As filed with the Securities and Exchange Commission on June 29, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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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
incorporation or organization) Identification No.)
1900 Market Street Suite 701
Philadelphia, Pennsylvania 19103
(215) 751-1900
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
Fredric W. Rittereiser
President and Chief Executive Officer
The Ashton Technology Group, Inc.
1900 Market Street
Suite 701
Philadelphia, Pennsylvania 19103
(215) 751-1900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Justin P. Klein, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
(215) 665-8500
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
Registration Statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. |_| ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
Calculation of Registration Fee
Amount Proposed maximum Proposed maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered (2) per unit (1) offering price (1) fee
- --------------------------- -------------- ------------ ------------------ ---
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par 15,003,668 $3.438 $51,582,610.58 $15,216.87
value
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Total Registration Fee $15,216.87
==========
</TABLE>
(1) Based on the average of the reported high and low sales prices of the
Common Stock as reported on The NASDAQ SmallCap Market of the NASDAQ Stock
Market, Inc. on June 26, 1998, estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(c) and (g).
(2) Included in this amount are (i) 2,896,350 shares issuable upon conversion
of the Registrant's Series D Convertible Preferred Stock (the "Series D
Preferred"), (ii) 1,810,218 shares issuable upon conversion of the
Registrant's Series E Convertible Preferred Stock (the "Series E
Preferred"), (iii) 200,000 shares issuable upon the exercise of the
Registrant's Warrants issued in connection with the sale of the
Registrant's Series C Convertible Preferred Stock (the "Series C
Warrants"), (iv) 880,000 shares issuable upon the exercise of the
Registrant's Warrants issued in connection with the sale of the Series D
Preferred (the "Series D Warrants"), (v) 320,000 Shares issuable upon the
exercise of the Registrant's warrants issued in connection with the sale of
the Series E Preferred (the "Series E Warrants"), and (vi) 8,897,100 shares
issuable upon the exercise of certain put rights granted to the Registrant
in connection with the sale of the Series D&E Preferred (the "Series D&E
Puts"). For purposes of estimating the number of shares of
<PAGE>
Common Stock to be included in this Registration Statement, the Registrant
calculated 200% of the number of shares of Common Stock issuable in
connection with the conversion of the Series D and Series E Preferred, the
exercise of the Series D and Series E Warrants and the exercise of the
Series D&E Puts by the Registrant. In addition to the shares set forth in
the table, the amount to be registered includes an indeterminate number of
shares issuable upon the conversion of, or in respect of, Series D
Preferred and Series E Preferred, and/or the exercise of, or in respect of,
the Series C Warrants, Series D Warrants, Series E Warrants, and the Series
D&E Puts to which the registrable securities relate, as such number may be
adjusted as a result of stock splits, stock dividends, and anti-dilution
provisions (including floating rate conversion prices) in accordance with
Rule 416.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
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<PAGE>
Subject to completion, dated June 29, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
THE ASHTON TECHNOLOGY GROUP, INC.
