
obligated hereunder provided, however, if one of the parties signing this
agreement has not executed the promissory note or notes referred to herein, said
party ______ personal liability under, or in conjunction with, said promissory
note or notes. The singular pronoun, when used herein, shall include the plural
and the neuter ______ masculine and feminine. If this agreement is not dated
when executed by the Borrower, the Secured Party is authorized without notice to
the borrower, to date thi______ This agreement shall become effective as of the
date of this agreement. All rights of Secured Party hereunder shall inure to the
benefit of its successors and as ______ liabilities of Borrower shall bind the
heirs, executors, administrators, successors and assigns of each Borrower.
13. This agreement has been delivered in the State of Florida and shall
be construed in accordance with the laws of Florida. Wherever possible, each
pro______ agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this agreement shall be
prohibited by or ______ applicable law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining ______ this agreement.
IN WITNESS WHEREOF, this agreement has been duly executed as of the
________ day of ___, 1991
Signed, sealed and delivered COMPUTER SCIENCE INNOVATIONS, INC.,
in the presence of: a Florida Corporation
__________________________________ By: /s/ John Blohm
John A. Blohm, President
__________________________________ By: /s/ James C. Schaffer
James C. Schaffer, Exec. Vice-President
<PAGE>
STATE OF FLORIDA FINANCING STATEMENT UNIFORM COMMERCIAL CODE Form UCC-1,Rev.1981
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code:
- ----------------------------------------- --------------------------------------
THIS SPACE FOR USE OF FILING OFFICER
DEBTOR (Last Name First If a Person) Date, Time, Number, and Filing Office
NAME COMPUTER SCIENCE INNOVATIONS,
INC., a Florida Corporation
1A
MAILING ADDRESS 1280 Clearmont Street, N.E.
CITY Palm Bay STATE FL 32905
- ------------------------------------------------
- ------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- --------------------------------------------------
- --------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
CITY STATE
- --------------------------------------------------
- --------------------------------------------------
SECURED PARTY (Last Name First if a Person)
NAME SUN BANK, NATIONAL ASSOCIATION
2A
MAILING ADDRESS
100 Rialto Place
CITY Melbourne STATE FL 32901
- -------------------------------------------------- ----------------------------
- --------------------------------------------------
AUDIT UPDATE
MULTIPLE SECURED PARTY (if Any)
(Last Name First if a Person)
NAME
2B
MAILING ADDRESS
CITY STATE
- -------------------------------------------------
- ------------------------------------------------- ------------------------------
VALIDATION INFORMATION
ASSIGNEE OF SECURED PARTY (if Any)
(Last Name First if a Person)
NAME
3
MAILING ADDRESS
CITY STATE
- ------------------------------------------------ -------------------------------
Name and Address
of Preparer
4 This FINANCING DOCUMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required). If more space is required, attach additional sheets
81/2" x 11".
All accounts, inventory and equipment of Borrower.
- --------------------------------------------------- ---------------------------
- --------------------------------------------------- ---------------------------
7 No. of additional
Sheets presented:
5 Proceeds of collateral are covered as provided
in Sections 679.203 and 679.206, F.S.
0
- --------------------------------------------------- ---------------------------
6 Filed with: Secretary of State
- --------------------------------------------------- ---------------------------
8 (Check |_|) |X| All documentary stamp taxes due and
payable or to become due and payable pursuant to Section
201.22, F.S.
|_| Florida Documentary Stamp Tax is not required.
- -------------------------------------------------------------------------------
10 (Check|_| if so)
9 This statement is filed without the debtor's Debtor is a
signature to perfect a security |_| transmitting utility
interest in collateral. (Check |_| if so.)
|_| already subject to a security Products of collateral
interest in another |_| are covered
jurisdiction when it was brought into this
state or debtor's location changed to this state.
|_| which is proceeds of the original
collateral described above
in which a security interest was
perfected.
|_| as to which the filing has lapsed.
|_| acquired after a change of name,
identity, or corporate structure of
|_| the debtor, or |_| secured party
- -----------------------------------------------------------------------------
11 SIGNATURE(S) OF DEBTOR(S)
COMPUTER SCIENCE INNOVATIONS,
INC., a Florida
13 Return copy to: corporation
NAME: Hubert C. Normile, Jr., Esq.
ADDRESS: Krasny, Normile, Dettmer, et al. By: /s/ John Blohm
780 South Apollo Boulevard
CITY: Melbourne By: /s/ James C. Schaffer
---------------------
STATE: FL ZIP CODE 32901
---------------------
12 SIGNATURE(S) OF SECURED PARTY(IES)
SUN BANK, NATIONAL ASSOCIATION
By: /s/
- ---------------------------------------- ---------------------------------------
STATE OF FLORIDA FINANCING STATEMENT -- UNIFORM COMMERCIAL CODE -- Form UCC-1,
Rev. 1981 This FINANCING STATEMENT is presented to a filing officer for filing
pursuant to the Uniform Commercial Code.
- ------------------------------------------ -------------------------------------
THIS SPACE FOR USE OF FILING OFFICER
Date, Time, Number, and Filing Office
DEBTOR (Last Name First if a Person)
NAME COMPUTER SCIENCE INNOVATIONS,
INC., a Florida Corporation
1A
MAILING ADDRESS 1280 Clearmont Street, N.E.
CITY Palm Bay STATE FL 32905
- --------------------------------------------
- --------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- -----------------------------------------------------
- -----------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
CITY STATE
- ----------------------------------------------------
- ----------------------------------------------------
SECURED PARTY (Last Name First if a Person)
NAME SUN BANK, NATIONAL ASSOCIATION
2A
MAILING ADDRESS
100 Rialto Place
CITY Melbourne STATE FL 32901
- ------------------------------------ ------------------- -----------------------
AUDIT UPDATE
MULTIPLE SECURED PARTY (if Any)
(Last Name First if a Person)
NAME
2B
MAILING ADDRESS
CITY STATE
- ----------------------------------- -------------------- -----------------------
<PAGE>
- ------------------------------------------ ------------------------------------
VALIDATION INFORMATION
ASSIGNEE OF SECURED PARTY (if Any)
(Last Name First if a Person)
NAME
3
MAILING ADDRESS
CITY STATE
- ------------------------------------------- -----------------------------------
- -------------------------------------------------------------------------------
Name and Address
of Preparer
4 This FINANCING DOCUMENT covers the following types or items of property
(include description of real property on which located and owner of record
when required). If more space is required, attach additional sheets
81/2" x 11".
All accounts, inventory and equipment of Borrower
- -------------------------------------------------------- ----------------------
7 No. of additional
Sheets presented:
5 Proceeds of collateral are covered as provided in
Sections 679.203 and 679.206, F.S.
0
- -------------------------------------------------------- -----------------------
6 Filed with: Clerk, Circuit Court
- -------------------------------------------------------- -----------------------
8 (Check |_|) |X| All documentary stamp taxes due and
payable or to become due and payable
pursuant to Section 201.22, F.S.
|_| Florida Documentary Stamp Tax is not required.
- ------------------------------------------------- --------------------------
10 (Check |_| if so)
9 This statement is filed without the debtor's
signature to perfect a security interest in |_| Debtor is a
collateral. (Check |_| if so.) transmitting utility
|_| already subject to a security
interest in another jurisdiction |_| Products of
when it was brought into this state collateral are
or debtor's location changed covered.
to this state.
|_| which is proceeds of the original
collateral described above in which
a security interest was perfected.
|_| as to which the filing has lapsed.
|_| acquired after a change of name,
identity, or corporate structure of the
|_| debtor, or |_| secured party
- ---------------------------------------------------- ---------------------------
11 SIGNATURE(S) OF DEBTOR(S)
COMPUTER SCIENCE INNOVATIONS
13 Return copy to: INC., a Florida corporation
NAME: Hubert C. Normile, Jr., Esq.
ADDRESS: Krasny, Normile, Dettmer, et al. By: /s/ John Blohm
780 South Apollo Boulevard
CITY: Melbourne By: /s/ James C. Schaffer
----------------------
STATE: FL ZIP CODE 32901
--------------------------------
12 SIGNATURE(S) OF SECURED
PARTY(IES) SUN BANK, NATIONAL
ASSOCIATION
By:
/s/
- ------------------------------------- -----------------------------------------
<PAGE>
[SUN TRUST LETTERHEAD]
August 28, 1996
George Milligan
Computer Science Innovation, Inc.
1235 Evans Road
Melbourne, FL 32904
Dear Mr. Milligan:
It is my pleasure to present this commitment letter and introduce myself as your
company's new primary account officer. I will be working closely with Robert
Jensen who will remain as secondary account officer to familiarize myself with
your banking relationship.
SunTrust Bank, Central Florida, National Association ("Bank") is pleased to
advise you that it has approved the renewal and increase of your revolving line
of credit in the amount of $500,000 subject to the following conditions:
Borrower: Computer Science Innovations, Inc.
Amount: $500,000
Purpose: To fund short term working capital needs.
Terms: Interest payable monthly, principal due
on demand.
Collateral: First security interest in the company's
accounts receivable, inventory, and
equipment. The borrower may offer direct
assignments on specific government
contracts, at its option.
Borrowing Base: Advances on the line of credit will be
governed by a borrowing base to include
80% of accounts receivable less
than 90 days excluding bonded and
non-assigned/acknowledged government
receivables. The borrowing base will
include 90% of direct assigned and
acknowledged U.S. Government Contracts.
A borrowing base certificate (see
attached) should be completed each
month by the borrower and attached
to the account receivable aging
report.
Guarantor(s): None
Review Date: June 30, 1997
Interest Rate: Fully floating at SunTrust Bank,
Inc.'s Prime Rate. SunTrust Bank's
Prime Rate is currently 8.25%.
Prime Rate is defined as the annual
interest rate announced by SunTrust
Bank, Inc. from time to time, as the
prime rate (which interest rate is
only a bench mark, is purely
discretionary and is not necessarily
the best or lower rate charged borrowing
customers of any subsidiary bank of
SunTrust Banks Inc.) Any such change
in prime rate shall be effective at
the beginning business day on which such
change is announced; provided
however, that the interest rate
charged hereunder shall never exceed
the maximum rate allowed, from time to
time, by law.
Fee: $500.00
Financial Covenants: The financial loan covenants are as follows:
Minimum Current Ratio 1.25:1.00
Minimum Working Capital $250,000
Minimum Interest Coverage 1.50:1.00
Minimum Tangible Net Worth $900,000
Maximum Debt/Net Worth 1.0:1.0
The loan covenants will be tested
on a monthly basis.
Special Conditions: 1) The line of credit must be rested for
thirty (30) consecutive days.
2) The company will not be restricted
from distributions, dividends,
intercompany loans, other capital
withdrawals, and management fees
to Ashton Technology Group, Inc.
as long as there is not an
outstanding balance on the line of
credit.
In the event that there is an
outstanding balance, the company will
be restricted from distributions,
dividends, intercompany loans, other
capital withdrawals, and management
fees to Ashton Technology Group, Inc.
without the bank's written consent,
which will not be unreasonably
withheld.
The actual language detailing the
parameters of this covenant will be
drafted by the legal counsel
identified above, and will become a
modification of the existing loan
agreement. A draft of the language
will be made available to you.
3) The Borrower is to maintain
primary deposit relationship with
SunTrust Bank, Central Florida,
National Association.
Reporting Requirements: The borrower agrees to provide the
Bank with the following information:
1) Annual Basis:
Audited CPA financial statements
with attached within 90 days of
year end, or consolidated
financial statements whose
supplemental information includes
CSI, Inc. as a separate entity.
2) Monthly Basis: (within 30 days of
month end)
Compiled Financial Statements
Accounts Receivable Aging Report
Accounts Payable Aging Report
Backlog Report
Contract Status
Legal: Any and all closing costs including
attorney's fees will be borne by the
Borrower.
Lender's Counsel: Curtis R. Mosley
Address: 1221 East New Haven Ave.
Melbourne, FL 32901
Telephone: (407) 984-3842
Event of Default: A default under this commitment shall
constitute a default under the loan
documents and shall immediately
relieve SunTrust from any obligations
it may have to the commitment or the
loan documents, and shall entitle
the Bank, at its discretion, and
upon giving notice of default to
Borrower, to charge an interest rate
equivalent to the maximum allowed
by law.
Intent of Parties: It is the mutual intent of all
parties to this transaction that the
terms and conditions of this
commitment letter shall survive the
loan closing.
Funding on the Line: The bank has no obligation to fund
the line if there is a covenant
violation or required reports are not
received.
If the above terms and conditions are acceptable to you please sign as indicated
and return the original to my attention.
Please be advised that the Bank's commitment will expire September 12, 1996 and
you should sign, date, and return the original to my attention prior to that
date for it to be effective. The loan should close within ten (10) business days
of acceptance of this commitment.
As your new account officer I plan to provide you with the highest level of
service. I appreciate this opportunity to provide financing and look forward to
working with you and your company. Please do not hesitate to call me at 676-1107
with any questions or requests in regard to your banking relationship.
Sincerely,
/s/ Phillip Hayes
Phillip Hayes
Business Banking Officer
BORROWERS:
Computer Science Innovations, Inc.
/s/ George M. Milligan Date: 5 Sept. 96
- ------------------------------------ -----------
George M. Milligan, President
/s/ Susanne L. Cavadeas 9/5/96
<PAGE>
- -------------------------------------------------------------------------------
Borrowing Base Certificate
- -------------------------------------------------------------------------------
Computer Science Innovations, Inc.
Accounts Receivable Month Ended _______
"A" "B"
=============================================== =============== ================
Total Account Receivable less than or equal to
90 days excluding direct assignments: ________
Total Direct Assigned and Acknowledged Account
Receivable less than or equal to 90 days: ________
Less: Bonded Account Receivable ________ ________
Non-assigned Government Receivable ________ ________
Total Eligible Accounts Receivable: ________
Total Eligible Direct Assigned Receivable: ________
Borrowing Limit Percentage: 80% 90%
-------- --------
Borrowing Base (A or B Cannot Exceed $500,000) ________ ________
Less Current Balance of Line: ________ ________
Amount Available: ________ ________
Total Amount Available (A + B): ________
/s/ George Milligan
George Milligan, President Date
<PAGE>
LOAN AGREEMENT MODIFICATION
THIS AGREEMENT, made and entered into this 5th day of September, l996,
by and between COMPUTER SCIENCE INNOVATIONS, INC., hereinafter referred to as
"COMPANY", and SUNTRUST BANK, CENTRAL FLORIDA, NA formerly known as SUN BANK,
NATIONAL ASSOCIATION, hereinafter referred to as "BANK".
W I T N E S S E T H:
WHEREAS, on January 8, 1991, COMPANY and BANK entered into a loan
agreement which provided for the COMPANY to borrow from the BANK the sum of ONE
MILLION AND 00/100 ($1,000,000.00) DOLLARS in a revolving line of credit as an
operating line; and
WHEREAS, this revolving line of credit has been modified on several
occasions by the parties; and
WHEREAS, the current revolving line of credit is ONE HUNDRED FIFTY FIVE
THOUSAND AND 00/100 ($155,000.00) DOLLARS and COMPANY has requested BANK to
increase the line of credit from ONE HUNDRED FIFTY FIVE THOUSAND AND 00/100
($155,000.00) DOLLARS to FIVE HUNDRED THOUSAND AND 00/100 ($500,000.00) DOLLARS
and BANK has agreed to such increase upon the terms and conditions set forth
below.
NOW THEREFORE, in consideration of the mutual covenants and promises of
the parties and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. The foregoing recitals are true and incorporated herein by
reference.
2. The revolving line of credit referred to as Loan "A" as
described in the loan agreement of January 8, 1991, as
modified, is hereby increased from ONE HUNDRED FIFTY FIVE
THOUSAND AND 00/100 ($155,000.00) DOLLARS to FIVE HUNDRED
THOUSAND AND 00/100 ($500,000.00) DOLLARS. The interest
rate shall be SunTrust Bank, Inc's, prime rate, fully
floating. SunTrust Bank, Inc's, prime rate is currently 8.25%.
Prime rate is defined as the annual interest rate announced
by SunTrust Bank, Inc, from time to time as the prime rate
(which interest rate is only a benchmark, is purely
discretional and is not necessarily the best or lower rate
charged borrowing customers of any subsidiary bank of
SunTrust Bank, Inc). Any such change in prime rate shall be
effective at the beginning of the business day in which such
change is announced; provided however, that the interest
rate charged hereunder shall never exceed the maximum rate
allowed, from time to time, by law. Monthly payments of
interest only shall be due and payable to BANK by COMPANY.
The principal balance and accrued interest of the line of
credit shall be due on demand.
3. The outstanding principal balance of the line of credit
shall be reduced to ZERO ($0.00) for a period of thirty (30)
consecutive days each year.
4. Advances on the line of credit will be governed by a borrowing
base to include eighty (80%) percent of accounts receivable
less than ninety (90) days, excluding bonded and non
assigned/acknowledged government receivables. The borrowing
base will include ninety (90%) percent of direct
assigned/acknowledged U.S. Government contracts.
5. The financial loan covenants are as follows:
a. Minimum Current Ratio 1.25:1.00
b. Minimum Working Capital $250,000.00
c. -Minimum Interest Coverage 1.50:1.00
d. Minimum Tangible Net Worth $900,000.00
e. Maximum Debt/Net Worth 1.0:1.0
The loan covenants will be tested on a monthly basis.
6. COMPANY acknowledges and agrees that BANK has no obligation to
make any disbursements on the line of credit if any covenant
violations exist or required reports are not received by BANK
as set forth in the loan agreement, as modified.
7. So long as this line of credit is not in default and there is
not an outstanding balance on this line of credit, then
COMPANY will not be restricted from making distributions,
paying dividends, making intercompany loans, making other
capital withdrawals, and paying management fees to Ashton
Technology Group, Inc. In the event that this loan is in
default or there is an outstanding balance on the line of
credit, then COMPANY covenants and agrees that it will not pay
to Ashton Technology Group, Inc., any distributions, dividends
or management fees and it will not make any intercompany loans
or other capital withdrawals to Ashton Technology Group, Inc.,
without BANK's prior written consent which consent shall not
be unreasonably withheld.
8. COMPANY shall maintain its primary deposit relationship with
SunTrust Bank, Central Florida, NA.
9. COMPANY covenants and agrees to provide BANK with the
following financial information:
a. COMPANY will submit year end unqualified audited
financial statements prepared by a CPA acceptable to
the BANK for the COMPANY, within ninety (90) days of
the end of the COMPANY'S fiscal year or consolidated
financial statements whose supplemental information
includes CSI, Inc. as a separate entity.
b. COMPANY shall submit to the BANK on a monthly basis
within thirty (30) days of the end of each month
compiled financial statements, accounts receivable
aging report, accounts payable aging report, back-log
report and contract status report.
All financial statements shall be in form and substance as
reasonably requested by the BANK.
10. SunTrust Bank, Central Florida, NA is substituted for Sun
Bank, National Association, in the loan agreement of January
8, 1991, and any reference in the loan agreement, as modified,
to Sun Bank, National Association, shall be deleted in its
entirety and SunTrust Bank, Central Florida, NA shall be
substituted therefore.
11. For the purpose of giving notice as provided in the loan
agreement, as modified, the addresses COMPANY and BANK are
hereby changed as follows: COMPUTER SCIENCE INNOVATIONS,
INC.,1235 Evans Road, Melbourne, FL 32904; and SUNTRUST BANK,
CENTRAL FLORIDA, NA, 100 Rialto Place, Melbourne, FL
32901-3085.