15,003,668
Shares
Common Stock $.01 par value
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
This Prospectus relates to the resale by the Selling Stockholders
identified herein of (i) an indeterminate number of shares of Common Stock, of
The Ashton Technology Group, Inc. (the "Company" or "Ashton") initially
2,896,350, which may be acquired by one or more of the Selling Stockholders upon
the conversion of the Company's Series D Convertible Preferred Stock (the
"Series D Preferred"); (ii) an indeterminate number of shares of Common Stock,
initially 1,810,218, which may be acquired by one or more of the Selling
Stockholders upon the conversion of the Company's Series E Convertible Preferred
Stock (the "Series E Preferred"); (iii) 200,000 shares of Common Stock which may
be acquired by one or more of the Selling Stockholders upon the exercise of
warrants issued in connection with the sale of the Company's Series C
Convertible Preferred stock (the "Series C Warrants"); (iv) 880,000 shares of
Common Stock which may be acquired by one or more of the Selling Stockholders
upon the exercise of warrants issued in connection with the sale of the Series D
Preferred (the "Series D Warrants"); (v) 320,000 shares of Common Stock which
may be acquired by one or more of the Selling Stockholders upon exercise of
warrants issued in connection with the sale of the Series E Preferred (the
"Series E Warrants"); and (vi) an indeterminate number of shares of Common
Stock, initially 8,897,100, which may be sold by the Company and purchased by
one or more of the Selling Stockholders, upon the exercise of certain put rights
acquired by the Company in connection with the sale of the Company's Series D
Preferred and Series E Preferred (the "Series D&E Puts"). See "Selling
Stockholders and Plan of Distribution." Although the Company will receive
proceeds from the exercise of the outstanding Series C Warrants, Series D
Warrants, and Series E Warrants from time to time, if and when they are
exercised, the Company will not receive any of the proceeds from the resale of
shares of Common Stock by the Selling Stockholders offered hereby.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS,"
BEGINNING AT PAGE 5, FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Common Stock of the Company is traded on the NASDAQ SmallCap Market
under the symbol "ASTN." On June 26, 1998, the last reported sales price for
Ashton's Common Stock on the NASDAQ SmallCap Market was $3.438. The Warrants of
the Company are traded on the NASDAQ Small Cap Market under the symbol "ASTNW."
On June 26, 1998, the last reported sales price for the Company's Warrants on
the NASDAQ Small Cap was $1.375.
The date of this Prospectus is July ______, 1998
<PAGE>
AVAILABLE INFORMATION
Ashton is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, DC 20549, and at the Commission's Northeast Regional Office at
7 World Trade Center, Suite 1300, New York, NY 10048, and the Commission's
Midwest Regional Office at 500 West Madison Street, Suite 1400, Chicago, IL
60661. The Commission may be reached by telephone at 1-800-SEC-0330, and
maintains a Web site on the Internet, http://www.sec.gov that also contains such
reports, proxy statements and other information filed by the Company. Ashton's
Common Stock and Warrants are listed on the NASDAQ SmallCap Market, a subsidiary
of the National Association of Securities Dealers, Inc. ("NASD"). Reports, proxy
statements, and other information concerning the Company may be inspected and
copied at the NASD's offices at 1735 K Street, N.W., Washington, DC 20006-1500.
The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits, the "Registration Statement") on
Form S-3 under the Securities Act of 1933 (the "Securities Act") with respect to
the Common Stock offered pursuant to this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
agreement or other document referred to herein are not necessarily complete and
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Copies of the material containing this information
may be obtained from the Commission upon payment of the prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, all of which have been previously or concurrently
filed with the Commission pursuant to the Exchange Act, are hereby incorporated
by reference in this Prospectus: (i) the Company's Quarterly Reports on Form
10-QSB for the quarters ended June 30, 1997 and September 30, 1997, (ii) the
Company's Quarterly Report on Form 10-QSB for the quarter ended December 31,
1997, as amended; (iii) the Company's Current Reports on Form 8-K dated November
6, 1997, November 12, 1997, January 27, 1998, and April 9, 1998; and (iv) the
Company's Proxy Statement dated May 8, 1998.
All other reports and documents filed by the Company subsequent to the date
of this Prospectus pursuant to Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act prior to the termination of the offering of the Common Stock
covered by this Prospectus shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of those
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that such statement is modified or
replaced by a statement contained in this Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference into this Prospectus. Any such statement so modified or superseded
shall not be deemed, except as so modified or replaced, to constitute a part of
this Prospectus. The Company will provide without charge to each person to whom
a copy of this Prospectus has been delivered, upon the written request of any
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated in this prospectus by reference (other than exhibits
to such documents unless such exhibits are themselves specifically incorporated
by reference). Written requests for such copies should be directed to John A.
Blohm,
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<PAGE>
Executive Vice President and Corporate Secretary, The Ashton Technology Group,
Inc., 1900 Market Street, Suite 701, Philadelphia, PA 19103, (215) 751-1900.
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act 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 Company 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 Prospectus. Such
forward-looking statements speak only as of the date of this Prospectus. For
discussion of the factors that might cause performance of the Company to differ
with actual results, see the discussion of "Risk Factors" beginning on page 5.