12. COMPANY shall designate as additional loss payee on
appropriate hazard insurance and flood insurance, if
applicable, the BANK as follows:
SUNTRUST BANK, CENTRAL l FLORIDA, NA, its successors and/or
assigns, 100 Rialto Place, Melbourne, FL 32901-3085 Attn:
Commercial Loans.
13. All other terms, provisions and conditions of the loan
agreement of January 8, 1991, as modified, shall remain in
full force and effect and unchanged by this agreement, except
as set forth herein, and the parties hereto covenant and agree
to comply therewith.
14. By the execution of this agreement, COMPANY hereby covenants
and agrees that the loan agreement of January 8, 1991, as
modified, is a valid binding agreement that is in full force
and effect and that COMPANY hereby waives any defenses,
counter-claims or set-offs of whatever nature, to the
enforcement of the loan agreement of January 8, 1991, as
modified.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals this 5th day of September, 1996.
Signed, Sealed & Delivered
In the Presence of:
COMPUTER SCIENCE INNOVATIONS, INC.,
/s/ Phil Hayes
Print Name: /s/ Phil Hayes By: /s/ George Milligan
GEORGE H. MILLIGAN, President
/s/
Print Name:
SUNTRUST BANK, CENTRAL FLORIDA, NA
/s/ George Milligan f/k/a SUN BANK, NATIONAL ASSOCIATION
Print Name: George Milligan
By: /s/ Phil Hayes
/s/
Print Name:
<PAGE>
Renewal
SUNTRUST REVOLVING LINE OF CREDIT Promissory Note
$500,000.00 September 5, 1996
The undersigned (whether one or more hereinafter called "Maker"),
jointly and severally, promise(s) to pay to the order of SunTrust Bank, Central
Florida, National Association/Fka Sun Bank, National Association (herein called
"Bank") at its offices located at Cocoa Florida, Five Hundred Thousand Dollars
and No/100 Dollars ($500,000.00), together with interest from the date hereof at
the rate hereinafter provided, and applicable fees in the following manner.
Repayment Schedule:
|_| Single Payment Principal Due in Full On:
Interest Payable:
|_| Installment Payment (including interest): In __________ --------------
(No.) (Period)
Installments of $_________________, commencing on
_____________________, 19____, and on the same day
of each successive _____________ thereafter,
together with a FINAL PAYMENT of $______________ due
and payable on _________________________, 19_____.
|_| Installment Payment (plus interest):__________________
(No.)
Principal installments of $___________, plus
interest, commencing on ___________, 19__, and on
the same day of each successive ___________
thereafter, together with a FINAL PAYMENT of
$___________, plus accrued interest due and payable
on ______________, 19__.
|_| Multiple Payment Principal and interest are payable as
follows:__________________________________________
==================================================
|X| ON DEMAND Principal payable ON DEMAND with interest payable
Monthly commencing on October 5, 1996 and each
Month thereafter.
|_| Prepayment Right Bank shall have the absolute and unconditional
right, at its sole discretion, to require Maker to
pay the entire loan balance, along with accrued
unpaid interest at any time after the sixty-first
(61st) month from the note date. If the bank
elects to exercise such right of payment, Bank will
provide Maker ninety (90) days prior written notice
of its intention to demand payment. If Bank does
not exercise such right of payment, the loan balance
outstanding, along with accrued unpaid interest is
due and payable on the one hundred twentieth (120th)
installment.
The Interest Rate Is As Follows:
|_| If checked here, the interest rate provided
herein shall be computed on the basis of a 365 day
year and shall be calculated for the actual number
of days elapsed. If not checked, the interest rate
shall be computed on the basis of a 360 day year
and shall be calculated for the actual number of
days elapsed.
Variable Interest Rate
|_| Not Applicable
|X| Applicable, provided however that the interest rate charged hereunder
shall never exceed the maximum rate allowed, from time to time, by law. If this
loan is for a consumer purpose and is secured by a dwelling, the maximum
interest rate charged will never exceed 18% per annum or the state usury
ceiling, whichever is less. If applicable, the interest rate stated herein
shall, from time to time, automatically increase or decrease so that at all
times it shall be equivalent to (check appropriate box and complete): 0.00% over
the annual interest rate announced by SunTrust Banks of Florida, Inc., from time
to time, as the prime rate (which interest rate is only a bench mark, is purely
discretionary and is not necessarily the best of lowest rate charged borrowing
customers of any subsidiary bank of Sun Banks, Inc.). Any such change in prime
rate will increase or decrease your periodic interest payments. Any change in
prime rate shall be effective at the beginning of the business day on which such
change is announced; or, _____% over the
____________________________________________________________
- ------------------------------------------------------------------------------
FIXED RATE |_| Applicable at _____% per annum, simple interest.
LATE CHARGE FEE |X| Not Applicable.
SERVICE FEE If a payment is late, you may charge 5% of such
payment as a late charge. A payment which is not
received on the due date shall be deemed late.
A service fee of the lesser of
$50.00 or 2 percent of the principal amount of
this loan will be charged. The service fee charge
will not be refunded in the event of prepayment.
ADDITIONAL FEES The Bank may charge various additional fees
for servicing or processing the loan. The name of
the fee shall describe the work performed.
In the event any installment of principal or interest or any part
thereof is not paid when it becomes due, or in the event of any default
thereunder, the principal sum remaining unpaid hereunder, together with all
accrued and past due interest thereon, shall immediately and without notice
become due and payable at the election of the holder at any time thereafter.
Notwithstanding any rate of interest provided herein, the interest rate on
any payment or payments of principal or interest, or any part thereof, which is
not made when due shall, thereafter, be at the maximum rate allowed, from time
to time, by law. Minimum of $10.00 on any single payment loan or $15.00 on any
installment loan will be charged. This note is |X| SECURED |_| UNSECURED
(Notwithstanding the fact that this note is marked 'unsecured', Maker
understands and agrees that any other security Interest the Bank now holds or
may hereafter acquire from the Maker may secure this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: 1st lien on all accounts receivable, inventory and equipment now owned
and hereafter acquired as further described in Security Agreements dated 9-5-96
and various Government Contracts as further described in Exhibit "B" attached.
(Including all cash, stock and other dividends and all rights to subscribe for
securities incident to, declared, or granted in connection with such property
and including any returned or unearned premiums from any insurance financed
hereunder), which property, together with all additions and substitutions
hereafter pledged or deposited with Bank is called the Collateral. The
Collateral is also pledged as security for all other liabilities (primary,
secondary, direct, contingent, sole, joint, or several), due or to become due or
which may be hereafter contracted or acquired, of each Maker (including each
Maker and any other person) to Bank and for renewals, extensions or
modifications of this note. The surrender of this note, upon payment or
otherwise, shall not affect the right of Bank to retain the Collateral for such
other liabilities. Lender may request periodically as it deems necessary,
complete and current financial statements, balance sheets, profit and loss
statements, and cash flow information for Maker and Cosigner. Maker understands
and agrees that the jury waiver, the additional agreements and provisions on the
reverse side hereof, hereby incorporated by reference, constitute agreements of
the Maker and a part of this note. Maker acknowledges receipt of a completed
copy of this note.
- --------------------------------------------------------------------------------
Notice to Cosigner: You are being asked to guarantee this debt. Think carefully
before you do. If the Borrower doesn't pay the debt, you will have to. Be sure
you can afford to pay if you have to, and that you want to accept
responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you that
can be used against the borrower, such as suing you, garnishing your wages, etc.
If this debt is ever in default, that fact may become a part of your credit
record.
This notice is not the contract that makes you liable for the debt.
- -------------------------------------------------------------------------------
Address:1235 Evans Road COMPUTER SCIENCE INNOVATIONS, Inc.
Melbourne, FL 32904-2314 By: /s/ George E. Milligan (Seal) 9-5-96
George E. Milligan, President Date
By: /s/ Susanne L. Cavadeas (Seal) 9-5-96
Date
==============================================================================
This space for Bank records only
_______________ _____Renewal______ _______________ ____$500,000.00______
------- ------------
Proceeds Document Stamps Other Charges Note Amount
____________481 _______26_________ __1800455903___ _____________________
Officer Initials # Note Number Account Number Service Fee
If the variable interest rate is not applicable and if this note is
payable on demand, Bank reserves, and is hereby granted the right, to adjust the
interest rate from time to time by furnishing Maker with any written notice of
such adjusted rate, provided however, that no such adjusted rate shall exceed
the maximum rate allowed, from time to time, by law.
Additions to, reductions or exchanges of, or substitutions for the
Collateral, payments on account of this note or increases of the same or other
loans made partially or wholly upon the Collateral, may from time to time, be
made without affecting the provisions of this note.
If the Bank deems itself insecure, or upon the happening of any of the
following events, each of which shall constitute a default hereunder, all
liabilities of each Maker to Bank shall thereupon or thereafter, at the option
of the Bank, without notice or demand, become due and payable: (a) failure of
any Obligor (which term shall mean and include each Maker, endorser, surety and
guarantor of this note) to perform any agreement hereunder to pay interest
hereon when due or requested or demanded or to pay any other liability
whatsoever to Bank when due; (b) the death of any Obligor; (c) the filing of any
petition under the Bankruptcy Code, or any similar federal state statute, by or
against any Obligor; (d) an application for the appointment of a receiver or the
making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) the entry of a judgment against any Obligor; (f)
the issuing of any writ of attachment or writ of garnishment, or the filing of
any lien, against the property of any Obligor; (g) the taking of possession of
any substantial part of the property of any Obligor at the instance of any
governmental authority; (h) the dissolution, merger, consolidation, or
reorganization of any Obligor; (i) the assignment of any Maker of any equity in
any of the Collateral without the written consent of Bank.
Bank is hereby given a lien upon and a security interest in all
property of each Maker now or at any time hereafter in the possession of bank in
any capacity whatsoever, including but not limited to any balance or share of
any deposit, trust, or agent account as security for the payment of this note,
and a similar lien upon the security interest in all such property of each maker
as security for the payment of all other liabilities of each Maker to Bank
including liabilities of each Maker and any other person); and Bank shall have
the same rights as to such property as it has with respect to the Collateral.
If Bank deems itself insecure or upon the occurrence of any default
hereunder Bank shall have the remedies of a secured party under the Uniform
Commercial Code and, without limiting the generality of the foregoing, Bank
shall have the right, immediately and without further action by it, to set off
against this note all money owed by Bank in any capacity to each or any Obligor,
whether or not due, and also to set off against all other liabilities of each
maker to bank all money owed by Bank in any capacity to each or any Maker; and
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
even though such a charge is made or entered on the books of the bank subsequent
thereto. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the Bank will
give Maker reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or any other intended disposition
thereof is to made. The requirement of reasonable notice shall be met if such
notice is mailed, postage prepaid, to any Maker at the address given below or at
any other address shown on the records of the Bank, at least five days before
the time of the sale or disposition. Sale at a wholesale dealers' auction is a
commercially reasonable disposition. Upon disposition of any Collateral after
the occurrence of any default hereunder, Maker shall be and remain liable for
any deficiency; and Bank shall account to Maker for any surplus, but Bank shall
have the right to apply all or any part of such surplus (or to hold the same as
a reason against) any and all other liability of each or any Maker to Bank. The
obligors, jointly and severally, promise and agree to pay all costs and expenses
of collection and reasonable attorney's fee, including costs expenses and
reasonable attorneys' fees on appeal, if collected by legal proceedings or
through an attorney at law, Maker hereby waives any right to a trial by jury in
any civil action arising out of, or based upon, this note or the Collateral.
Bank shall exercise reasonable care in the custody and preservation of
the Collateral to the extent required by applicable statute, and shall be deemed
to have exercised reasonable care if it takes such action for that purpose as
Maker shall reasonably request in writing, but no omission to do any act not
requested by maker shall be deemed a failure to exercise reasonable care, and no
omission to comply with any request of Maker shall of itself be deemed a failure
to exercise reasonable care. Bank shall not be bound to take any steps necessary
to preserve any rights in the Collateral against prior parties and maker shall
take all necessary steps for such purposes. Bank or its nominee need not collect
interest on or principal of any Collateral or give any notice with respect to
it.
If the Collateral shall at any time become unsatisfactory to Bank,
Maker shall within one day after demand pledge and deposit with Bank as part of
the Collateral additional property which is satisfactory to Bank.
Bank shall have the right, which may be exercised at any time whether
or not this note is due, to notify the Obligors on any Collateral to make
payment to bank on any amounts due to become due thereon. In the event of any
default hereunder, Bank shall thereafter have, but not be limited to, the
following rights; (i) to pledge or transfer this note and the Collateral and
bank shall thereupon be relieved of all duties and responsibilities hereunder
and relieved from any and all liability with respect to any Collateral so
pledged or transferred, and any pledgee or transferee shall for all purposes
stand in the place of the Bank hereunder and have all the rights of the bank
hereunder, (ii) transfer the whole or any part of the Collateral into the name
of itself or its nominee, (iii) to vote the Collateral; (iv) to demand, sue for,
collect, or make any compromise or settlement it deems desirable with reference
to the Collateral; and (v) to take control of any proceeds of Collateral.
I HEREBY CONSENT TO THE ATTACHMENT OR GARNISHMENT OF MY EARNINGS..
No delay or omission on the part of Bank in exercising any right
hereunder shall operate as a waiver of such right or any other right under this
note, Presentment, demand, protest, notice of dishonor, and extension of time
without notice are hereby waived by each and every Obligor. Any notice to Maker
shall be sufficiently served for all purposes if placed in the mail, postage
prepaid, addressed to or left upon the premises at, the address shown below or
any other address shown on the Bank's records.
I waive any and all privilege and rights which I may have under Chapter
47, Florida Statutes, relating to venue, as it now exists or may hereafter be
amended: I agree that any action shall be brought in the County in which the
Bank's business office is located as designated above or at which the loan was
closed.
JURY WAIVER: MAKER AND BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
AND IRREVOCABLY WAIVE THE RIGHT OF EITHER OF THEM MAY HAVE TO A TRIAL BY
JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW OR
IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENTS CONTEMPLATED TO BE EXECUTED
IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PART HERETO. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR BANK ENTERING INTO THIS AGREEMENT. FURTHER, MAKER
HEREBY CERTIFIES THAT NOR REPRESENTATIVE OR AGENT OF BANK NOR THE BANK'S COUNSEL
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN ANY EVENT OF
SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
NO REPRESENTATIVE OR AGENT OF THE BAN NOR BANK'S COUNSEL HAS THE AUTHORITY TO
WAIVE, CONDITION, OR MODIFY THIS PROVISION.
- -------------------------------------------------------------------------------
GUARANTY
- -------------------------------------------------------------------------------
In addition to the liability as endorsers, which the undersigned
hereby assumes, for value received and intending to be legally bound, the
undersigned (and if more than one, each of them jointly and severally) (a)
hereby become surety to the payee of the within note, it successors, endorsees
and assigns, for the payment of the within note and hereby unconditionally
guarantee the payment of the within note and all extensions or renewals thereof
and all sums payable under or by virtue thereof including, without limitation,
all amounts of principal and interest and all expenses (including attorney's
fees) incurred in the collection thereof, the enforcement of rights thereunder
or with respect to any security therefor and the enforcement hereof, and waive
presentment, demand, notice of dishonor, protest and all other notices
whatsoever; and (b) consent and agree (i) that all or any of the Collateral may
be exchanged, released, surrendered or sold from time to time, (ii) that the
payment of the note, or any of the liabilities of the Maker thereof may be
extended or said notice renewed any number of times and for any period (whether
or not longer than the original period of said note), (iii) that the holder of
said note may grant any releases, compromises or indulgences with respect to
said note or any extensions or renewals thereof or any security therefor or to
any party liable thereunder or hereunder (including but not limited to failure
or refusal to exercise one or more of the rights or remedies provided by said
note), and (iv) that any of the provisions of said note may be modified; all
without notice to or consent of and without affecting the liability of the
undersigned as endorsers and sureties, and further consent and agree that any of
the undersigned may be sued by the holder hereof with or without joining any of
the other endorsers or makers of said note and without first or
contemporaneously suing any such other persons, or otherwise seeking or
proceeding to collect from them or any of them, and without first or
contemporaneously undertaking to enforce any rights with respect to any
security.
- --------------------------------------------------------------------------------
The undersigned acknowledges having received and read the NOTICE TO CO-SIGNOR
appearing on the reverse side hereof.
- -------------------------------------------------------------------------------
______________________________(Date) ________________________________(Seal)
______________________________(Date) ________________________________(Seal)
______________________________(Date) ________________________________(Seal)
Florida Documentary Stamp Tax Required by law in the amount of $________________
Has Been Paid or Will be Paid Directly to The Department of Revenue. Certificate
of Registration #______________________
- -------------------------------------------------------------------------------
SUPPLEMENT TO COMMERCIAL NOTE
- -------------------------------------------------------------------------------
That certain Commercial Note(s) dated September 5, 1996, in the amount
of $500,000.00 herewith is supplemented by adding the following:
The actual principal balance due the bank at any given date will be
determined not by the face amount of the note or notes referred to herein, but
by the amount actually advanced by the Bank to Borrower, plus interest thereon,
less any sums collected by Bank in payment of interest and in reduction of
principal of the loan or loans presented by such note or notes.
The Borrower will promptly pay the full amount of all taxes of every
nature and kind, including, but without limitation, documentary stamp taxes and
intangible personal property taxes, that may be levied, assessed or payable
upon, because of, or in respect of this agreement, the promissory note or notes
executed or to be executed in connection herewith, and shall indemnify the Bank
and save and keep Bank free and harmless from the payment of the same and all
costs and penalties connected therewith; provided, however, that the terms of
this paragraph shall not be construed as imposing upon the Borrower any
obligation to pay any income tax payable by Bank on account of any taxable
income received by it on account of this agreement.
DATED THIS 5TH DAY OF SEPTEMBER, 1996.
Signed, sealed and delivered in the presence of:
WITNESS: Computer Science Innovations, Inc.
By: /s/ Phil Hayes By:/s/ George Milligan
George E. Milligan, President
By:Susanne L. Cavadeas
WITNESSES: SunTrust Bank, Central Florida,
National Association, fka Sun
Bank National Association
By: _______________________ By:/s/ Phil Hayes
Phil Hayes
Business Banking Officer
<PAGE>
SUNTRUST Security Agreement
(Equipment and Consumer Goods)
- ---------------------------
Contract No.
Computer Science Innovations, Inc. (and if
(Name(s) of Borrower(s))
more than one, each of them jointly and severally, hereinafter called"Borrower",
of 125 Evans Road
(No. and Street)
Melbourne Brevard Florida , for value received and
(City) (County) (State)
intending to be legally bound, hereby grants to SunTrust Bank, Central Florida,
National Association fka Sun Bank, National Association, Cocoa, Florida,
(Name of Secured Party)
hereinafter called "Secured Party", a security interest in the following
property
- ------- ------ ------------ -------------- ------------ -------------- ---------
Manufacturer
New or Year or Make Description of Model Number Manufacturer's
Used Model (Trade Name) Collateral or Series Serial No.
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
- ------- ------ ------------ -------------- ------------ -------------- ---------
1st lien on all accounts receivable, inventory, and equipment: now
owned and hereafter acquired as further described in Exhibit "A"
attached, and various Government Contracts as further described in
Exhibit "B" attached.
together with all increases, parts, fittings, accessories, equipment, and
special tools now or hereafter affixed to any or any part thereof or sued in
connection with any thereof, and all replacements of all or any part thereof
plus any returned or unearned premiums from any insurance financed by the
Secured Party in conjunction with this transaction (all of which is hereinafter
called "Collateral"), to secure the payment of a promissory note or notes
executed by Borrower in the amount of:
Five Hundred Thousand Dollars and No/100 - - - - - - - - - - - - - Dollars
($500,000.00), of even date herewith, and any and all extensions, modifications
or renewals thereof, and also to secure the performance by Borrower of the
agreements hereinafter set forth, and all other liabilities or obligations
(primary, secondary, direct, contingent, sole, joint or several) due, or to
become due or which may be hereafter contracted or acquired of each Borrower to
Secured Party (the foregoing hereinafter being called the "Liabilities").
Borrower hereby warrants and agrees that
1. (A) Borrower is the owner of he Collateral clear of all liens and
security interests except the security interest granted hereby; (b) Borrower has
the right and power to make this Agreement; and (c) The Collateral is used or
acquired for use primarily for the purpose checked: |_| personal, family or
household purposes; |_| farm purposes; or |X| business purposes; and (d) if the
Collateral consists of "household goods" as defined in 12 C.F.R. 227.12(d) or if
otherwise checked here |_| then the Collateral is being acquired with the
proceeds of the loan provided for in or secured by this Agreement, and the
proceeds will be used for no other purpose, ad Borrower hereby authorizes
Secured Party to disburse the proceeds or any part thereof directly to the
seller of the Collateral or to the insurance agent or broker, or both, as shown
on Secured Party's records.
2. (a) The Collateral will be kept at
(No. and Street) (City) (County) (State)
or if left blank, at the address shown at the beginning of this Agreement;
Borrower will promptly notify Secured Party of any change in the location of the
Collateral within said state; and Borrower will not remove the Collateral from
said state without the written consent of Secured Party. (b) If the Collateral
is used or acquired for use primarily for personal, family or household
purposes, or for farm purposes, Borrower's residence in Florida is that shown at
the beginning of this Agreement and Borrower will immediately notify Secured
Party of any change in the location of said residence.
3. (a) If the Collateral is acquired or used primarily for
business use and is of a type normally used in more than one state, whether or
not so used, and Borrower has a place of business in more than one state, the
chief place of business of Borrower is _________________________________________
(No. and Street) or, if left blank, is that
______________________ (City) (County) (State)
shown at the beginning of this Agreement; and Borrower will immediately notify
Secured Party in writing of any change in Borrower's chief place of business;
and (b) If certificates of title are issued or outstanding with respect to any
of the Collateral, Borrower will promptly cause the interest of Secured Party to
be properly noted thereon and deliver such certificates of title to Secured
Party.
4. Borrower will defend the Collateral against the claims and
demands of all persons, other than Secured Party, at any time claiming the
same or any interest therein.
5. No financing Statement covering any Collateral or any proceeds
thereof is on file in any public office; Borrower authorizes Secured Party to
file, in jurisdictions where this authorization will be given effect, a
Financing Statement signed only by the Secured Party describing the Collateral
in the same manner as it is described herein; Borrower will from time to time at
the request of Secured Party, execute one or more Financing Statements and such
other documents (and pay the cost of filing or recording the same in all public
offices deemed necessary or desirable by the Secured Party) and do such other
acts and things, all as the Secured Party may request to establish and maintain
an enforceable first priority security interest in the Collateral (free of all
other liens and claims whatsoever) to secure the payment of the Liabilities.
6. Borrower will not (a) permit any liens or security interest other
than Secured Party's security interest, to attach to any of the Collateral; (b)
permit any of the Collateral to be levied ________ under legal process; (c)
sell, transfer, lease, dismantle, alter, modify, or otherwise dispose of any of
the Collateral or any interest therein, or offer so to do, without the prior
written consent of Secured Party; (d) permit anything to be done that may impair
the value of any of the Collateral or the security intended to be afforded by
this Agreement; (e) permit the Collateral to be or become a fixture (and it is
expressly covenanted, warranted and agreed, that the Collateral, and every part
thereof, whether affixed to any realty or not, shall be and remain personal
property), or to become an accession to other goods or property, or (f) locate
Collateral on any property not owned or controlled by Borrower, without the
prior written consent of the Secured Party.
7. Borrower will (a) at all times keep the Collateral insured in
amounts not less than the full insurable value thereof, against loss, damage,
theft, and such other risks as Secured Party may require in such companies,
under such policies, in such form and for such periods, as shall be satisfactory
to Secured Party, and each such policy shall provide, by New York Standard or
Union Standard endorsement, that loss thereunder and proceeds payable thereunder
shall be payable to Secured Party as its interest may appear (and Secured Party
may determine) and each such policy shall provide for a minimum of 10 days
written cancellation notice to Secured Party; and each such policy shall, if
Secured Party so requests, be deposited with Secured Party and Secured Party may
act as attorney for Borrower in obtaining, adjusting, settling, and canceling
such insurance and endorsing any drafts; (b) at all times keep the Collateral
free from any adverse lien, security interest, or encumbrance and in good order
and repair and will not waste or destroy the Collateral or any part thereof, (c)
Borrower shall be obligated to pay for the placement of any Vendor Single
Interest Insurance ("VSI"), or any other similar type of insurance, should the
Borrower fail to adequately protect the Collateral. Should VSI or any other
insurance be placed by the Secured Party, then any Earned and/or Unearned
Insurance Premium Refund will be credited to Borrower by the Secured Party.
Should the Secured Party receive any compensation for Administrative or
Experience Rated Refunds due to the placement and termination of such insurance,
such compensation and/or refund shall be paid to Secured Party. Any interest
earned during the period of placement of such insurance may be retained by
Secured Party.
8. (a) Borrower will not use the Collateral or permit the same to be
used in violation of any statute, law or ordinance; and Secured Party may
examine and inspect the Collateral at any time, wherever located, (b) Borrower
will pay promptly when due all taxes and assessments on the Collateral or for
its use of operation or upon this Agreement or upon any note or notes or other
writing evidencing the Liabilities, or any of them.
9. At its options, Secured Party may discharge taxes, liens or security
interest or other encumbrances at any time levied or placed on the Collateral,
may pay for insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral. Borrower agrees to reimburse Secured Party on
demand for any payment made, or any expense incurred, by Secured Party, pursuant
to the foregoing authorization, together with interest thereon at the highest
lawful rate and each such payment and interest thereon shall be secured by this
Security Agreement. Until default, Borrower may have possession of Collateral
and use it in any lawful manner not inconsistent with this Agreement and not
inconsistent with any policy of insurance thereon.
10. Borrower shall be in default under this Agreement upon the
happening of any of the following events or conditions: (a) failure or omission
to pay when due any Liability (or any installment thereof or interest thereon),
or default in the payment or performance of any obligation, covenant, agreement,
or Liability contained or referred to therein; (b) any warranty, representation,
or statement made or furnished to Secured Party by or on behalf of any Borrower
proves to have been false in any material respect when made or furnished; (c)
loss, theft, substantial damage, destruction, sale, or encumbrance to or of any
of the Collateral, or the making of any levy, seizure, or attachment thereof or
thereon; (d) any Obligor (which term as used herein, shall mean each Borrower
and each other Party primarily or secondarily or contingently liable on any of
the Liabilities) becomes insolvent or unable to pay debts as they mature or
makes an assignment for the benefit of creditors, or any proceeding (including
any proceeding in bankruptcy) is instituted by or against any Obligor alleging
that such Obligor is insolvent or unable to pay debts as they mature; (e) entry
of any judgment against any Obligor; (f) death of an Obligor who is a natural
person, or of any partner of any Obligor which is a partnership; (g)
dissolution, merger or consolidation, or transfer of a substantial part of the
property of any Obligor which is a corporation or partnership; (h) appointment
of a receiver for the Collateral or any part thereof or for any property in
which any Borrower has an interest; (i) the Collateral is used by anyone to
transport or store goods the possession, transportation or use of which is
illegal.
11. Upon the occurrence of any such default or at any time thereafter,
or whenever the Secured Party feels insecure for any reason whatsoever, Secured
Party may, at its option, declare all Liabilities secured hereby, or any of them
(notwithstanding any provisions thereof), immediately due and payable without
demand or notice of any kind and the same thereupon shall immediately become and
be due and payable without demand or notice (but with such adjustments, if any,
with respect to interest or other charges as may be provided for in the
promissory note or other writing evidencing such Liability), and Secured Party
shall have and may exercise from time to time any and all rights and remedies of
a Secured Party under the Uniform Commercial Code and any and all rights and
remedies available to it under any other applicable law; and upon request or
demand of Secured Party, Borrower shall, at its expense, assemble the Collateral
and make it available to the Secured Party at a convenient place acceptable to
Secured Party; and Borrower shall promptly pay all costs of Secured Party of
collection of any and all liabilities, and enforcement of any rights hereunder,
including reasonable attorneys' fees and legal expenses. Any excess or surplus
of proceeds of any disposition of any of the Collateral may be applied by
Secured Party toward payment of such of the Liabilities, without marshaling of
assets and in such order of application, as Secured Party may from time to time
elect.
12. No waiver by Secured Party of any default shall operate as a waiver
of any other default or of the same default on a future occasion. No delay or
omission on the part of Secured Party in exercising any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Secured Party
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. Time is of the essence of this
Agreement. The provisions of this Agreement are cumulative and in addition to
the provisions of any note secured by this Agreement, and Secured Party shall
have all the benefits, rights and remedies of and under any note secured hereby.
If more than one party shall execute this Agreement, the term "Borrower" shall
mean all parties signing this Agreement and each of them, and all such parties
shall be jointly and severally obligated hereunder provided, however, if one of
the parties signing this Agreement has not executed the promissory note or notes
referred to herein, said party shall have no personal liability under, or in
conjunction with, said promissory note or notes. The singular pronoun, when used
herein, shall include the plural and the neuter shall include masculine and
feminine. If this Agreement is not dated when executed by the Borrower, the
Secured Party is authorized without notice to the Borrower, to date this
Agreement. All rights of Secured Party hereunder shall inure to the benefit of
its successors and assigns; and all Liabilities of Borrower shall bind the
heirs, executors, administrators, successors and assigns of each Borrower.
13. This Agreement has been delivered in the State of Florida and shall
be construed in accordance with laws of Florida. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
14. BORROWER AND SECURED PARTY HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR SECURED PARTY ENTERING INTO THIS AGREEMENT. FURTHER,
BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY, NOR
THE SECURED PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SECURED PARTY WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE
SECURED PARTY, NOR SECURED PARTY'S COUNSEL HAS THE AUTHORITY TO WAIVE,
CONDITION, OR MODIFY THIS PROVISION.
In Witness Whereof, this Agreement has been duly executed as of the
5th day of September , 19 96 .
-------------------- ------------------ --------------
Computer Science Innovations, Inc.
Signed, sealed and deliveed By: /s/ George Milligan (Seal)
in the presence of George R. Milligan, President
/s/ Phil Hayes
By: /s/ Susanne L. Cavadeas
(Seal)
Borrower
By: ____________________ (Seal)
<PAGE>
- ---------------------------
Contract No.
SECURITY AGREEMENT
(INVENTORY AND ACCOUNTS)
THIS ASSIGNMENT AND AGREEMENT made September 5, 1996, by and between SunTrust
Bank, Central Florida, National Association fka Sun Bank, National Association
(Name of Secured Party)
herein called "Bank", and
Computer Science Innovations, Inc.
(Name(s) of Borrower(s))
of 125 Evans Road Melbourne Brevard Florida
(Name and Street) (City) (County) (State)
herein called "Borrower".
In consideration of loans or advances made or to be made by Bank to
Borrower, and for other value received by Borrower, the parties hereto,
intending to be legally bound, agree as follows:
1. As used herein: (a) "Account" means an immediate right to payment
for goods sold and for goods leased and for services rendered, or any of them,
and includes a right to payment under a contract whether or not it has been
earned by performance. "Qualified Account" means an Account which has been due
less than ________________________ days; (b) "Inventory" means goods held for
sale or lease or being processed for sale or lease in Borrower's business, as
now or hereafter conducted, including all materials, goods and work in process,
finished goods, and other tangible property now owned or hereafter acquired and
held for sale or lease or furnished or to be furnished under contracts of
service or used or consumed in Borrower's business; (c) "Goods" means all
articles of tangible personal property, sold, supplied, or otherwise disposed
of, represented by an Account; (d) "Purchaser" includes the buyer of goods from
Borrower, the customer for which services have been rendered or materials
furnished by Borrower, or the party with whom Borrower has contracted; (e)
"Borrower" includes all corporations and all individuals executing this
agreement as parties hereto, and all members of a partnership when Borrower is a
partnership, each of whom shall be jointly and severally liable individually and
as partners hereunder; (f) "security interest" means an interest in property
which secures payment or performance of an obligation; (g) "liability" or
"liabilities" includes all liabilities (primary, secondary, direct, contingent,
sole, joint or several) due or to become due or that may be hereafter contracted
or acquired, of Borrower (including any Borrower and any other person) to Bank.
2. Bank will from time to time hereafter lend Borrower, on the security
of Accounts and Inventory, or any of them, acceptable to Bank, such amounts as
Bank may determine from time to time, at such rates of interest and payable and
on such terms as Bank may from time to time specify or require, and Bank may
require that such loans, or any of them, be evidenced by one or more promissory
notes of the Borrower in form satisfactory to Bank. For the convenience of the
Borrower, the Bank may make loans and advances to the Borrower under any
promissory note the principal face amount of which is in excess of the actual
unpaid principal balance at such time.
3. As security for the payment of all loans and advances now or in the
future made hereunder and for all Borrower's liabilities, including any
extensions, renewals, or changes in form of any thereof, Borrower hereby assigns
to Bank and grants to Bank a security interest in: (a) all Accounts and
Inventory owned by Borrower at the date of this agreement; (b) all Accounts and
Inventory at any time hereafter acquired by Borrower; and (c) all proceeds of
all such Accounts and inventory.
4. So long as any liability to Bank is outstanding, Borrower will not
without the prior written consent of Bank borrower form anyone except Bank on
the security of, or pledge or grant any security interest in, any Account or any
of Borrower's inventory to anyone except Bank, or permit any lien or encumbrance
to attach to any of the foregoing, or any levy to be made thereon, or any
financing statement (except Bank's financing statement) to be on file with
respect thereto.
5. Borrower represents and warrants that the location where it keeps
the bulk of its inventory is at the address specified in the preamble to this
agreement, unless a different address has been specified in the following space:
(No. and Street) ______________ (City) (County) (State)
and that the office where it keeps its records concerning all of its Accounts is
at the address specified in the preamble to this agreement, unless a different
address has been specified in the following space:
(No. and Street) ______________ (City) (County) (State)
Borrower will immediately notify Bank in writing of any change in the location
of the place of business where the bulk of its inventory is located or any
change in the location of the place of business where the records concerning its
Accounts are kept.
6. Borrower will (a) maintain Accounts and Inventory in such quantities
that at all times ____________% of the face amount of its Qualified Accounts,
less allowable discount, plus ________________% of the cost or wholesale market
value, whichever is lower, of its Inventory, plus 100% of the balance in the
Cash Collateral Account hereinafter referred to, or such other percentages
thereof as may from time to time be fixed by Bank upon notice to Borrower, shall
be at least equal to Borrower's liabilities to Bank; and Borrower will pay to
Bank, in reduction of its liabilities, such sums as may be necessary from time
to time to maintain such ratio; (b) collect its Accounts and sell its Inventory
only in the ordinary course of business; (c) furnish Bank at the time of each
borrowing, and at such other intervals as Bank may prescribe, with a Borrower's
Certificate (in such form as Bank may from time to time specify or require)
showing the aggregate face amount of its Qualified Accounts and the aggregate
cost and wholesale market value of its Inventory; (d) keep accurate and compete
records of its Accounts and Inventory; (e) pay and discharge when due all taxes,
levies and other charges on its Inventory; (f) keep its Inventory insured in
amounts not less than the full insurable value thereof, for the benefit of Bank
(to whom loss shall be payable by New York Standard or Union Standard
endorsements), in such companies and against such risks as may be satisfactory
to or required by Bank; pay the cost of all such insurance; and deliver
certificates evidencing such insurance to Bank; and Borrower assigns to Bank all
right to receive proceeds of such insurance.
7. Unless Bank notifies Borrower in writing that it dispenses with any
one or more of the following requirements, Borrower will (a) give Bank
assignments in form acceptable to Bank, of specific Accounts or groups of
Accounts, and of moneys due and to become due under specific contracts; (b)
furnish to Bank a copy of the invoice applicable to each Account assigned to
Bank or arising out of a contract, bearing a statement that such Account has
been assigned to Bank and such additional statements as Bank may require; (c)
furnish Bank at the time of each borrowing, and at such other intervals as Bank
may prescribe or require, with a schedule (in such form as Bank may from time to
time specify or require) of Borrower's Inventory and Qualified Accounts which
describe the same, or such thereof as Bank may require, together with such other
information relating thereto as the Bank may specify or require; (d) make no
change in any assigned Accounts or in any Account arising out of a contract
assigned to Bank, information relating thereto as the Bank may specify or
require; (d) make no change in any assigned Accounts or in any Account arising
out of a contract assigned to Bank, and make no material change in the terms of
any such contract; (e) furnish to Bank all information received by Borrower
affecting the financial standing of any Purchaser whose Account has been
assigned to Bank; (f) receive as the sole property of Bank and hold as trustees
for Bank all moneys, checks, notes, drafts, and other property (herein called
"items of payment") representing the proceeds of any Account or Inventory in
which Bank has a security interest, which comes into the possession of Borrower;
and deposit all such items of payment immediately in the exact form received in
a special account of Borrower in Bank entitled "Cash Collateral Account" in
which account Bank shall have a security interest to secure all Borrower's
liabilities and with respect to which account Bank alone shall have power of
withdrawal; (g) pay Bank the amount loaned against any Account assigned to Bank
where the goods are returned by the Purchaser, or where the contract is
cancelled or terminated; (h) immediately notify Bank if any of its contracts
arise out of contracts with the United States or any department, agency, or
instrumentality thereof, and execute any instruments and take any steps required
by Bank in order that all moneys due and to become due under any such contract
shall be assigned to Bank and notice thereof given to the Government under the
Federal Assignment of Claims Act; (i) deliver to Bank with appropriate
endorsement or assignment, as Bank may require, any instrument or chattel paper
representing an Account. Any permission granted to Borrower by Bank to omit any
of the requirements of this paragraph 7 may be revoked by Bank at any time.
8. Borrower will promptly, if requested by Bank: (a) mark its records
evidencing its Accounts in a manner satisfactory to Bank so as to show the same
have been assigned to Bank; (b) pay Bank the unpaid portion of any assigned
Account if Bank shall at any time reject the Account as unsatisfactory, which
right Bank shall have and may exercise at any time and for any reason
whatsoever, and until such payment is made by Borrower, Bank may retain any such
Account as security and may charge any deposit account of Borrower with any such
amounts; (c) join with Bank in executing a financing statement, notice,
affidavit, or similar instrument in form satisfactory to Bank, and such other
instruments as Bank may from time to time request; and pay the cost of filing
the same in any public office deemed advisable by Bank; and (d) give Bank such
financial statements, reports, certificates, lists of Purchasers (showing names,
addresses, and amounts owing), and other date concerning its Accounts,
contracts, collections, inventory and other matters as Bank may from time to
time specify; and permit Bank or its nominee to examine all of Borrower's
records relating thereto at any time, and to make extracts therefrom, and to
inspect and check Borrowers Inventory.