The Company 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 Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
DESCRIPTION OF THE COMPANY
The Company is engaged in the development and commercialization of on-line
transaction systems for participants in the U.S. and international financial
markets. The Company was founded in 1994 to take advantage of commercial
opportunities through the application of advanced telecommunication and
computing technologies to the area of electronic commerce. The Company is
currently organized as a parent company which has or will have four subsidiaries
as follows: (1) Universal Trading Technologies, Inc., ("UTTC(TM)"); (2) Gomez
Advisors, Inc. ("GA"); (3) Electronic Market Center, Inc. ("eMC(TM)"); and (4)
ATG(TM) International, Inc. ("ATG(TM) International") (not yet incorporated).
REB Securities, Inc. ("REB"), a broker-dealer whose Registration Statement with
the Commission is pending, is a wholly-owned subsidiary of UTTC(TM).
UTTC(TM)'s business is to develop, market and operate electronic pricing
and transactional systems for the securities trading market. UTTC(TM)'s target
customers are the professional investment community which includes
broker-dealers, pension plan sponsors, institutional money managers, and mutual
funds. These professional investors may benefit from UTTC(TM)'s proprietary
technologies and pricing mechanisms which will enable them to trade efficiently
and cost effectively in an electronic trading environment. UTTC(TM) has
developed the Universal Trading System ("UTS(TM)"), which incorporates advanced
computer and telecommunications technology, and UTS(TM)'s first product module,
the Volume Weighted Average Price ("VWAP(TM)") Trading System ("VTS(TM)"), an
electronic securities pricing and transaction system for trading exchange listed
and NASDAQ National Market securities.
On April 22, 1995 the Philadelphia Stock Exchange (the "PHLX") and UTTC(TM)
agreed to deploy the UTS(TM) as a facility of the PHLX. On September 18, 1995
UTTC(TM) and PHLX memorialized the agreement in a formal contract for a term of
five years commencing from the date UTS(TM) becomes operational on the PHLX.
Operation of the system is contingent upon approval by the Commission of a rule
proposal filed by the PHLX. The contract provides, among other things, for the
development of the VTS(TM) system as a new trading product of the PHLX.
The Company has developed a working system in accordance with contract with
the PHLX. On April 16, 1998 the SEC proposed new rules and rule amendments that,
if adopted, will permit, among other things, alternate trading systems ("ATSs")
to choose whether to register as national securities exchanges, or to register
as broker-dealers. If adopted, the SEC regulations may allow the Company to
introduce its products, regardless of whether the PHLX rule proposal is approved
by the Commission. Anticipating adoption of these new regulations, the Company
currently is exploring the best structure for launching its electronic trading
products being developed, e.g. as an existing facility of a self regulatory
organization ("SRO"), a broker-dealer, or as a new and independent registered
exchange.
The PHLX recently entered into an agreement pursuant to which the PHLX
would, in essence be acquired by the American Stock Exchange (the "AMEX"). The
Company's contract with the PHLX is assignable by its terms with the consent of
both parties to the contract. The Company presently does not intend to agree to
the assignment of the contract.
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<PAGE>
GA was formed in May 1997 as a wholly owned subsidiary by the Company in
conjunction with Julio Gomez and John Robb, formerly of Forrester Research,
Inc., and Dr. Alex Stein, of FarSight Financial. GA provides independent advice
with respect to online investing and provides clients in the financial services
industry with consulting advice concerning the use of the Internet as a tool for
establishing electronic client relationships, marketing, and the interactive
distribution of securities. The range of Internet financial consulting services
provided through GA includes: strategy development, product and interface
design, and implementation planning. GA also publishes proprietary evaluations
of Internet financial services through its Internet Broker Scorecard and
Internet Banker Scorecard rankings.
Electronic Market Center, Inc. ("eMC(TM)") is a wholly owned subsidiary
that expected to operate and market the Company's to-be-developed open finance
system. The Company intends to design eMC(TM) for interactive market access by
member users and to provide a global electronic distribution channel for all
types of financial products and services. Although the Company has designed the
specifications for the eMC(TM), there can be no assurance that the Company will
be able to finance the development or to actually develop such finance system.