9. Borrower warrants (a) in connection with each Account covered by
this agreement: (i) it constitutes a Qualified Account as defined herein is not
evidenced by a judgment, an instrument or chattel paper (except such judgment as
has been assigned to Bank, and except such instrument or chattel paper as has
been indorsed and delivered to Bank), and represents a bona fide transaction and
Borrower has possession of (and will promptly deliver to Bank upon Bank's
request) or has delivered to Bank shipping or delivery receipts evidencing
shipment or delivery of the goods and, if representing services, the services,
have been fully performed; (ii) the amount shown on Borrower's books and on any
invoice or statement delivered to Bank is owing to Borrower; (iii) the title of
Borrower to the Account and, except as against the Purchaser, to any goods is
absolute; (iv) the Account has not been transferred to any other person, and no
person, except Borrower, has any claim thereto, or, with the sole exception of
Purchaser, to the goods; (v) no partial payment has been made by anyone; and
(vi) no set-off or counterclaim to such Account exists and no agreement has been
made with any person under which any deduction or discount may be claimed,
except regular discounts allowed by Borrower for prompt payments; (vii) it
arises under an existing binding written contract between Borrower and
Purchaser; and (b) in connection with its inventory; that Borrower is and will
be the absolute owner thereof, free and clear of all encumbrances and security
interests other than the Bank's security interest.
10. Borrower shall pay Bank such interest as may be specified
in any note evidencing a loan or advance made hereunder and such service charges
as may be agreed upon and shall pay to Bank all costs and expenses, including
attorneys' fees, incurred by it in the preservation or collection of collateral.
Changes in interest rate and service charges may be made by Bank from time to
time, notwithstanding the interest rate specified in any note evidencing a loan
or advance hereunder, upon notice to Borrower and shall become effective on the
date therein specified.
11. Bank shall have the right at any time and from time to
time, without notice, to: (a) apply any part or all of the moneys in the Cash
Collateral Account representing collected items against any liability of
borrower to Bank, and Bank shall upon demand by Borrower make such application
against such liability or liabilities as Bank may itself select; (b) release to
Borrower such part of the moneys in the Cash Collateral Account as Bank may
elect; (c) charge to Borrower's deposit account any item of payment credited to
the Cash Collateral Account which is dishonored by the drawee or maker thereof;
(d) indorse all items of payment which may come into its hands payable to
Borrower; (e) notify Purchasers that Accounts have been assigned to Bank,
forward invoices to Purchasers, directing them to make payments to Bank, collect
all Accounts in its or Borrower's name, and take control of any cash or non-cash
proceeds of Accounts and of any inventory; (f) compromise, extend, or renew any
Account or deal with the same as it may deem advisable; (g) make exchanges,
substitutions or surrenders of collateral; (h) insure inventory to its
satisfaction if Borrower fails to do so and pay for the same, and pay, for the
account of Borrower, any taxes, levies, or other charges affecting Borrower's
Inventory or upon or on account of this Security Agreement or any liability or
any writing evidencing any liability, which Borrower fails to pay, and any such
payment shall constitute a liability of Borrower.
12. Until default, Borrower may use its Inventory in any
lawful manner not inconsistent with this agreement and with the terms of
insurance thereon; may sell its Inventory in the ordinary course of business;
and may use and consume any raw materials or supplies, the use and consumption
of which is necessary in order to carry on Borrower's business.
13. If at any time any warranty, representation, certificate
or statement of Borrower is not true, or if any liability or any part or
installment thereof or interest thereon is not paid when due, or if any event of
default as defined in any note or other evidence of liability held by Bank
should occur, or if Borrower should fail to observe or perform any agreement or
term hereof, or if Bank at any time feels insecure for any reason whatsoever,
Bank may, at its option, thereupon or thereafter declare all liabilities of
Borrower to Bank, or any of them selected by Bank (notwithstanding any
provisions thereof), immediately due and payable without demand or notice of any
kind and the same thereupon shall immediately become and be due and payable
without demand or notice (but with such adjustments, if any, with respect to
interest or other charges as may be provided for n the promissory note or other
writing evidencing such liability), and Bank may, in addition to any other
rights and remedies which it may have, immediately and without demand, exercise
any and all rights and remedies granted to a secured party upon default under
the Florida Uniform Commercial Code; and upon request or demand of Bank,
Borrower shall at its expense, assemble Borrower's Inventory and make it
available to Bank at a convenient place acceptable to Bank; and Borrower shall
promptly pay to Bank any and all costs and expenses, including legal expenses
and reasonable attorney's fees incurred or paid by Bank in protecting and
enforcing liabilities and rights of Bank hereunder, including Bank's right to
take possession of Borrower's inventory and the proceeds of Accounts and
Inventory, and to hold, prepare for sale, sell and dispose of such Inventory.
Any notice of sale, disposition or other intended action by Bank, sent to
Borrower at the address specified in the preamble to this agreement, or such
other address of Borrower as may from time to time be shown on Bank's records,
at least five days prior to such action, shall constitute reasonable notice to
Borrower. Upon disposition by Bank or any property in which Bank has a security
interest hereunder, or upon collection by Bank of the proceeds of Accounts,
Borrower shall be and remain liable for and deficiency; and Bank shall account
to Borrower for any surplus, but Bank shall have the right to apply all or any
part of such surplus (or to hold the same as a reserve against) all or any
liabilities of Borrower to Bank, whether or not they, or any of them, be then
due, without marshaling of assets and in such order of application as Bank may
from time to time elect.
14. Borrower waives protest of all commercial paper at any
time held by Bank on which Borrower is in any way liable, notice of non-payment
at maturity of any and all Accounts, and except where required hereby or by law,
notice of action taken by Bank; and hereby ratifies and confirms whatever Bank
may do.
15. No waiver by Bank of any default shall operate as a waiver
of any other default or of the same default on a future occasion. No delay or
omission on the part of Bank in exercising any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by Bank of any right or
remedy shall preclude any other or further exercise thereof or the exercise of
any other right or remedy. Time is of the essence of this agreement. The
provisions of this agreement are cumulative and in addition to the provisions of
any liability and any note or other writing evidencing any liability secured by
this agreement, and Bank shall have all the benefits, rights and remedies of and
under any liability and any note or other writing evidencing any liability
secured hereby. If more than one party shall execute this agreement, the term
"Borrower" shall mean all parties signing this agreement and each of them, and
all such parties shall be jointly and severally obligated and liable hereunder.
The singular pronoun, when used herein, shall include the plural, and the neuter
shall include the masculine and feminine. All rights of Bank hereunder shall
inure to the benefit of its successors and assigns; and all obligations of
Borrower shall bind the heirs, executors, administrators, successors and assigns
of each Borrower.
16. Borrower releases Bank from all claims for loss or damage
caused by any failure to collect any account or enforce any contract or by any
act or omission on the part of the Bank, its officers, agents and employees,
except willful misconduct.
17. This agreement may be terminated by either party giving
the other written notice of intention to terminate on a date named in said
notice, mailed to the last known address of the party to whom such notice is
addressed: but no such termination shall in any way affect the rights and
liabilities of the parties hereunder relating to loans or advances made,
Accounts, Inventory or other property pledged prior to the date named in such
notice.
18. This agreement has been delivered in the State of Florida
and shall be construed in accordance with the laws of Florida. Wherever
possible, each provision of this agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
agreement.
IN WITNESS WHEREOF, this agreement has been duly executed as
of the date hereinabove first written.
Computer Science Innovation, Inc.
Signed, sealed and delivered
in the presence of By: /s/ GeorgeMilligan (SEAL)
George E. Milligan, President
_______________________________ By: /s/ Susanne L. Cavadeas (SEAL)
------------------------------
_______________________________ _________________________(SEAL)
(CORPORATE SEAL) BORROWER
SunTrust Bank, Central Florida,
National Association fka Sun Bank,
National Association
ATTEST: __________________________________
(NAME OF BANK)
_______________________________ By: /s/ Phil Hayes
Phil Hayes, Business Banking Officer
As its Cashier As its President
<PAGE>
- ------------------------------------------------------------------------------
EXHIBIT "A"
- ------------------------------------------------------------------------------
This Exhibit describes the property to be included in Collateral or Security"
referred to in a Note, Security Agreement and in any Financing statement
delivered by Computer Science Innovations, Inc.
All accounts, contract rights, chattel paper and all other obligations
evidencing any obligation to borrower for payment for goods sold or leased or
services rendered and all quaranties and other property securing the payment of
or performance under any accounts, contract rights or any such chattel paper or
instruments and any insurance proceeds or other cash receivable, whether now
existing or hereafter arising.
All equipment of every description, now owned or hereafter existing or acquired;
all accessories, attachments, parts and equipment now or hereafter affixed
thereto or used in connection therewith, all renewals, substitutions or
replacements thereof, insurance proceeds due to loss or damage thereof, and cash
or non-cash proceeds and products of any of the foregoing. Borrower's right to
dispose of the collateral is restricted by agreement with the lender.
All inventory, including goods in process and raw materials and other tangible
personal property arising or acquired and held for sale or lease or furnished or
to be furnished under contracts of service including any products thereof, and
in contract rights with respect thereto and proceeds of both whether existing
now or arising hereafter, all additions, accessions thereto, and any proceeds
from insurance coverage due to loss or damage, all renewals, substitutions,
attachments, replacements thereof and any cash or non-cash proceeds and products
of the foregoing.
September 5, 1996
Computer Science Innovations, Inc.
By: /s/ George E. Milligan
George E. Milligan, President
By: /s/ Susanne L. Cavadeas
BANK: SunTrust Bank, Central Florida,
National Association, fka Sun
Bank, National Association
By: /s/ Phil Hayes
Phil Hayes, Business
Banking Officer
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT "B"
- -------------------------------------------------------------------------------
Additional Collateral:
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Wordage II), contract number MDA904-92-G-0147/5004 not to
exceed $212,570.00
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Pearlware III), contract number MDA90492-G-0147/5005 in the
amount of $149,300.00
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Titian), contract number MDA904-94-C-7138 in the amount of
$400,093.00
Assignment of contract between Computer Science Innovations and Intergraph
Corporation, contract number FSNO133 in the amount of $113,738.90
Assignment of Contract between computer Science Innovations and U.S. Army
Information System command (Sims), contract number DAEA08-91-C-0003
The above described collateral is in addition to that listed in the attached
Promissory Note and Security Agreement dated September 5, 1996, the terms and
conditions of which are hereby incorporated by reference.
Computer Science Innovations, Inc.
By: /s/ George E. Milligan 9/5/96
George E. Milligan, President
By: /s/ Susanne L. Cavadeas
<PAGE>
- ------------------------------------------------------------------------------
[SUNTRUST LOGO] Corporate Resolution and Certificate of Incumbency
(Borrowing)
- ------------------------------------------------------------------------------
I, the undersigned, hereby certify that I am the President and custodian of the
records of Computer Science Innovations, Inc. (registered name of corporation),
a corporation duly organized and existing under the laws of Florida (hereinafter
"Corporation"); that the following is a true and correct copy of certain
resolutions duly adopted by the Board of Directors of said Corporation at a
meeting duly held on the 5th day of September, 1996, at which a quorum was
present; and that the following resolutions are in conformity with the charter
and by-laws of said Corporation and have not since been rescinded or modified.
RESOLVED, that any 2 (number required) of the following corporate officers:
Name George E. Milligan Title President
Name James C. Schaffer Title Executive Vice President
Name Susanne Cavadeas Title Comptroller
Name ___________________ Title ________________________
Name ___________________ Title ________________________
Name ___________________ Title ________________________
Name ___________________ Title ________________________
Name ___________________ Title ________________________
be and are hereby authorized on behalf of the Corporation from time to time to
borrow money, obtain credit and procure loans from Bank without limit as to
amount; to sell or discount any notes, bills or accounts, acceptances or any
other instruments to Bank; to assign, pledge, convey, transfer, mortgage or
otherwise create a lien upon any real and/or personal property of this
Corporation as security for the payment of any and all other indebtedness,
liabilities and obligations of the Corporation to said Bank, whether in the
usual course of business or otherwise; and, in furtherance of and in connection
with the foregoing, to make, execute and deliver in the name of and on behalf of
this Corporation, under its corporate seal or otherwise, such agreements,
documents or instruments deemed reasonable or necessary.
RESOLVED FURTHER, that all actions heretofore taken by the officer or officers
named herein in obtaining loans or credits on behalf of this Corporation and in
the exercise of the authority and powers herein granted are hereby ratified,
adopted and confirmed; and that Bank is hereby authorized and directed to pay
the proceeds of any such loans or credits as directed by said officers, whether
for payment or credit to the account of this Corporation with Bank or with
another financial institution, or to such officers, or any third person, or
otherwise; and
RESOLVED FURTHER, that the undersigned is authorized and directed to furnish
said Bank a certified copy of these resolutions, which resolutions shall
continue in full force and effect until written notice of the recision or
modification of the same has been received by Bank, and to furnish said Bank the
names and specimen signatures of the officer(s) named herein, and such persons
from time to time holding the above positions, herewith and/or on Bank's usual
form of signature card.
I hereby certify that the following are the names and specimen signatures of the
officer(s) listed in the foregoing resolutions and that each presently holds the
title indicated and has full authority for all acts unless noted herein.
<TABLE>
<S> <C> <C> <C> <C> <C>
Name George E. Milligan Title President Signature/s/ George Milligan
Name James C. Schaffer Title Executive Vice President Signature/s/ James C. Schaffer
------------------ ------------------------ ------------------
Name Susanne Cavadeas Title Comptroller Signature/s/ Susanne Cavadeas
Name _________________ Title ________________________ Signature _____________________
Name _________________ Title ________________________ Signature _____________________
Name _________________ Title ________________________ Signature _____________________
Name _________________ Title ________________________ Signature _____________________
Name _________________ Title ________________________ Signature _____________________
</TABLE>
Special Instructions:
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said Corporation this 5th day of September, 1996.
Corporate Seal By:/s/ George Milligan
Title President
<PAGE>
[SUNTRUST BANK LETTERHEAD]
July 2, 1997
Mr. George Milligan
President
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Subject: Notification of Extension of Loan Maturity (9/26/97)
Dear Mr. Milligan:
SunTrust Bank, Central Florida, National Association hereby advises you that the
maturity date of June 30, 1997 for your loan #1800455903-00026 in the name of
Computer Science Innovations, Inc., (Borrower) is hereby extended 88 days. Other
than the maturity date as changed above, all other terms and conditions remain
unchanged. This Extension is contingent upon the Borrower making payments during
the Extension period in the amount and at the interval specified in the payment
schedule of the note.
Sincerely,
/s/
First Vice President
SunTrust Bank Central Florida, National Association
SHORT-TERM LOAN AND SECURITY AGREEMENT
THIS SHORT-TERM LOAN AND SECURITY AGREEMENT ("Agreement") is made as of
this 18th day of February, 1997, by and between THE ASHTON TECHNOLOGY GROUP,
INC., a Delaware corporation ("Borrower"), and COMPUTER SCIENCE INNOVATIONS,
INC., a Florida corporation having its principal office at 1235 Evans Road,
Melbourne, Florida 32904 ("Lender"), hereinafter collectively referred to as the
"Parties." Additionally, Fredric W. Rittereiser, Chief Executive Officer of
Borrower, joins this Agreement for the sole purpose of Article 6(D) herein.
1. THE SHORT-TERM LOAN.
(A) Terms.
Upon the execution of this Agreement and the satisfaction of the conditions
precedent set forth in Article 4 herein, the Lender agrees to lend the Borrower
the sum of Five Hundred Thousand Dollars ($500,000.00) to be secured by a
promissory note (hereinafter, the "Note"), repayable with interest,
substantially in the form of Exhibit "A" attached and incorporated herein by
reference, and the execution on even date herewith by the Borrower of that
certain stock pledge agreement (hereinafter "Stock Pledge Agreement") in which
Borrower pledges all of its rights, title and interest in a percentage of the
common stock of Computer Science Innovations, Inc. that Borrower now owns. The
Stock Pledge Agreement is attached and incorporated herein by reference as
Exhibit "B."
The loan is for a fixed term of nine (9) months. Interest on the loan shall
accrue at the rate of Eight and One-Quarter Percent (8.25%). The Note is payable
in full with accrued interest on or before November 18, 1997.
(B) Payment and Additional Terms.
All payments of principal and interest on the Note payable by Borrower to
Lender under this Agreement shall be made in lawful money of the United States
of America, in immediately available funds. Payment shall be credited first to
interest on the unpaid principal balance and then to principal on the loan and
all other amounts payable by Borrower to the Lender under this Agreement. The
interest on the Note shall be calculated on the basis of actual days elapsed in
a year of 360 days. If any payment of principal or interest on the Note falls
due on a Saturday, Sunday or bank holiday, then such due date shall be extended
to the next succeeding full business day of Lender and interest shall be payable
during such extension. The Borrower shall have the right of prepayment of the
Note at any time without penalty.
2. GRANT OF SECURITY INTEREST.
(A) Grant of Security Interest.
To secure the Borrower's prompt, punctual, and faithful performance of all
of the Borrower's liabilities herein, the Borrower hereby grants to the Lender a
continuing security interest in and to, and pledges to the Lender, pursuant to
the Stock Pledge Agreement, the following (hereinafter the "Collateral"):
All rights, title and interest in Six Hundred Ninety-Seven
Thousand Eight Hundred Seventy-One (697,871) Class A Shares
and One Million Twenty-One Thousand Three Hundred Eighty-One
(1,021,381) Class B Shares of the common stock of Computer
Science Innovations, Inc. currently owned by and in the
possession of Borrower.
The Collateral shall be held in escrow, pursuant to the terms and
conditions of an Escrow Agreement, attached and incorporated herein by reference
as Exhibit "C."
(B) Duration of Security Interest.
The grant of a security interest shall continue in full force and effect
applicable to all liabilities herein until all liabilities of the Note are paid
and the security interest granted herein is specifically terminated in writing
by a duly authorized officer of the Lender.
3. BORROWER'S REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
(A) Incorporation and General Authority.
Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware, and is duly licensed or
qualified and in good standing as a foreign corporation in all states wherein
the nature of the property owned or business transacted makes such licensing or
qualification necessary, and is entitled to own its properties and assets, and
to carry on its business, as, and in the places where, such properties and
assets are now owned or operated or such business is now conducted or presently
proposed to be conducted. Non-material violations of this representation which
do not affect the Borrower's capacity to perform its obligations under the terms
of this Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
(B) Litigation.
There is not now pending or threatened against Borrower any action or other
proceedings or any claim which may materially and adversely affect Borrower's
ability to perform its obligations herein, nor do any of the executive or
managing personnel of Borrower know of any facts that may give rise to any such
litigation, proceeding or claim.
(C) Authority for Agreement.
Borrower has all requisite power and authority to undertake the
obligations, to enter into this Agreement, and to perform each of its
obligations contained in this Agreement; and this Agreement will constitute a
valid and legally binding obligation of Borrower enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, or other laws affecting creditors'
rights generally.
Borrower has obtained formal approval from its Board of Directors through a
Board Resolution to undertake the obligations herein and to pledge the
Collateral as security for the Note.
(D) No Defaults or Restrictions.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement in accordance with the terms of this
Agreement will not violate any existing law or statute or violate any existing
term or provision of any order, writ, judgment, injunction or decree of any
court or any other governmental department, commission, board, bureau, agency or
instrumentality applicable to Borrower, or conflict with or result in a breach
of any of the terms, conditions or provisions of the Articles of Incorporation,
Bylaws, or other organizational documents of Borrower, or any agreement to which
Borrower is a party, or by which any of its properties are bound, or constitute
an event that might permit an earlier termination of or otherwise materially
affect any such agreement, or result in the creation or imposition of a lien `
charge or encumbrance upon any of the property or assets of Borrower pursuant to
the terms of any pledge, mortgage, security agreement, assignment, or any other
instrument to which Borrower is a party or by which it may be bound.
(E) Operation of Business.
Borrower's businesses are being operated and maintained in an ordinary and
customary manner and in compliance with all statutes, rules, regulations and
ordinances. Non-material violations of this representation which do not affect
the Borrower's capacity to perform its obligations under the terms of this
Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
(F) Authorization for Business.
Borrower has obtained all required permits, authorizations and licenses,
without unusual restrictions or limitations, to conduct the businesses in which
Borrower is presently engaged, all of which are in full force and effect.
Non-material violations of this representation which do not affect the
Borrower's capacity to perform its obligations under the terms of this
Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
(G) Title to Collateral.
Borrower has good and marketable title to all property which Borrower has
given or has agreed to give a security interest to the Lender; and there are no
pledges, assignments, liens or other encumbrances of any kind upon such
property. All of the Collateral is owned by Borrower free and clear of all
liabilities, obligations, security interests and encumbrances. The Borrower will
warrant and defend the Collateral against the claims and demands of all persons
not a party to this Agreement.
(H) Use of Proceeds.
Borrower will apply the proceeds from the loan described herein as working
capital in its ordinary course of business. Borrower does not now own any
"margin securities" as such term is defined in Regulation G of the Board of
Governors of the Federal Reserve System. Borrower will not use any part of the
proceeds from said loans herein directly or indirectly, to purchase or carry any
such margin securities or to reduce or retire any indebtedness originally
incurred to purchase any such margin securities.
4. CONDITIONS PRECEDENT.
The effectiveness of this Agreement and the obligations of the Lender to
consummate any of the transactions contemplated hereby shall be subject to the
satisfaction of the following conditions precedent, at or prior to the time of
the Closing Date:
(A) Documents and Instruments.
The Lender shall have received all the instruments, documents, and property
contemplated to be delivered by the Borrower hereunder, and the same shall be in
full force and effect. All of the instruments and documents referred to herein
are collectively referred to as the "Security Documents."
(B) Correctness of Warranties.
All representations and warranties contained herein or otherwise made to
the Lender in connection herewith shall be true and correct.
(C) Expenses of Lender.
The Borrower promises to reimburse the Lender promptly for all reasonable
out of pocket expenses of every nature which the Lender may incur in connection
with this Agreement, the Note, any other Security Documents, documentary stamp
tax, all recording fees, and for all legal fees incurred in preparation for the
transaction contemplated herein. Such expenses shall be paid at closing or in a
reasonable time thereafter upon receipt of written invoices. The Borrower shall
also pay reasonable post-closing expenses incurred by the Lender on behalf of
the Borrower, including but not limited to, preparation of documents to
terminate the loan and release the security therefrom. Furthermore, the Borrower
shall be liable for postclosing collection expenses, including, but not limited
to, expenses related to the repossession of the Collateral and to the collection
of obligations of the Borrower hereunder, including reasonable attorneys' fees,
including appellate proceedings, post-judgment proceedings and bankruptcy
proceedings. It is expressly agreed that in the event the Borrower shall fail to
pay such expenses within ten (10) days after demand, said non-payment shall
constitute a default of this Agreement.
5. BORROWER'S AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the Note, and all other
indebtedness to the Lender under this Agreement, unless the Lender shall
otherwise consent in writing, it will provide as follows:
(A) Pay Indebtedness to Lender and Perform Other Covenants.
The Borrower shall:
(i) make full and timely payments of the principal of and interest on the
Note, and all other indebtedness of the Borrower to the Lender, whether now
existing or hereafter arising;
(ii) fully comply with all the terms and covenants contained in each of the
instruments and documents given to the Lender pursuant to this Agreement or of
the times and places and in the manner set forth herein; and
(iii) at all times maintain the liens and security interest provided for
under or pursuant to this Agreement as valid and perfected liens and security
interests on the property intended to be covered thereby.
(B) Further Assurances.
The Borrower shall, at its sole cost and expense, upon the request of the
Lender, duly execute and deliver or cause to be duly executed and delivered to
the Lender such further instruments and to and cause to be done such further
acts that may be necessary or proper in the opinion of the Lender to carry out
more effectively the intent and purpose of this Agreement.
(C) Continuing Contractual Work.
The Borrower shall continue to perform its obligations under existing
contracts for sales and services under its ordinary course of business with the
Lender and specifically, Borrower acknowledges and agrees to pay Lender promptly
within invoice terms, which are Net 30, but in no event later than ninety (90)
days of the date of Lender's invoice for work pertaining to contract
performance. Failure by Borrower to pay Lender within said ninety (90) days
shall constitute a breach of this Agreement.
In the event the Lender, at the time of execution of this Agreement, has
outstanding on its books any accounts receivable from Borrower that are ninety
(90) days or more past due, Lender is authorized to and shall pay said past due
amount from the loan proceeds. For example, if on the day of loan closing,
$150,000.00 in 90-day plus receivables to Lender are outstanding, $150,000.00 of
the $500,000.00 loan proceeds shall be paid to Lender, not as a prepayment of
principal, but to satisfy said receivables, and the outstanding balance of the
Note shall remain at $500,000.00.
Notwithstanding the above, the Lender specifically acknowledges and agrees
that UTS Invoice #13, dated November 22, 1996, in the amount of $100,419.07, and
ATED Invoice #11, dated November 22, 1996, in the amount of $26,255.86, shall
not be deemed a default hereunder unless payment on said invoices is not
received by April 22, 1997.
Further, the Parties agree that nothing contained herein shall limit the
Borrower's ability to raise good faith disputes as to the invoices received from
the Lender. Any good faith dispute by Borrower shall not be deemed a default
hereunder. Borrower shall have thirty (30) days from the date of invoice to
raise a good faith dispute regarding said invoice. Failure by the Borrower to
raise a good faith dispute within thirty (30) days of invoice shall be deemed an
acknowledgment that said invoice is valid, due and payable.
Borrower specifically acknowledges and agrees that amounts due under UTS
Invoice #13, dated November 22, 1996; #14, dated December 27, 1996; and #15,
dated January 24, 1997, and ATED Invoice #11, dated November 22, 1996; #12,
dated December 27, 1996; and #13, dated January 24, 1997; are not in dispute and
are due and payable.
In the event any good faith dispute arises on any specific invoices not
referenced above, Borrower acknowledges and agrees that the liability on the
specific invoices identified herein remain due and payable pursuant to the terms
contained in this paragraph.
6. BORROWER'S NEGATIVE COVENANTS.
Borrower covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the Note, and all other indebtedness
to the Underwriter under this Agreement, unless the Lender shall otherwise
consent in writing, it will not, either directly or indirectly:
(A) Use of Proceeds.
Utilize the proceeds of the Note for any purpose other than as necessary
business working capital;
(B) Additional Encumbrances on Collateral.
Create, incur, assume or suffer to exist any mortgage, pledge, security
interest, encumbrance, lien, or charge of any kind upon any of the Collateral
referenced herein, except:
(i) mortgages, liens, pledges and security interests in favor of the
Lender.
(C) Exercise Shareholder Voting Rights of Borrower.
As long as the terms of this Agreement and the Note have not been breached
or are not in default, the Borrower shall have all rights in the pledged Shares
except for the following:
(i) the right to possession;
(ii) the right to exercise its vote on any matters related to the terms and
conditions of this Agreement;
(iii) the right to exercise its vote on any matters related to the terms
and conditions of the Note; and
(iv) increasing, decreasing, removing or filling vacancies on the Board of
Directors of the Lender.
(D) Exercise Board of Directors Voting Rights of Borrower.
At the time of execution of this Agreement, the Chief Executive Officer of
Borrower is one of three (3) members of the Board of Directors of Lender.
Borrower acknowledges and agrees that a conflict of interest shall exist in the
event any matters or issues related to the terms and conditions of this
Agreement, or the Note, and because of such conflict of interest, the Chief
Executive Officer of Borrower shall not vote on said matters or issues.
(E) Anti-Dilution.
During the term of this Agreement and Note, and any extensions thereto, the
Borrower shall not issue, nor cause to be issued any additional shares of Stock
in the Lender.
(F) Breach of Covenants.
Any action taken by Borrower in contravention of these covenants shall be
deemed null and void and of no force and effect, and shall also constitute a
breach of this Agreement.
7. EVENT OF DEFAULT.
The Note shall be immediately due and payable in full if one or more of the
following- described events of default shall occur:
(A) The Borrower (a) shall file a petition for adjudication as a bankrupt;
(b) shall file a petition or answer seeking reorganization or an arrangement
under any bankruptcy or similar statute of the United States of America or any
subdivision thereof or of any foreign jurisdiction; (c) shall consent to the
filing of a petition in any such bankruptcy or reorganization proceeding; (d)
shall consent to the appointment of a receiver or trustee or officer performing
similar functions with respect to any substantial part of its property; (e)
shall make a general assignment for the benefit of its creditors; or (f) shall
execute a consent to any other type of insolvency proceeding (under the
Bankruptcy Act or otherwise) or any informal proceeding for the dissolution or
liquidation of, or settlement of, claims against or winding up of affairs of the
Borrower; or
(B) The appointment of a receiver or trustee or officer performing similar
functions for the Borrower or for any of its assets, or the filing against the
Borrower of a petition for adjudication as a bankrupt or insolvent or for
reorganization under any bankruptcy or similar laws of the United States of
America or of any state thereof or of any foreign jurisdiction, or the
institution against the Borrower of any other type of insolvency proceeding
(under the Bankruptcy Act or otherwise) or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims against or winding
up of affairs of, the Borrower, and the failure to have such appointment vacated
or such petition or proceeding dismissed within thirty (30) days after such
appointment, filing or institution.
(C) Failure of the Borrower to make payment of any principal, interest, or
payment within twenty (20) days of its due date to the Lender under the Note, or
any of the corresponding Security Documents.
(D) Default in the performance of any other liability, obligation or
covenant of the Borrower to the Lender under the Security Documents, and the
continuance thereof for twenty (20) days after written notice to the Borrower
from the Lender.
(C) Waiver of Default.
The Lender at any time may waive any default or any event of default which
shall have occurred and any of its consequences, in which case the Parties
hereto shall be restored to their former positions and rights and obligations
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon, and no such waiver shall
be effective unless it is in a written document executed by a duly authorized
officer.
8. LENDER'S REMEDIES FOR DEFAULT.
Upon the occurrence of an Event of Default and acceleration of the
indebtedness of the Borrower to the Lender, the Lender shall have the following
remedies:
(A) Action for Enforcement.
In case any one or more Events of Default shall occur and be continuing,
the Lender may proceed to protect and enforce its rights or remedies either by
suit in equity or by action at law, or both, whether for the specific
performance of any covenants, agreement or other provision contained herein or
in any Security Document, or to enforce the payment of the Note or any other
legal or equitable right or remedy.
(B) Forfeiture of Security Interest.
The Lender may take possession of the Collateral after default and exercise
all rights, title and interest in said Collateral. Borrower expressly waives any
rights or interest it may have regarding repossession of the Collateral and
acknowledges and agrees that the Collateral shall be forfeited upon an Event of
Default.
(C) Rights and Remedies Under Escrow Agreement.
The Lender shall have all rights given to it under the Escrow Agreement
entered into on even date herewith. Under same, the Lender may take possession
of the escrowed shares (as defined therein), which right of possession shall
entitle them to all rights, including voting, incident to common stock
ownership.
(D) Rights and Remedies Cumulative.
No right or remedy herein conferred upon the Lender is intended to be
exclusive of any other right or remedy contained herein, in the Note, Security
Documents or in any instrument or document delivered in connection with or
pursuant to this Agreement, and every such right or remedy shall be cumulative
and shall be in addition to every other such right or remedy contained herein
and therein or now or hereafter existing at law or in equity or by statute or
otherwise.
(E) Rights and Remedies Not Waived.
No course of dealing between the Borrower and the Lender or any failure or
delay on the part of the Lender in exercising any rights or remedies hereunder
shall operate as a waiver of any rights or remedies of the Lender and no single
or partial exercise of any rights or remedies hereunder shall operate as a
waiver or preclude the exercise of any other rights or remedies hereunder.
9. MISCELLANEOUS.
(A) Waivers.
The Borrower waives presentment, demand, protest, notice of default,
nonpayment, partial payments and all other notices and formalities relating to
this Agreement other than notices specifically required hereunder. The Borrower
consents to and waives notice of the granting of indulgences or extensions of
time of payment, the taking or releasing of security, the addition or release of
persons primarily or secondarily liable on or with respect to liabilities of the
Borrower to the Lender, all in such manner and at such time or times as the
Lender may deem advisable. No act or omission of the Lender shall in any way be
implied or affect any of the indebtedness or liabilities of the Borrower to the
Lender or rights of the Lender in any security. No delay by the Lender to
exercise any right, power or remedy hereunder or under any security agreement,
and no indulgence given to the Borrower in case of any default, shall impair any
such right, power or remedy or be construed as having created a course of
dealing or performance contrary to the specific provisions of this Agreement or
as a waiver of any default by the Borrower or any acquiescence therein or as a
violation of any of the terms or provisions of this Agreement. The Lender shall
have the right at all times to enforce the provisions of this Agreement and all
other documents executed in connection herewith in strict accordance with their
terms, notwithstanding any course of dealing or performance by the Lender in
refraining from so doing at any time. No course of dealing between the Borrower
and the Lender shall operate as a waiver of any of the Lender's rights.
(B) Governing Law; Benefit.
This Agreement and all rights hereunder shall be governed by the laws of
the State of Florida. This Agreement shall bind and inure to the benefit of
Borrower and Lender, and the terms "Borrower," and "Lender", respectively, as
used in this Agreement shall include, the respective Parties and their
respective successors and assigns. It is agreed that venue shall be in Brevard
County, Florida.
(C) Notices.
Any notice or demand to be given hereunder shall be duly given if delivered
or mailed as follows:
To the Borrower:
The Ashton Technology Group, Inc.
Attention: Fredric W. Rittereiser, CEO
1900 Market Street
Suite 701
Philadelphia, Pennsylvania 19103
with a copy to:
Cadwalader, Wickersham & Taft
Attention: Harvey Spear, Esquire
100 Maiden Lane
New York, New York 10038
To the Lender:
Computer Science Innovations, Inc.
Attention: George H. Milligan, President
1235 Evans Road
Melbourne, Florida 32904
with a copy to:
Reinman & Wattwood, P.A.
Attention: Victor S. Kostro, Esquire
1825 S. Riverview Drive
Melbourne, Florida 32901
(D) Titles.
Titles to the sections of this Agreement are solely for the convenience of
the Parties hereto and are not an aid in the interpretation of this Agreement or
any part thereof.
(E) Counterparts.
This Agreement may be executed in any number of counterparts and by the
Parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same Agreement.
(F) Entire Agreement.
This Agreement constitutes the entire agreement between the Parties with
the exception of the Promissory Note, Stock Pledge Agreement, and Escrow
Agreement and shall not be amended or modified in any respect without the
express written consent of the Parties to be affected.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement the day and
year first above written.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.,
a Delaware corporation
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
John A. Blohm (Name) Fredric W. Rittereiser (Name)
Secretary (Title) President & CEO (Title)
(SEAL)
"Borrower"
/s/ John A. Blohm /s/ Fredric W. Rittereiser
Witness FREDRIC W. RITTEREISER,
Chief Executive Officer
/s/ Robert Eprile
Witness
Attest: COMPUTER SCIENCE INNOVATIONS, INC.,
a Florida corporation
/s/ George Milligan By: /s/ George Milligan
George Milligan (Name) George Milligan (Name)
President - CSI (Title) President (Title)
(SEAL)
"Lender"
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT "A"
- --------------------------------------------------------------------------------
PROMISSORY NOTE
$500,000.00 Date: February 18, 1997
FOR VALUE RECEIVED, the undersigned, THE ASHTON TECHNOLOGY GROUP, INC., a
Delaware corporation, (the "Maker") promises to pay to the order of COMPUTER
SCIENCE INNOVATIONS, INC., a Florida corporation, its successors and assigns
(the "Lender" or "Holder") located at 1235 Evans Road, Melbourne, FL 32904, or
elsewhere as directed from time to time in writing by the Holder hereof, the
principal sum of Five Hundred Thousand Dollars ($500,000.00), together with
interest thereof at the rate of eight and one-quarter percent (8.25%) per annum,
in lawful money of the United States of America, payable as follows:
(a) Interest shall accrue from the period of February 18, 1997, until
November 18, 1997, on the principal amount at an annual rate of Eight and
One-Quarter Percent (8.25%); and
(b) The principal sum of Five Hundred Thousand Dollars ($500,000.00), and
all accrued interest thereon shall be due on November 18, 1997.
Repayment of this Note is secured by certain shares of Class A and Class B
Common stock of Computer Science Innovations, Inc., held in escrow pursuant to
the terms of an Escrow Agreement dated of even date herewith.
Payment not received within said twenty (20) days of the due date shall be
deemed a default under this Note. If the undersigned defaults in the payment
hereunder, the Note shall bear interest at the rate of 15% ("default rate") on
the amount then due and payable. Upon default for non-payment of the Note, the
entire unpaid principal balance of this obligation, together with accrued
interest, shall, at the Holders election, become immediately due and payable.
Additionally, repayment of this Note is secured by a Short-Term Loan and
Security Agreement (the "Short-Term Loan Agreement'). It is expressly agreed
that all of the covenants, conditions and agreements of the Maker hereof under
said Short-Term Loan Agreement are made a part of this Note and shall be
included in the interpretation of this Note. Upon the occurrence of default in
the performance or observation of any term, agreement, or condition specified in
the Short-Term Loan Agreement, other than for non-payment on the Note, Maker
shall have twenty (20) days from the date of written notice of default to cure
said default.
In the event said default is not cured within the twenty (20) day period,
the entire unpaid principal balance of this obligation, together with accrued
interest, shall, at the Holders election, become immediately due and payable.
Maker shall have the privilege to prepay the indebtedness evidenced hereby,
in whole or in part at any time. Partial prepayments shall first be applied
against accrued interest then due and owing, and thereafter against principal.
Any partial prepayment shall not postpone the due date or change the amount of
any subsequent payment.
All persons or entities now or at anytime liable for payment of this Note
hereby waive presentment, protest, notice of protest and dishonor. The Maker and
all persons/entities liable hereunder expressly consent to any extensions or
renewals, in whole or in part, and all delays in timely payment or other
performance which Holder may grant at any time and from time to time without
limitation and without any notice or further consent of the undersigned.
The remedies of Holder provided herein, or in the Short-Term Loan
Agreement, shall be cumulative and concurrent and may be pursued singularly,
successively, or together, at the sole discretion of Holder and may be exercised
as often as the occasion therefore shall arise.
In the event this Note is placed in the hands of an attorney for collection
by civil action the prevailing party shall be entitled to an award of its
reasonable attorneys' fees and costs, including those on appeal.