See "Risk Factors."
REB is a wholly owned broker-dealer subsidiary of UTTC(TM) . REB expects
that, upon approval of its application for registration with the Commission,
NASD, and state authorities, it will provide institutional "soft dollar
services" (pursuant to Section 28(e) of the Exchange Act) and brokerage services
to banks, broker-dealers, insurance companies, and other financial
intermediaries.
The Company currently is in the process of forming a wholly owned
subsidiary, ATG(TM) International, Inc. The international markets represent
potentially significant growth for the application of ATG(TM)'s technology and
skills to the development of proprietary online transaction systems for global
financial markets. In November 1997, the Company entered into a strategic
initiative with Tianjin New Hong Chen Technology & Trading Company to introduce
its online trading technology and systems to the financial markets in China.
Computer Science Innovations, Inc. ("CSI(R)") was a subsidiary of the
Company. CSI(R) was incorporated in Florida in March 1983, and specialized in
utilizing computer technologies and sophisticated mathematical techniques to
address complex information retrieval and management problems. On November 6,
1997, the Company sold CSI(R) to an Employee Stock Ownership Plan controlled by,
and for the benefit of, CSI(R)'s management and employees.
Following the sale of CSI(R), revenues for the Company have significantly
decreased, with GA providing the only revenue since this sale. Except for GA,
all of the subsidiaries described above are in the development stage and are
subject to significant risks associated with development stage businesses. None
of the subsidiaries other than GA has realized any revenue to date.
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<PAGE>
References herein to the "Company" or "Ashton" include Ashton and its
subsidiaries, unless the context indicates otherwise. The Company's headquarters
are located at 1900 Market Street, Suite 701, Philadelphia, PA 19103, and its
telephone number is (215) 751-1900.
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should consider carefully the
following risk factors in evaluating the Company and its business before
purchasing Common Stock. The following discussion identifies important factors
that could cause Ashton's actual results to differ materially from results
predicted or implied in any forward-looking statements made in this Prospectus
or elsewhere by or on behalf of Ashton.
Dependence Upon Former Subsidiary; Limited Operating History; Accumulated
Deficit. From its inception in 1994 until its acquisition of Computer Science
Innovations, Inc. ("CSI(R)"), a former subsidiary, in 1995, Ashton was a
development stage company with no operating history. The Company operated CSI(R)
as a subsidiary until November 6, 1997, when the Company consummated its sale.
CSI(R) is a software development company headquartered in Melbourne, Florida,
which assisted in the design of the Ashton Technology Encryption Device ("ATED")
and the development of the server which handles the ATED. The Company has since
determined that CSI(R) no longer fits into its long-range strategic plan. Other
than through CSI(R), the Company has generated revenues only through GA. The
Company has never realized any operating profit and has a significant
accumulated deficit. The Company is unable to predict whether or when its other
subsidiaries and/or product lines will begin to generate revenue.
UTTC(TM)'s Reliance Upon its Agreement with the Philadelphia Stock
Exchange; New Regulatory Environment. UTTC(TM) is a development stage company
which has generated no revenue to date. On April 22, 1995, UTTC(TM) and the PHLX
agreed to deploy the UTS(TM) as a facility of the exchange. In September 1995,
UTTC(TM) and the PHLX memorialized the agreement into a formal contract whereby
the PHLX agreed to employ the UTS(TM) system on its equity trading floor for a
term of five years from the first date that the UTS(TM) system is available for
trading (the "PHLX Agreement"). Although UTTC(TM) completed the design and
development of the UTS(TM) and VWAP(TM) module in April 1997, there can be no
assurance that either will operate as designed or that PHLX will obtain the
regulatory approvals necessary to commence operation of the UTS(TM) as a
facility of the exchange.
The operation of the UTS(TM) as a facility of the PHLX is dependent upon
regulatory approval by the Commission. Section 19(b) of the Exchange Act and
Rule l9b-4 thereunder require the PHLX to file any proposed rule changes with
the Commission. The concept of the UTS(TM) , which would constitute a new PHLX
facility accompanied by new PHLX rules, must be filed as a proposed rule change.