This Promissory Note is to be construed and enforced according to the laws
of the State of Florida or, if Holder elects the benefit thereof, applicable
Federal pre-emption laws.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
Secretary (Seal) Fredric W. Rittereiser (Name)
President & CEO (Title)
"Maker"
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT "B"
- --------------------------------------------------------------------------------
STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made this 18th day of February,
1997, by and between THE ASHTON TECHNOLOGY GROUP, INC., a Delaware corporation
("Pledgor") and COMPUTER SCIENCE INNOVATIONS, INC., a Florida corporation with
its principal place of business in Melbourne, Florida, ("Secured Party"),
collectively referred to as the "Parties."
In order to secure performance of the obligations of Pledgor pursuant to
that certain Short-Term Loan and Security Agreement ("Short-Term Loan
Agreement") by and among the Parties of approximate even date herewith, the
Parties hereby agree as follows:
1. SECURITY INTEREST AND COLLATERAL.
The Pledgor hereby grants Secured Party a security interest (herein called
the "Security Interest") in the capital stock set forth on Appendix A attached
hereto, together with all proceeds of and other rights in connection with such
capital stock (hereinafter called the "Pledged Stock"), said Pledged Stock shall
be held in escrow pursuant to that certain Escrow Agreement of even date
herewith by and between The Ashton Technology Group, Inc., Computer Science
Innovations, Inc., and Reinman & Wattwood, P.A.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The Pledgor represents, warrants and agrees that:
(A) Pledgor will duly endorse, in blank, each and every certificate
constituting the Pledged Stock by signing on such instrument or by signing a
separate document of assignment or transfer, in form and substance acceptable to
Secured Party.
(B) Pledgor will surrender all rights, title and interest in the Pledged
Stock in the event of a default under the Short-Term Loan Agreement as defined
therein.
(C) Pledgor is the owner of the Pledged Stock free and clear of all liens,
encumbrances, security interests and restrictions, except for the Security
Interest and will not convey, sell or transfer in any manner any interest in the
Stock during the term of this Agreement.
(D) Pledgor will keep the Pledged Stock free and clear of all liens,
encumbrances, security interests and restrictions, except for the Security
Interest.
(E) Pledgor will pay, when due, all taxes and other governmental charges
levied or assessed upon or against the Pledged Stock.
(F) Pledgor represents and warrants that it has the full authority of its
Board of Directors to encumber and pledge the Pledged Stock as collateral to
secure performance of the obligations of Pledgor pursuant to that certain
Short-Term Loan Agreement.
3. EXERCISE SHAREHOLDER VOTING RIGHTS OF BORROWER.
As long as the terms of this Agreement and the Note have not been breached
or are not in default, the Borrower shall have all rights in the pledged Shares
except for the following:
(i) the right to possession;
(ii) the right to exercise its vote on any matters related to the terms and
conditions of this Agreement;
(iii) the right to exercise its vote on any matters related to the terms
and conditions of the Note; and
(iv) the right to increase, decrease, remove or fill vacancies on the Board
of Directors of the Lender.
4. EXERCISE BOARD OF DIRECTORS VOTING RIGHTS OF BORROWER.
At the time of execution of this Agreement, the Chief Executive Officer of
Borrower is one of three (3) members of the Board of Directors of Lender.
Borrower acknowledges and agrees that a conflict of interest shall exist in the
event any matters or issues related to the terms and conditions of this
Agreement, or the Note, and because of such conflict of interest, the Chief
Executive Officer of Borrower shall not vote on said matters or issues.
5. ANTI-DILUTION.
During the term of this Agreement and Note, and any extensions thereto, the
Borrower shall not issue, nor cause to be issued any additional shares of Stock
in the Lender.
6. EVENTS OF DEFAULT.
For purposes of this Agreement, "Event of Default" shall mean a default as
defined in the Short-Term Loan Agreement, the terms of which are incorporated
herein by this reference, or a breach of a representation, covenant or warranty
set forth in this Agreement.
7. REMEDIES UPON EVENT OF DEFAULT.
Upon the occurrence of an Event of Default, Secured Party may exercise any
or all of the following rights or remedies, together with all other rights or
remedies provided hereunder, or under applicable law; provided that no exercise
of any one or more of such rights or remedies shall preclude Secured Party from
exercising any other rights or remedies at the same time or at any other time:
(A) Exercise any or all of the rights or remedies of a secured party under
the Uniform Commercial Code with respect to the Pledged Shares, including, but
not limited to, the right to sell the Pledged Stock in a private or public sale;
(B) Exercise all voting powers with respect to the Pledged Shares while
proceeding to exercise the remedies of a secured party referenced in subsection
7(A) hereof;
(C) Exercise all of the remedies provided in the Short-Term Loan Agreement;
(D) Exercise all of the remedies provided in the Escrow Agreement,
including but not limited to taking possession and acquiring all incidents of
ownership of the Pledged Stock.
(E) For purposes of this Agreement, ten (10) days notice to Pledgor shall
be deemed commercially reasonable.
7. RELEASE.
The Secured Party agrees that it shall release all of the Pledged Stock
from the terms of this Agreement provided that simultaneously with such release
the obligations of the Short-Term Loan Agreement are performed in full.
8. MISCELLANEOUS.
This Agreement can be waived, modified, amended, terminated or discharged,
and the Security Interest can be released, only explicitly in a writing signed
by the Secured Party. The Secured Party shall not have any responsibility for
(i) ascertaining or taking any action with respect to exchanges, tenders or
other matters relative to any Pledged Stock, whether or not the Secured Party is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve such rights against any parties with respect to any Pledged Stock.
Pledgor will reimburse Secured Party for all costs, expenses or disbursements of
any kind or nature whatsoever incurred in disposing of the collateral (including
reasonable attorneys fees). This Agreement shall be binding upon and inure to
the benefit of Pledgor and Secured Party and their respective successors and
assigns and shall take effect when signed by Pledgor and delivered to Secured
Party, and Pledgor waives notice of acceptance hereof by Secured Party. This
Agreement shall be governed by the internal laws of the State of Florida, and,
unless the context otherwise requires, all terms used herein which are defined
in Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state,
shall have the meanings therein stated. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement. To the extent required by applicable law, the
rights and obligations of the Secured Party may be assigned to a licensed
professional, person, or other entity. This Agreement may be amended at any time
by written instrument executed by the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have executed this Stock Pledge
Agreement on the day and year first above written.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
John A. Blohm (Name) Fredric W. Rittereiser (Name)
Secretary (Title) President & CEO (Title)
"Pledgor"
Attest: COMPUTER SCIENCE INNOVATIONS, INC.
/s/ George Milligan By: /s/ George Milligan
George Milligan (Name) George Milligan (Name)
President (Title) President (Title)
"Secured Party"
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX "A"
- --------------------------------------------------------------------------------
To secure the Borrower's prompt, punctual, and faithful performance of all
of the Borrower's liabilities herein, the Borrower hereby grants to the Lender a
continuing security interest in and to, and pledges to the Lender, pursuant to
the Stock Pledge Agreement, the following:
All rights, title and interest in the common stock of Computer
Science Innovations, Inc. currently owned by and in the
possession of Borrower, presently consisting of Six Hundred
Ninety-Seven Thousand Eight Hundred Seventy-One (697,871)
Class A Shares and One Million Twenty-One Thousand Three
Hundred Eighty-One (1,021,381) Class B Shares.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT "C"
- --------------------------------------------------------------------------------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into on this 18th day of February, 1997,
by and among THE ASHTON TECHNOLOGY GROUP, INC., a Delaware Corporation
(hereinafter referred to as "Pledgor"), COMPUTER SCIENCE INNOVATIONS, INC., a
Florida Corporation, (hereinafter referred to as "Corporation"), and Reinman &
Wattwood, P.A., hereinafter referred to as the "Escrow Agent."
WHEREAS, Pledgor is a party to that certain Short-Term Loan and Security
Agreement ("Short-Term Loan Agreement") of approximate even date herewith, and
incorporated herein by reference; and
WHEREAS, in order to more effectively implement the terms of the Short-Term
Loan Agreement, Pledgor is amenable to escrowing all of its shares of stock now
owned or subsequently acquired in Corporation. Pledgor has agreed to transfer
said common stock interest ("Stock") as additional security for payment by
Pledgor of that certain Promissory Note ("Note") being delivered pursuant to the
terms of that certain Short-Term Loan Agreement; and
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. The above recitals and all exhibits hereto are true and correct and are
incorporated herein by this reference.
2. Upon execution on even date herewith of the Short-Term Loan Agreement,
the Pledgor shall deliver to the Escrow Agent all Shares of the Stock
("Shares"), to be held in Escrow pursuant to the terms and conditions of this
Agreement.
3. The Pledgor further agrees to execute stock powers of attorney
authorizing the Escrow Agent to transfer Shares simultaneously, and in
accordance with the terms of the Short-Term Loan Agreement and this Escrow
Agreement.
4. As long as the terms and conditions of the Escrow Agreement, Short-Term
Loan Agreement and the Note have not been breached or are not in default, the
Pledgor shall have all rights in the escrowed Shares except the right to
possession and the right to exercise its vote on any matters related to the
terms and conditions of the Short-Term Loan Agreement and the Note.
Additionally, Pledgor shall have no right to exercise its vote on any matters
related to increasing, decreasing, filling vacancies or removing Directors on
the Board of Corporation.
5. In the event of any default (as defined in the Short Term Loan Agreement
or the Note) the Chief Executive Officer ("CEO") of Corporation shall give the
Pledgor and the Escrow Agent written notice of said default. After receipt of
the notice, the Escrow Agent is authorized to transfer the Shares and may take
such other actions as are required to carry out the intent of the Short-Term
Loan Agreement, the Note, and this Escrow Agreement.
6. The Escrow Agent shall be liable only for the safekeeping, transfer, and
other transactions of the escrowed Shares in accordance with the provisions of
this Escrow Agreement and the Short-Term Loan Agreement, and any amendments and
supplements thereto. The Escrow Agent shall not be liable or responsible for any
loss unless the same is caused by its gross negligence or willful malfeasance.
The parties hereto further agree to release, indemnify and hold harmless the
Escrow Agent from and against any and all claims, losses, damages, expenses, or
other liabilities arising out of the performance of the duties of Escrow Agent
pursuant to this Escrow Agreement.
7. In the event any dispute shall arise between the parties whereby the
Escrow Agent is in doubt as to his duties or liabilities under this Agreement,
the Escrow Agent, in its sole and absolute discretion, may continue to hold the
Shares held pursuant to this Escrow Agreement until the Pledgor and Corporation
mutually agree to the distribution thereof or until the Escrow Agent shall be
ordered to disburse same by judgment of a court of competent jurisdiction; or
the Escrow Agent may implead the escrowed Shares into the Registry of a Court of
competent jurisdiction, subject to distribution upon order of the Court. Upon
notifying the Pledgor and the Parties of the Short-Term Loan Agreement of such
action, all liability on the part of Escrow Agent shall fully cease and
terminate.
8. Notwithstanding the above, Pledgor and Corporation acknowledge that the
Escrow Agent shall not be precluded from providing continuing, legal
representation to Corporation on all matters unrelated to this specific Escrow
Agreement.
9. All parties agree that the Escrow Agent shall not be liable to any party
or person whomsoever except for willful breach of this Agreement or gross
negligence on the part of the Escrow Agent.
10. The Escrow Agent may resign at any time upon giving of thirty (30) days
written notice to Pledgor. If a Successor Escrow Agent is not appointed within
thirty (30) days after notice of resignation, the Escrow Agent may petition any
Court of competent jurisdiction to name a Successor Escrow Agent; and the Escrow
Agent herein shall be fully relieved of all liability under this Agreement to
any and all parties upon the transfer of the Escrow deposits to the Successor
Escrow Agent.
11. This Escrow Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each party
and delivered to the other party.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement this
18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
John A. Blohm (Name) Fredric W. Rittereiser (Name)
Secretary (Title) President & CEO (Title)
(SEAL)
"Pledgor"
Attest: COMPUTER SCIENCE INNOVATIONS, INC.
/s/ George Milligan By: /s/ George Milligan
George Milligan (Name) George Milligan (Name)
President (Title) President (Title)
(SEAL)
"Corporation"
REINMAN & WATTWOOD, P.A.
By: /s/
Witness (Name)
(Title)
Witness
"Escrow Agent"
<PAGE>
- --------------------------------------------------------------------------------
IRREVOCABLE STOCK POWER
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to ______________________________, or order, all right, title and interest in
One Million Twenty-One Thousand Three Hundred Eighty-One (1,021,381) Shares of
COMPUTER SCIENCE INNOVATIONS, INC. Class B Common stock, represented by
Certificate Number, _______ standing in the name of the undersigned on the books
of the Company.
The undersigned does hereby irrevocably constitute and appoint VICTOR S.
KOSTRO, ESQ., to transfer said stock on the books of said Company, with full
power of substitution in the premises.
Dated this 18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
John A. Blohm, (Name) Fredric W. Rittereiser (Name)
Secretary (Title) President & CEO (Title)
(SEAL)
<PAGE>
- --------------------------------------------------------------------------------
IRREVOCABLE STOCK POWER
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to _________________________________, or order, all right, title and interest in
Six Hundred Ninety-Seven Eight Hundred Seventy-One (697,871) Shares of COMPUTER
SCIENCE INNOVATIONS, INC. Class A Common stock, represented by Certificate
Number standing in the name of the undersigned on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint VICTOR S.
KOSTRO, ESQ., to transfer said stock on the books of said Company, with full
power of substitution in the premises.
Dated this 18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
John A. Blohm (Name) Fredric W. Rittereiser (Name)
Secretary (Title) President & CEO (Title)
(SEAL)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AFFIDAVIT OF LOST CERTIFICATE
STATE OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
I, John A. Blohm, the Executive Vice President/Secretary (title) of The
Ashton Technology Group, Inc. ("Ashton"), being duly sworn, deposes and says:
1. That Ashton is the owner of 5 certificate(s) representing the ownership
of 1,134,006 shares of Class A Common Stock of Computer Science Innovations,
Inc. ("CSI"), a Florida corporation, which is represented on the books of the
CSI as Stock Certificates No. 149, 150, 151, 153, and 154, dated
- ----------------.
2. That Ashton is the owner of 4 certificate(s) representing the ownership
of 1,600,471 shares of Class B Common Stock of Computer Science Innovations,
Inc. ("CSI"), a Florida corporation, which is represented on the books of the
CSI as Stock Certificates No. 183, 185, 186 and 187, dated ----------------.
3. That Ashton lost said Certificates.
4. That Ashton, through its Officers, has made a diligent effort to find
the Certificates and since the Certificates were not found, it is understood
that CSI will issue replacement Certificates to the undersigned.
5. That it is understood by the undersigned that if, after receiving
replacement Certificates, the original Certificates are found, that it will
surrender said Certificates to the Secretary of CSI to be canceled of record.
ASHTON TECHNOLOGY GROUP, INC.
By: /s/ John Blohm
John A. Blohm (Name)
Executive VP/Secretary (Title)
<PAGE>
STATE OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
ON THIS 18th day of February, 1997, before me personally appeared John A.
Blohm, the Executive Vice Pres. (title) of THE ASHTON TECHNOLOGY GROUP, INC., a
Delaware corporation, described in and who executed the foregoing instrument and
duly acknowledged to me that he executed the same as affidavit (title) as
aforesaid.
/s/ Maureen Daly
(Signature of Notary Public)
Maureen Daly
(Print, type or stamp Commissioned Name
of Notary Public)
Personally Known X OR Produced Identification
------ ----
Type of Identification:
-------------------------------------
EXHIBIT 10.39
TAX ALLOCATION AGREEMENT
AGREEMENT dated March 27, 1997, by and among The Ashton Technology Group,
Inc. (Parent) and each of its undersigned subsidiaries (Subsidiaries).
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group (Affiliated
Group) as defined in Section 1504(a); and
WHEREAS, such Affiliated Group will file a U.S. consolidated income tax
return for its taxable year ended March 31, 1997 and is required to file
consolidated tax returns for subsequent years; and
WHEREAS, it is the intent and desire of the parties hereto that a method be
established for allocating the consolidated tax liability of the Affiliated
Group among its members, for reimbursing the Parent for payment of such tax
liability, for compensating any party for use of its losses or tax credits, and
to provide for the allocation and payment of any refund arising from a carryback
of losses or tax credits from subsequent tax years.
Now, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S.consolidated income tax return shall be filed by the Parent for
the tax year ended March 31, 1997, and for each subsequent taxable period in
respect of which this Agreement is in effect and for which the Affiliated Group
is required or permitted to file a consolidated tax return. Each Subsidiary
shall execute and file such consent, elections, and other documents that may be
required or appropriate for the proper filing of such returns.
2. For each tax period, each member of the Affiliated Group shall compute
its tax liability in accordance with the provisions of Regulation (beta)
1.1502-33(d)(3) with a fixed percentage of 100 percent and shall pay such amount
(including any increased liability allocated pursuant to such regulation above
any liability allocated pursuant to section 1552 of the Internal Revenue Code)
to the Parent. For purposes of this Agreement, any liability for alternative
minimum tax shall be treated as a tax liability subject to this paragraph.
3. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable period,
and each Subsidiary shall pay to the Parent its share of each payment within ten
days of receiving notice of such payment from the Parent, but in no event later
than the due date for each such payment. Any amounts paid by a Subsidiary on
account of a separate return or separate estimated tax payments that are
credited against the consolidated tax liability of the Affiliated Group shall be
included in determining the payments due from such Subsidiary. Any overpayment
of estimated tax should be refunded to the Subsidiary. Any payments made by a
Subsidiary to the Parent under this Agreement, including payments by a
Subsidiary to the Parent of any estimated tax installments due for each taxable
period, shall be paid to the Parent, even if the Affiliated Group as a whole
does not have any consolidated estimated tax liability for such period.
4. To the extent payments received in respect of a taxable year by Parent
pursuant to paragraph 2, above, exceed the consolidated tax liability for such
period as a result of the absorption or utilization of losses, deductions,
credits or similar items of certain members against other members' income, gain
or similar items, then the Parent shall pay such excess amount received to those
members whose items were absorbed or utilized in a manner that reasonably
reflects such utilization or absorption within 10 days of filing its
consolidated federal income tax return for such period.
5. If part or all of an unused loss or tax credit is allocated to a member
of the Affiliated Group pursuant to Regulation (beta) 1.1502-79, and is carried
back or forward to a year in which such member filed a separate return or a
consolidated return with another affiliated group, any refund or reduction in
tax liability arising from the carryback or carryover shall be retained by such
member. Notwithstanding the above, the Parent shall determine whether an
election shall be made not to carry back part or all of a consolidated net
operating loss for any tax year in accordance with Section 172(b)(3).
6. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax audit by
the Internal Revenue Service, the liability of each member shall be recomputed
to give effect to such adjustments, and in the case of a refund, the Parent
shall make payment to each member for its share of the refund, determined in the
same manner as in paragraphs 2 and 4 above, within ten days after the refund is
received by the Parent, and in the case of an increase in tax liability, each
member shall pay to the Parent its allocable share of such increased tax
liability within ten days after receiving notice of such liability from the
Parent.
7. If during a consolidated return period the Parent or any Subsidiary
acquires or organizes another corporation that is required to be included in the
consolidated return, then such corporation shall join in and be bound by this
Agreement.