The PHLX filed its proposal for a rule change, which was published in the
Federal Register on September 4, 1996. In order to approve the proposed rule
change, the Commission must determine that the UTS(TM) filing is consistent with
the purposes of the Exchange Act, particularly Section 6 of the Exchange Act,
which provides standards governing the rules of national securities exchanges.
On October 28, 1997, the PHLX filed an amendment to the proposed rule change.
The Commission published a notice of the Amended rule proposal in the Federal
Register on December 31, 1997. There can be no assurance that the Commission
will not require further amendment to the proposed PHLX rule change application
or that the Commission will approve the proposed rule change in the amended
form. The Company is unable to predict whether or when such approval of the PHLX
request will be received.
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<PAGE>
The PHLX proposed rule change, if approved, would authorize the conducting
of a morning session (the "Morning Session") at the PHLX for the placing of
orders for eligible securities through the UTS(TM) prior to the commencement of
each regular trading session on the PHLX's equity trading floor. In addition,
and separate to the proposed rule change, the PHLX has sought certain
interpretive and exemptive relief in connection with the operation of UTS(TM) as
a facility. As of the date hereof, the Commission has not granted such
interpretive and exemptive relief in connection with this proposed rule change
and there is no assurance that such relief will be granted by the Commission. If
Commission approval of the proposed rule change and grant of the interpretive
and exemptive relief are not obtained, the UTS(TM) as described would not be
utilized at the PHLX and consequently there could be a delay in implementing the
UTS(TM) into an alternative market. The Company is currently seeking
alternatives for the marketing and implementation of the UTS(TM), including the
formation of its own broker-dealer subsidiary.
On June 9, 1998, the PHLX announced that its Board of Directors approved a
plan to merge with AMEX. The Company is unable to predict the impact that the
proposed merger will have on its agreement with the PHLX. However, the Company
does not presently intend to agree to the assignment of the agreement with the
PHLX to the AMEX.
Development Stage Company. As a development stage company which has had a
limited operating history, the Company is subject to the risks and difficulties
common to new businesses. The viability of the Company must be considered in
light of problems normally encountered in the early stages of business
development, and the likelihood of the successful deployment of the UTS(TM) and
other products must be considered in light of the problems, difficulties,
complications and delays frequently encountered in connection with the
deployment of new technologies. No assurance can be given that such problems
will not arise or will be overcome or that the Company will achieve
profitability.
Capital Requirements; Need for Additional Financing. Based upon the
Company's current plan of operations, it is anticipated that the net proceeds
from the private placement of Series D Preferred, completed in April 1998 and
the Series E along with the exercise of certain put rights which the Company
obtained in connection with the sale of the Series D and Series E Preferred will
provide sufficient working capital for at least the next 8 months. The Company
may need additional financing in the future if (i) the Company experiences
unexpected costs, (ii) there is a delay in the introduction of the UTS(TM)
system, (iii) the Company fails to develop successfully the market for its
products, (iv) other opportunities arise which require significant investment,
or (v) if the net proceeds from the Series D&E private placements prove to be
insufficient for the Company's continued operations. In order for the Company to
exercise the put rights, certain conditions must be met, of which there can be
no assurance. In addition, the Company may require additional financing to
complete any acquisition it may undertake. If financing is required, such
financing may be raised through additional equity offerings, joint ventures or
other collaborative relationships, borrowings and other sources. There can be no
assurance that additional financing will be available or, if it is available,
that it will be available on acceptable terms. If additional funds are raised
through the issuance of additional equity securities, the percentage ownership
of the then current stockholders of the Company may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of Common Stock.