8. This Agreement shall apply to the tax year ending March 31, 1997, and
all subsequent taxable periods unless the Parent and the Subsidiaries agree to
terminate the Agreement. Notwithstanding such termination, this Agreement shall
continue in effect with respect to any payment or refunds due for all taxable
periods prior to termination.
9. Notwithstanding any other provisions of this Agreement, payment of any
estimated tax installment by a Subsidiary to the Parent under this Agreement for
the tax year ending March 31, 1997 shall be made on or before March 31, 1997.
10. This Agreement shall be binding upon and inure to the benefit of any
successor, whether by statutory merger, acquisition of assets, or otherwise, to
any of the parties hereto, to the same extent as if the successor had been an
original party to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on March 27, 1997.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric Rittereiser
Name: Fredric W. Rittereiser
Title: President & CEO
COMPUTER SCIENCE INNOVATIONS, INC.
By: /s/ George Milligan
Name: George Milligan
Title: President
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By: /s/ Robert Eprile
Name: Robert A. Eprile
Title: President
[Letterhead of The Ashton Technology Group, Inc.]
January 23, 1996
Alliant Techsystems
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
Attention: Mr. Tom Shelly
Manager, Advanced Systems
Subject: Letter Contract No. ASH-LCO1231
Gentlemen:
1. Order: An order is hereby placed with you for the furnishing to Ashton
Technology Group, Inc. the design and system specifications for an encryption
device (to be known as the Ashton Technology Encryption Device (ATED)), as set
forth in Exhibit A (Statement of Work) attached hereto and hereby made a part
hereof. This order shall become a contract (this "Letter Contract") on the terms
and conditions set forth herein upon your unconditional acceptance hereof, and
shall be deemed effective as of December 8, 1995.
2. Authorization: You are directed upon your acceptance of this order to
proceed immediately to procure the necessary materials and to commence the
performance of the work called for herein, and to pursue such work with all
diligence to the end that the contracted for Goods. Documentation and Services
may be delivered or performed at the time or times specified in Exhibit A.
3. Consideration:
(a) Payments will be made to you pending execution of this contract for
your work expended in accomplishing the tasks defined in Paragraph 1 and Exhibit
A. AlliantTech will present monthly invoices for the work performed detailing
the number of hours and labor categories for the work along with the fully
burdened, definitized billing rates to be negotiated for this contract. Ashton
will pay Alliant Tech within 90 days of receipt of invoice. In the event of the
termination of this Letter Contract for default or for convenience as set forth
in Article 4.b hereof.
(b) You are not authorized to expend or obligate in furtherance of your
performance hereunder more than U.S. $75,000.00 in the aggregate.
Notwithstanding any other provision of this Letter Contract or its exhibits to
the contrary, any expenditure or obligation in excess of that amount shall be at
your own risk and Ashton Technology Group, Inc. shall not in any event be
obligated to pay more than that amount in the aggregate hereunder, whether for
completed work, termination costs, settlement expenses, or otherwise.
4. Negotiation of Definitive Contract:
(a) By your acceptance of this order, you agree to enter into good faith
negotiations immediately with Ashton Technology Group, Inc., with the
expectation of the execution of a definitive contract which will include
mutually acceptable detailed prices, delivery schedules and other terms of this
Letter Contract; provided, however, that the total price for the definitive
contract shall not exceed U.S. $350,000.00.
(b) It is expected that such definitive contract will be issued prior to
March 31, 1996. If we fail to agree upon the definitive contract by said date,
this Letter Contract shall terminate automatically and you will be paid on the
same terms as if this Letter Contract had been terminated by Ashton Technology
Group, Inc. for its convenience.
5. Incorporation of Special Terms and Conditions:
(a) Payment for completed or partially completed Goods, Documentation and
Services: Ashton requires Seller to deliver to Ashton any completed Goods,
Documentation and Services and such partially completed Goods. Documentation and
Services as Seller has produced or acquired for the performance of any
terminated portion of this Contract. Seller shall protect and preserve as
property including Intellectual Property in possession of Seller in which Ashton
has or may acquire an interest or right. The payment which Ashton accepts shall
be the lesser of the following amounts:
(i) The actual, reasonable direct costs and associated overhead, including
general and administrative overhead directly related to the direct costs,
expended by Seller in producing any such completed or partially completed Goods,
Documentation and Services which Ashton requires Seller to deliver to Ashton
pursuant to the preceding paragraph of this Article and that Ashton accepts: or
(ii) The amount specified in Paragraph 3.b. of this Letter Contract.
b. Termination for Convenience. Ashton shall pay Seller the lesser of the
following amounts:
(i) The sum of (1) the actual, reasonable direct costs and associated
overhead, including general administrative overhead directly related to the
direct costs, expended by Seller in performance of work under this contract, and
(2) the amount reimbursable under paragraph 4.a. above; or
(ii) The amount specified in Paragraph 3.b of this Letter Contract.
6. Acceptance: If the foregoing is satisfactory to you, please indicate
your acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc.
Accepted this 23rd day of January 1996 Alliant Techsystems, Inc.
By: /s/ Raymond T. Tate By: /s/ William Labuda
(Signature) (Signature)
Raymond T. Tate William M. Labuda
President Director
<PAGE>
EXHIBIT A
STATEMENT OF WORK: PHASE I
1. Study the operational environment of the UTSo and participate in design
meetings focusing on the encryption device requirements and
hardware/communication/data flow interfaces.
2. Complete an Encryption System Specification. Hardware/Software
Requirements Specification and Interface Document.
3. Prepare a hardware architecture and block diagram complete with data
storage, sizing, and throughput requirements.
4. Prepare an encryption device Test Plan.
5. Prepare a detailed System Implementation Plan together with cost and
schedule for the number of encryption devices required for the UTSo system. All
requirements that cannot be accommodated, should be noted. This document will
become the basis for the definitized contract negotiation.
<PAGE>
- --------------------------------------------------------------------------------
[Letterhead of The Ashton Technology Group, Inc.]
- --------------------------------------------------------------------------------
March 29, 1996
Alliant Techsystems
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
Attention: Mr. Tom Shelly
Manager, Advanced Systems
Subject: Letter Contract No. ASH-LCO1231
Modification #01
Gentlemen:
1. Incorporation of Special Terms and Conditions:
(a) All actual expenses related to above noted contract, as of March 31,
1996, shall be billed to The Ashton Technology Group, Inc. Payment will be made
to you within 90 days of receipt of invoice. All additional expenses related to
this contract shall be paid after all contract and deliverable requirements are
completed.
(b) Contract cap is $450,000.00
2. All other terms and conditions remain in effect under the original
Letter Contract No. ASH-LCO 1281, dated January 23, 1996.
3. Acceptance: If the foregoing is satisfactory to you, please indicate
your acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 29th day of March 1996
Alliant Techsystems, Inc.
By: /s/ Raymond T. Tate By: /s/ William Labuda
(Signature) (Signature)
Raymond T. Tate William M. Labuda
President Director
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Contract No. ASH-LCO1231, Mod. 2
To: Alliant Techsystems, Inc.
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
This Agreement, made as of August 1, 1996, between Ashton Technology Group,
10420 Little Patuxent Parkway, Suite 490, Columbia, MD 21044 and Alliant
Techsystems, Advanced Technology Application, 401 Defense Highway, Annapolis, MD
21401.
The parties mutually agree as follows:
1. STATEMENT OF WORK
Defined as:
(a) Ashton Technology Encryption Device (ATED), delivery of 100 units
complete with Phase VI software as defined at the Ashton Technical Review
meeting dated August 27, 1996.
(b) Integration and test support through November 30, 1996.
(c) Crypto Administration Workstation Software, Phase II as defined at the
Ashton Technical Review Meeting dated August 27, 1996.
2. PERIOD OF PERFORMANCE
This contract definitizes letter contract ASH-LCO1231, and Mod. 1, dated
January 23, 1996. Alliant Techsystems shall supply items and services described
herein accordance with the terms hereof during the period 1-23-96 through
11-30-96.
3. PAYMENT
This is a Fixed Price Contract in the amount of $1,283,000.00 for the
delivery of 100 ATED units, integration, design and testing support, with
monthly milestone billings due and payable Net 30 days from receipt of invoice.
4. TERMS AND CONDITIONS
This contract is expressly contingent upon acceptance of the Alliant
Techsystems general terms and conditions of sale (attached).
We hereby acknowledge and accept this contract subject to the terms and
conditions set forth herein.
ASHTON TECHNOLOGY GROUP ALLIANT TECHSYSTEMS, INC.
By: /s/ Raymond T. Tate By: /s/ William Labuda
----------------------------- ------------------------------
Raymond T. Tate William Labuda
Title: President Title: Director/General Manager
Date: 8-1-96 Date: 8-1-96
<PAGE>
Motorola, Inc.
SATCOM
2501 S. Price Road
Chandler, AZ 85248-2899
TASK ORDER
Contract No.:C416TS
Task Order No.: 01 Effective Date of Task Order 1-16-96
To: Computer Science Innovations, Inc.
This Task Order is Issued pursuant to the above referenced contract and is
governed by the terms thereof,
TASK TITLE AND/OR CLIN: Operations and Maintenance Center-Gateway (OMC-G)
product verification.
TASK DESCRIPTION: CSI shall establish and manage an OMC-G verification
laboratory and create and execute an OMC-G verification process. All work
performed under this Task Order shall be in accordance with the requirements
specified in Exhibit C-1, Statement of Work #SOW-GO02l.GWS. Individual tasks
include the following:
a) Install an OMC-G verification lab
1) Current ETC Lab facility in Gilbert, AZ to be
expanded to accommodate OMC-G activity. Expansion to
be completed as depicted in CSI proposal for
"Verification of the Gateway Operations and
Maintenance Center dated January 26, 1996.
b) Support the lab with qualified personnel
c) Manage and build the software releases from code delivered by the
developers
d) Create an acceptance test plan to verity each release to be
delivered to Gateway I & T team.
e) Create a verification plan that will verify the OMC-G functions for
each of the delivered releases
f) Write test cases including methods, procedures, and scripts
compatible with the lab, acceptance plans. and verification plans
g) Execute test cases and correlate results into pass/fail reports
h) Provide first level defect reporting in support of defect resolution
i) Provide verification metrics to document the process
Task Deliverables: Task Deliverables shall be as detailed in Paragraph 7.0 of
SOW-GOD2l.GWS
Task Staffing Plan (including key personnel and the estimated hours by labor
category):
FIRM FIXED PRICE
For complete and timely delivery of the Goods, Documentation
and Services specified in Exhibit D-1 (Performance and Payment Schedule) and
Exhibit F-1 (Performance and Payment Schedule-Fixed Price), Motorola shall pay
Seller the designated firm fixed prices for each milestone itemized in both
exhibits.
LEVEL OF EFFORT
In addition to Milestone payments per Exhibits D-1 and F-1,
Motorola shall pay Seller all accrued-to-date labor costs. Seller will invoice
these labor costs to Motorola on a monthly basis at the rates identified in the
"LOE" column of the rate table below:
"CSI" "LOE"
Title Hourly Rate Hourly Rate Range of Total Hours
Program Manager/ $103 $85 2,500-4,500
Principle Engineer
Senior Engineer $70 $58 1,000-4,500
Engineer $55 $46 2,200-4,200
Administrator $24 $20 100-1,000
The range of total hours is a guideline to use in the performance of the Task
Order, and for each labor category is the minimum and maximum acceptable number
of hours to be billed during the LOE portion of the contract, starting on
January 1, 1996. These ranges are based on a review of the total hours estimated
in each job classification to perform the tasks detailed in the Statement of
Work, Exhibit C. The minimum required number of total hours invoiced by Seller
to amortize the entire contract value of Exhibit B-1, Line 29, 1996 Monthly
Labor Cost, shall be 8,512.
TRAVEL
Motorola shall pay all travel-related expenses at actual cost
plus General and Administrative (G&A) rate of 16.5%.
OVERRUNS
Should the Seller overrun the total contract value of Exhibit
B-1 Line 14, 1996 Monthly Labor Cost, Motorola may, at it's sole discretion, add
hours and appropriate contract value to complete any remaining milestones. In
the event that Motorola elects to terminate this contract when the total
contract value of Exhibit B-1, Line 14, 1996 Monthly Labor Cost, has been
exhausted, and before the completion of all milestones, Motorola shall pay
Seller the balance remaining of the full Contract value.
To the extent that a Contract overrun occurs through no fault
of the Seller, the Hourly Rate in the "CSI" Column of the above rate table shall
apply to any hours Motorola adds to the Contract by exercising it's right to do
so.
For all additional hours Motorola elects to add to the
Contract due to Sellers responsibility. the Hourly Rate will be negotiated, but
in no case will the negotiated rates be less than the rates in the "LOE" Column
of the above rate table. Both "LOE" and "CSI" Column rates for add-on hours are
negotiable up or down for cost-of-living factors.
Seller shall provide a breakdown of the labor hours expended,
an a per-milestone basis, as the milestones are completed. This breakdown shall
include an analysis of any labor hour deviations from plan per Exhibit D.
Motorola and Seller shall reach agreement as to the cause of each deviation.
This agreement shall help form the basis of negotiation in the event that a
total contract hours overrun occurs.
Travel Required: During the development process subcontractor personnel may be
directed to visit the development sites in Italy.
Task Performance Schedule (including the Motorola required completion date): The
Task Performance Schedule shall be as defined in Exhibit D-1.
Required Materials (Materials, Equipment, Subcontracts, Etc.): The materials
required for this Task Order are detailed in Exhibit C-1, the Statement of Work
Documents attached to this Task Order:
Exhibit B-1, Task Order #01 Contract Line Items
Exhibit C-1, Statement of Work # SOW-GO021.GWS
Exhibit D-1, Task Order #01 Performance and Payment Schedule
Exhibit F-1, Task Order #01 Fixed Price Payment Schedule
CSI proposal for "Verification of the Gateway
Operations and Maintenance Center,"
dated January 26, 1996
Estimated Total Labor Cost: ($646,962)
Estimated Travel Cost: ($46,000)
Lab Setup Cost Cost: ($100,909)
Lab Operating Cost: ($17,100)
G&A ($12,310)
ESTIMATED TOTAL COST OF TASK ORDER: ($823,282)*
*THIS AMOUNT MAY NOT BE EXCEEDED WITHOUT MOTOROLA'S PRIOR WRITTEN APPROVAL.
MOTOROLA, INC. [SELLER]
/s/ Tim Odders /s/ Gerald Longanbach
(By) (By)
SBM Vice President
(Title) (Title)
2-28-96 3-13-96
(Date) (Date)
<PAGE>
- --------------------------------------------------------------------------------
CHANGE ORDER/CONTACT AMENDMENT
(only the boxes checked below are applicable to this document)
- --------------------------------------------------------------------------------
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Gerald Longanbach
(Address) 2501 S. Price Road 1235 Evans Road
Chandler, AZ 85248 Melbourne, FL 32904-2314
Telephone (602) 732-4772 Telephone (407) 676-2923
--------------------------- ---------------------------
Fax (602) 732-4346 Fax (407) 676-2355
--------------------------- ---------------------------------
CO/CA No.: 02 Dated: 2-26-96 To Contract No.: C416TS
-- ------- ------
A. Change Order
1. Pursuant to the Article entitled "Changes" in the above described contract,
Motorola hereby directs Seller to immediately adopt and implement the changes
set forth on Attachment A hereto.
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the items of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
B. Contract Amendment
1. The parties to the above described contract hereby amend the contract
as set forth on Attachment A hereto.
2. The amendments on Attachment A are binding when this Contract Amendment
has been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all
other terms and conditions of the contract, as amended to date, remain in full
force and effect.
C. Acknowledgments of Technical Requirements (include only
applicable sign-offs)
1. By initialing below, each person is indicating that the changes made by this
Change Order/Contract Amendment are completely understood by such person.
Motorola Seller
Satellite Communications Division (typed name and initials)
a. Joe Kish a.
b. Carlton Clarke b.
c. c.
D. Signatures
This document must be executed below in order to be effective.
Change Orders require only Motorola's execution. Contract
Amendments require execution by both parties.
MOTOROLA, INC. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Gerald Longanbach
Tim Odders, SBM Gerald Longanbach, Vice President
E. Acknowledgment of Receipt by Seller (for Change Orders only).
Received this ____ day of ________, 199__.
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
- --------------------------------------------------------------------------------
CO/CA No. 01 Contract No. C416TS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 02 changes as follows:
I) ARTICLE I-DESCRIPTION OF WORK
ARTICLE I SHALL READ AS FOLLOWS:
(a) Seller shall provide, on a firm fixed price basis, the
necessary labor, materials, personnel, facilities and services required to
design, develop, manufacture, assemble, test, and deliver an ETC Facility Lab
and Plans and Procedures as required for the Basic Task Description defined in
Paragraph 4 of the SOW (Exhibit C) attached herein. Seller shall also provide,
on a Firm-Fixed Level of Effort (with Milestones) basis the necessary labor,
materials, personnel, facilities, and services required to design, develop,
assemble, test scripts and perform integration and test necessary for ETC
product validation (Goods, Documentation and Services) as identified under
"Contract Line Items detailed in Exhibit B." This effort shall be performed in
accordance with the requirements specified in Exhibit C, Statement of Work.
(b) Seller shall also provide the necessary labor, materials,
personnel, facilities, and services to perform work as defined in Task Orders
(Exhibit G) assigned and agreed to by both Parties under this Contract. Each
Task Order shall have a specific and separate Statement of Work attached.
II) ARTICLE 2 - PERFORMANCE SCHEDULE
ADD LINE TO ARTICLE SO AS TO READ:
"Seller shall perform all work hereunder and deliver the Goods, Documentation
and Services described in Clause 3 as required by the Statement of Work, Exhibit
C, pursuant to the performance schedule in Exhibit D. Seller shall also perform
all work defined in future Task Orders as required by schedules detailed with
each respective Task Order.
<PAGE>
VI) ARTICLE 7-Exhibits:
Change to:
"The following Exhibits attached hereto are hereby incorporated by
reference into this Contract:
Exhibit A - Motorola's General Terms and Conditions of Purchase for the
Iridium Communications System (Apr 94).
Exhibit B - Contract Line Items
Exhibit C - Statement of Work, dated October 31, 1995
Exhibit D - Performance and Payment Schedule
Exhibit E - Technical Specifications
Exhibit F - Performance and Payment Schedule-Fixed Price"
Exhibit G - Task Order(s)
V) ARTICLE 8-Order of Precedence
Change to:
"In the event of any inconsistency among or between the parts of this
Contract, such inconsistency shall be resolved by giving precedence in the order
of the parts as set forth below:
1. These Contract Clauses
2. Exhibit A, General Terms and Conditions
3. Exhibit G, Task Order(s)
4. Exhibit B, Contract Line Items
S. Exhibit C, Statement of Work
6. Exhibit D, Performance and Payment Schedule
7. Exhibit E, Technical Specifications
8. Exhibit F, Performance and Payment Schedule-Fixed Price"
<PAGE>
CHANGE ORDER/CONTACT AMENDMENT
(only the boxes checked below are applicable to this document)
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Rod McCormick
(Address) 2501 S. Price Road 1235 Evans Road
Chandler, AZ 85248 Melbourne, FL 32904-2314
Telephone (602) 732-4772 Telephone (407) 676-2923
------------------- ---------------------------
Fax (602) 732-3583 Fax (407) 676-2355
------------------- ---------------------------------
CO/CA No.: 03 Dated: 1-12-96 To Contract No.: C416TS
- -- ------- ------
A. Change Order
1. Pursuant to the Article entitled "Changes" in the above described contract,
Motorola hereby directs Seller to immediately adopt and implement the changes
set forth on Attachment A hereto.
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the items of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
B. Contract Amendment
1. The parties to the above described contract hereby amend the contract as
set forth on Attachment A hereto.
2. The amendments on Attachment A are binding when this Contract Amendment has
been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all other
terms and conditions of the contract, as amended to date, remain in full
force and effect.
C. Acknowledgments of Technical Requirements (include only applicable
sign-offs)
1. By initialing below, each person is indicating that the changes made by this
Change Order/Contract Amendment are completely understood by such person.
Motorola CSI
Satellite Communications Division
a. a.
b. b.
c. c.
D. Signatures
This document must be executed below in order to be effective.
Change Orders require only Motorola's execution. Contract
Amendments require execution by both parties.
MOTOROLA, INC. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Rod McCormick
Tim Odders, Strategic Business Manager Rod McCormick, Program Manager
E. Acknowledgment of Receipt by Seller (for Change Orders only).
Received this ____ day of ________, 199__.
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
- --------------------------------------------------------------------------------
CO/CA No. 03 Contract No. C416TS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 03 changes as follows:
I) Exhibit B-Contract Line Items:
Exhibit B, Rev. 2 shall take precedence over previous Exhibit B documents
in all references within the Contract.
II) Exhibit F-Performance and Payment Schedule
Exhibit F, Rev. 1 shall take precedence over previous Exhibit F in all
references within the Contract.
These changes are being made to add an additional $75,000 in funding to
compensate for additional costs incurred during the development of the ETC Lab
in Gilbert, AZ. These costs were a result of Motorola direction.
<PAGE>
CHANGE ORDER/CONTACT AMENDMENT
(only the boxes checked below are applicable to this document)
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Rod McCormick
(Address) 2501 S. Price Road 1235 Evans Road
Chandler, AZ 85248 Melbourne, FL 32904-2314
Telephone (602) 732-4772 Telephone (407) 676-2923
------------------------ ---------------------------
Fax (602) 732-3583 Fax (407) 676-2355
------------------------ ---------------------------------
CO/CA No.: 04 Dated: 8-12-96 To Contract No.: C416TS
----- ------------ ------
A. Change Order
1. Pursuant to the Article entitled "Changes" in the above described contract,
Motorola hereby directs Seller to immediately adopt and implement the changes
set forth on Attachment A hereto.
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the terms of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
B. Contract Amendment
1. The parties to the above described contract hereby amend the contract as
set forth on Attachment A hereto.
2. The amendments on Attachment A are binding when this Contract Amendment
has been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all other
terms and conditions of the contract, as amended to date, remain in full
force and effect.
C. Acknowledgments of Technical Requirements (include only applicable
sign-offs)
1. By initialing below, each person is indicating that the changes made by this
Change Order/Contract Amendment are completely understood by such person.
Motorola CSI
Satellite Communications Division
a. Jerry Longanbach a.
b. b.
c. c.
D. Signatures
This document must be executed below in order to be effective.
Change Orders require only Motorola's execution. Contract
Amendments require execution by both parties.
MOTOROLA, INC. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Rod McCormick
Tim Odders, Strategic Business Manager Rod McCormick, Program Manager
E. Acknowledgment of Receipt by Seller (for Change Orders only).
Received this ____ day of ________, 199__.
- -------------------------------------
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
- --------------------------------------------------------------------------------
CO/CA No. 04 Contract No. C416TS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 04 changes as follows:
I) EXHIBIT B-Contract Line Items:
Exhibit B, Rev. 3 shall take precedence over previous Exhibit B documents
in all references within the Contract.
II) Exhibit B-1, OMC-G Contract Line Items:
Exhibit B-1, Rev.1 shall take precedence over previous Exhibit B-1
documents in all references within the Contract.
III) Exhibit D-Performance and Payment Schedule:
Exhibit D, Rev. 2 shall take precedence over previous Exhibit D documents
in all references within the Contract.
IV) Exhibit D-1, OMC-G Performance and Payment Schedule:
Exhibit D-1, Rev. 1, shall take precedence over previous Exhibit D-1
documents in all references within the Contract.
V) Exhibit F-Performance and Payment Schedule, Fixed Price
Exhibit F, Rev. 2, shall take precedence over previous Exhibit F documents
in all references within the Contract.
These changes are being made to add an additional $300,000 in funding to
this Contract. This funding is being allocated over the appropriate milestones
as they have been redefined in the Exhibits.
<PAGE>
CONTRACT
C585TP
BETWEEN
MOTOROLA, INC.
GOVERNMENT AND SPACE TECHNOLOGY GROUP
SATELLITE COMMUNICATIONS DIVISION
AND
COMPUTER SCIENCE INNOVATIONS, INC.
IN SUPPORT OF THE
Development and Management
of the
GILBERT, AZ. PRODUCT VERIFICATION LAB
IRIDIUM is a registered trademark and service mark of Iridium, Inc. 6/94
<PAGE>
PREAMBLE
This Contract is entered into between Motorola, Inc., a corporation
organized under the laws of the State of Delaware acting through the Satellite
Communications Group of its Space and Systems Technology Group (hereinafter
called "Motorola"), with offices located at 2501 South Price Road, Chandler,
Arizona, 85248-2899, and Computer Science Innovations, Inc. (hereinafter called
"Seller"), a corporation organized under the laws of State of Florida with
offices located at 1235 Evans Road, Melbourne, FL 32904-2314.
RECITALS
WHEREAS, Motorola is developing a global personal communications system
known as the IRIDIUM Communications System that will use a constellation of
satellites in low-earth orbit, and a number of "gateway" surface facilities in
various countries around the world that will link the satellites with the
public-switched telephone network; and,
WHEREAS, Iridium, Inc., a privately-owned Delaware corporation is intended
to become the owner/operator of the Space System portion of the IRIDIUM
Communications System; and,
WHEREAS, Motorola and Iridium, Inc. executed an IRIDIUM Space System
Contract which is intended to function as the mechanism whereby Motorola will
sell to Iridium, Inc. the Space System portion of the IRIDIUM Communications
System; and,
WHEREAS, Iridium, Inc. and Motorola have executed an IRIDIUM Communications
System Operations and Maintenance Contract, whereby Motorola will operate and
maintain the IRIDIUM Space System for a period of five (5) years following
completion of the Space System Contract; and,
WHEREAS, Motorola intends to supply various Gateway configurations under
separate contracts with operators of IRIDIUM Gateways; and,
WHEREAS, this Contract is intended to function as the vehicle by which
Seller shall provide the services as identified in the Statement of Work, for
the Development and Management of the Gilbert Product Verification for the
Gateway of the IRIDIUM Communications System as a subcontractor to Motorola
under the aforementioned Contracts; and,
Now, therefore, in consideration of the foregoing, Motorola and Seller (the
"Parties") agree as follows:
1. DESCRIPTION OF WORK
Seller shall provide, on a firm fixed price basis, the necessary labor,
materials, personnel, facilities and services required to design, develop,
manufacture, assemble, test and deliver the Gilbert Product Verification
Facility. This effort shall be performed in accordance with the requirements
specified in Exhibit B, Statement of Work.
2. PERFORMANCE SCHEDULE
Seller shall perform all work hereunder and deliver the Goods,
Documentation and Services of as described in the Statement of Work and Exhibit
B.
3. PRICE AND PAYMENT
For complete and timely delivery of the Goods, Documentation and Services
specified in Contract Line Items 001-025, Motorola shall pay Seller the
designated firm fixed prices.
Contract Line Unit Price
Item No. Description (Estimated)
001 Monthly Labor Costs for January, 1997 $135,107.00
002 Monthly Labor Costs for February, 1997 $200,065.00
003 Monthly Labor Costs for March, 1997 $194,516.00
004 Monthly Labor Costs for April, 1997 $189,308.00
005 Monthly Labor Costs for May, 1997 $189,308.00
006 Monthly Labor Costs for June, 1997 $189,308.00
007 Monthly Labor Costs for July, 1997 $189,308.00
008 Monthly Labor Costs for August, 1997 $114,732.00
009 Monthly Labor Costs for September, 1997 $114,732.00
010 Monthly Labor Costs for October, 1997 $95,982.00
011 Monthly Labor Costs for November, 1997 $95,982.00
012 Monthly Labor Costs for December, 1997 $20,982.00
---------
Sub-Total (Labor Not-To-Exceed) $1,729,330.00
013 Travel Costs (Not-To-Exceed) $27,960.00
Contract Line Unit Price
Item No. Description (Estimated)
014 Monthly Lab Costs for January, 1997 $17,680.00
015 Monthly Lab Costs for February, 1997 $17,680.00
016 Monthly Lab Costs for March, 1997 $17,680.00
017 Monthly Lab Costs for April, 1997 $17,680.00
018 Monthly Lab Costs for May, 1997 $17,680.00
019 Monthly Lab Costs for June, 1997 $17,680.00
020 Monthly Lab Costs for July, 1997 $17,680.00
021 Monthly Lab Costs for August, 1997 $17,680.00
022 Monthly Lab Costs for September, 1997 $17,680.00
023 Monthly Lab Costs for October, 1997 $17,680.00
024 Monthly Lab Costs for November, 1997 $17,680.00
025 Monthly Lab Costs for December, 1997 $17,680.00
---------
Sub-Total $212,160.00
TOTAL FIRM FIXED PRICE $1,969,450.00
4. INVOICES
Invoices for payment shall be sent to Motorola at the following address:
MOTOROLA
Government and Systems Technology Group
Accounts Payable
P.O. Box 9B
Scottsdale, AZ 85252
A copy of each invoice shall be sent concurrently to Motorola's
Contracting Representative.
5. CONTRACTING REPRESENTATIVES
The only representatives of Motorola and Seller authorized to make
changes to this Contract and to sign contractual documents (the "Contracting
Representatives") are the following:
MOTOROLA Computer Science Innovations, Inc.
Satellite Communications Division 1235 Evans Road
2501 South Price Road Melbourne, FL 32904
Chandler, AZ 85248-2899
Attn: Alex Williams Attn: Rod McCormick
Strategic Business Mgr. Vice-President
or
Susanne L. Cavadeas
Controller
Phone: (602) 732-6817 Phone: (800) 289-2923
Fax: (602) 732-4346 Fax: (407) 676-2355
Either party may change its aforementioned Contracting Representatives
at any time by providing written notice to the other party.
6. GENERAL TERMS AND CONDITIONS
MOTOROLA'S GENERAL TERMS AND CONDITIONS OF PURCHASE FOR THE IRIDIUM
COMMUNICATIONS SYSTEM (June 94) attached hereto as Exhibit A shall govern this
Contract, except to the extent expressly modified herein. Provisions of this
Contract shall be referred to as "Clauses" and provisions of Exhibit A shall be
referred to as "Articles."
7. EXHIBITS
The following Exhibits attached hereto are hereby incorporated by
reference into this Contract:
Exhibit A - Motorola's General Terms and Conditions of Purchase
for the Iridium Communications System (June 94).
Exhibit B - Statement of Work, for the Development and Management
of the Gilbert Product Verification Facility
8. ORDER OF PRECEDENCE
In the event of any inconsistency among or between the parts of this
Contract, such inconsistency shall be resolved by giving precedence in the order
of the parts as set forth below:
1. These Contract Clauses
2. Exhibit A, General Terms and Conditions
3. Exhibit B, Statement of Work
9. KEY PERSONNEL
Seller shall not replace or reassign any Key Personnel without the
prior approval of Motorola. Any replacement of Key Personnel must be with
personnel who are equally knowledgeable and capable.
10. DISPOSITION OF MATERIAL/EQUIPMENT
Upon completion of this contract, disposition of residual material and
equipment shall be accomplished under the direction of Motorola's authorized
representatives.
11. ASSIGNMENT OF LEASE/TERMINATION
Seller shall be responsible for securing the proper lease for the
Verification Facility per the attached Statement of Work and shall act in
accordance with such lease, unless, upon demand by Motorola, Seller shall assign
such lease to Motorola.
12. EFFECTIVE DATE
This Contract shall be deemed effective as of January 1, 1997.
IN WITNESS WHEREOF, the authorized representatives of the Parties have executed
this Contract by signing below.
MOTOROLA, INC. Computer Science Innovations, Inc.
By: /s/ Alex Williams By: /s/ Rodney L. McCormick
Alex Williams Rod McCormick
Strategic Business Manager Vice President
[Letterhead of The Ashton Technology Group, Inc.]
May 15, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Extension of Letter Contract No. ASH-LC12111
Gentlemen:
1. Order: An order is hereby placed with you to continue to furnish to Ashton
Technology Group, Inc. the software required for the encryption server for the
Ashton Technology Encryption Device (ATED). The detailed requirements for this
work are as set forth in Exhibit A (Letter Contract of December 11, 1995)
attached hereto and hereby made a part hereof. This order shall become a
contract on the terms and conditions set forth in the December 11, 1995 contract
upon your unconditional acceptance hereof, and shall be deemed effective as of
MAY 15. 1996.
2. Negotiation of Definitive Contract:
a. By your acceptance of this order, you agree to enter into good faith
negotiations immediately with Ashton Technology Group, Inc. with the expectation
of the execution of a definitive contract which will include mutually acceptable
detailed prices, delivery schedules and other terms of this Letter Contract,
provided, however, that the total price for the definitive contract shall not
exceed U.S. $506,266.00.
b. It is expected that such definitive contract will be issued prior to
DECEMBER 31, 1996. If we fail to agree upon the definitive contract by said
date, this Letter Contract shall terminate automatically and you will be paid on
the same terms as if this Letter Contract had been terminated by Ashton
Technology Group, Inc. for its convenience.
3. Acceptance: If the foregoing is satisfactory to you, please indicate
your acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 15 day of May, 1996
Computer Science Innovations, Inc.
By: /s/ John A. Blohm By: /s/ George Milligan
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
- --------------------------------------------------------------------------------
[Letterhead of The Ashton Technology Group, Inc.]
- --------------------------------------------------------------------------------
December 16, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC112111 dated December 11, 1995
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
Paragraph 3(b) is hereby amended to decrease the spending ceiling to $404,603.
In addition, the provisions of paragraph 4 are hereby modified to indicate that
a definitized contract (valued at $404,603) is hereby completed (see enclosed
spreadsheet) and that the contract end date has been determined to be 31 January
1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an amendment to the referenced contract
and will supersede all previous amendments to the referenced contract.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 20 day of December, 1996
Computer Science Innovations, Inc.
By: /s/ F. Rittereiser By: /s/ George Milligan
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 12-16-96
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
- --------------------------------------------------------------------------------
[Letterhead of The Ashton Technology Group, Inc.]
- --------------------------------------------------------------------------------
February 5, 1997
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC12111
Reference: (1) Contract No. ASH-LC12111 dated December 11, 1995
(2) Contract Definition dated December 16, 1996
Gentlemen:
Reference (2) modifies and defines reference (1). The purpose of this letter is
to provide a cost & time extension to definitized contract ASH-LC10261. The
basis of estimate (BOE) and terms & conditions (T&Cs) are attached to this
letter. Paragraph 3(b) is hereby amended to decrease the spending ceiling from
$404,603 to $393,911. In addition, the provisions of Paragraph 4 are hereby
modified to indicate a new definitized contract (valued at $393,911) that
incorporates the attached BOE and T&Cs and has a contract end date shall be 28
March 1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an incremental amendment to the
referenced contract. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 18 day of Feb 1996
Computer Science Innovations, Inc.
By: /s/ Fred Rittereiser By: /s/ George Milligan
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 2-18-97
(Signature)
Mr. Fred S. Weingard
Executive Vice President
[Letterhead of The Ashton Technology Group, Inc.]
March 22, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Time and Material Contract No. ASH-10261
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown
in paragraph 3b. is hereby amended to increase the spending ceiling to $300,000.
In addition, the provisions of paragraph 4b. are hereby modified to show that
the definitized contract will be negotiated prior to May 31, 1996.
If the foregoing is satisfactory to you, please indicate your
acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 29 day of March, 1996
Computer Science Innovations, Inc.
By: /s/ John Blohm By: /s/ George Milligan
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
May 15, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Time and Material Contact No. ASH-10261
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown
in paragraph 3b. is hereby amended to increase the spending ceiling to
$1,046,456.00. In addition, the provisions of paragraph 4b. are hereby modified
to show that the definitized contract will be negotiated prior to December 31,
1996.
If the foregoing is satisfactory to you, please indicate your
acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 15 day of May, 1996
Computer Science Innovations, Inc.
By: /s/ John Blohm By: /s/ George Milligan
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
December 16, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contact No. ASH-LC10261 dated October 26, 1995
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
paragraph 3(b) is hereby amended to increase the spending ceiling to $1,212,228
(which includes reserves to be approved by UTTC). In addition, the provisions of
paragraph 4 are hereby modified to indicate that a definitized contract (valued
at $1,212,228) is hereby completed (see enclosed spreadsheet) and that the
contract end date has been determined to be 31 January 1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an amendment to the referenced contract
and will supersede all previous amendments to the referenced contract.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 20 day of Dec, 1996
Computer Science Innovations, Inc.
By: /s/ F. Rittereiser By: /s/ George Milligan
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 12-16-96
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
February 5, 1997
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC10261
Reference: (1) Contract No. ASH-LC10261 dated October 26, 1995
(2) Contract Definition dated December 16, 1996
Gentlemen:
Reference (2) modifies and defines reference (1). The purpose of this letter is
to provide a cost & time extension to definitized contract ASH-LC10261. The
basis of estimate (BOE) and terms & conditions (T&Cs) are attached to this
letter. Paragraph 3(b) is hereby amended to increase the spending ceiling from
$1,212,228 to $1,306,000. In addition, the provisions of Paragraph 4 are hereby
modified to indicate a new definitized contract (valued at $1,306,000) that
incorporates the attached BOE and T&Cs and has a contract end date shall be 28
March 1997 or when the level-of-effort (LOE) for all key staff runs out,
whichever comes first.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an incremental amendment to the
referenced contract. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 18 day of Feb 1996
Computer Science Innovations, Inc.
By: /s/ Fred Rittereiser By: /s/ George Milligan
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
Universal Trading Technologies, Corp.
By: /s/ Fred Weingard
(Signature)
Mr. Fred S. Weingard
Executive Vice President
Subsidiaries of The Ashton Technology Group, Inc.
Name State of Incorporation
Computer Science Innovations, Inc. Florida
Universal Trading Technologies Corporation Delaware
Gomez Advisors, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001003740
<NAME> The Ashton Technology Group, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 60,841
<SECURITIES> 0
<RECEIVABLES> 1,545,663
<ALLOWANCES> (62,500)
<INVENTORY> 0
<CURRENT-ASSETS> 1,642,907
<PP&E> 1,797,194
<DEPRECIATION> 755,745
<TOTAL-ASSETS> 3,366,630
<CURRENT-LIABILITIES> 1,990,474
<BONDS> 13,000
0
0
<COMMON> 75,625
<OTHER-SE> 1,287,531
<TOTAL-LIABILITY-AND-EQUITY> 3,366,630
<SALES> 4,938,330
<TOTAL-REVENUES> 5,082,671
<CGS> 3,544,556
<TOTAL-COSTS> 10,687,742
<OTHER-EXPENSES> 957,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,792
<INCOME-PRETAX> (6,602,350)
<INCOME-TAX> 110,000
<INCOME-CONTINUING> (6,842,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,832,406)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