Competition; Product Acceptance. The UTS(TM) will compete with other
electronic trading systems, including Reuters, N.A.'s Instinet system,
Investment Technology Group Inc.'s POSIT system, and Optimark Technologies,
Inc.'s proposed Optimark system. The Company believes that competitive criteria
include quality of trade execution, pricing and reliability of post-execution
processing and settlement operations. Although the Company
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<PAGE>
believes the UTS(TM) will offer improved trading performance, trading
flexibility, and commercial benefits, there can be no assurance that the UTS(TM)
will be accepted by an extended customer base, specifically, institutional
investors, or that it will be able to address adequately the competitive
criteria in a manner that results in a competitive advantage. The UTS(TM) will
also compete with various national, regional and foreign securities exchanges
for trade execution services. There can be no assurance that these exchanges
will not take steps to attempt to retain transaction volume or to compete with
the UTS(TM) system by establishing or creating their own pilot alternative
trading systems, which in turn, could limit the future growth of the UTS(TM)
system.
The automated trade execution and analytical services to be offered by the
UTS(TM) will also compete with services offered by leading brokerage firms and
other information service and transaction processing firms. Many of the
Company's competitors have substantially greater financial, research,
development and other resources than the Company and many of their products have
substantial operating histories. Although the Company believes that the UTS(TM),
when operational, will offer certain competitive advantages, UTTC(TM)'s ability
to maintain these advantages will require continued investment in the
development of its services, additional marketing activities and customer
support services. There can be no assurance that the Company will have
sufficient resources to continue to make this investment, other than through the
recent private placements of convertible preferred stock, which may raise up to
$13 million, or that the Company's competitors will not devote significantly
more resources to competing services. The electronic product advisory and
research services provided by GA compete with Forrester Research, Inc., Gartner
Group, and J.D. Power & Associates.
UTTC(TM)'s success is heavily dependent upon the acceptance of the UTS(TM)
by institutional investors. Failure to obtain such acceptance could result in
lower share volumes and a lack of liquidity on the UTS(TM). Market and customer
acceptance of the UTS(TM) will depend upon, among other things, UTS(TM)'s
operational performance, which has not yet been tested in the environment of
actual equity market trading activity. In addition, once operational, the
UTS(TM)'s institutional customers may discontinue use of the UTS(TM) at any
time. While the Company's management continues to solicit customers to use the
UTS(TM), any commitments are dependent upon the UTS(TM) becoming operational at
the PHLX or, in the alternative, at an independent broker-dealer or exchange.
There can be no assurance that UTTC(TM) will attract a sufficient number of
customers to the UTS(TM). Failure to introduce successfully and market the
UTS(TM) could result in a material adverse effect on UTTC(TM) and the
consolidated operations of the Company.
Dependence Upon Proprietary Technology; Intellectual Property Rights. The
Company 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. However, neither Ashton, UTTC(TM) nor the Company's other
subsidiaries currently hold any material patents or have filed for copyright
protection relating to current product lines. The Company is currently
considering whether to patent or copyright certain aspects of its product line
including the pricing algorithm utilized in connection with the VWAP(TM) system.
It may be possible for unauthorized third parties to copy or reverse engineer
certain portions of the Company's products or obtain or use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company will be adequate to deter misappropriation of proprietary
information, that the Company will be able to detect unauthorized use of
proprietary information, or that the Company will be able to afford the high
cost required to enforce intellectual property rights. Further, no assurance can
be given that nondisclosure and other contractual arrangements to protect the
Company's proprietary rights will not be breached, that the Company will have
adequate remedies for any breach, or that trade secrets will not otherwise
become known to or be independently developed by competitors. Although the
Company's competitive position may be adversely affected by the unauthorized use
of its proprietary information, the Company believes that the ability to protect
fully its intellectual property is less significant to the Company's success
than are other factors, such as the knowledge, ability and experience of its
employees and its ongoing product development and customer support activities.
-7-
<PAGE>
Although the Company believes that the services and products it offers do
not infringe on the intellectual property rights of others, there can also be no
assurance that third parties will not assert infringement claims against the
Company in the future, that such assertions by third parties will not result in
costly litigation, that the Company will prevail in such litigation, or that the
Company will be able to license any patents or other intellectual property
rights from third parties on commercially reasonable terms, if at all.
Litigation, in and of itself and regardless of its outcome, could also result in
substantial cost and diversion of resources of the Company. Any infringement
claim or other litigation against or by the Company could materially adversely
affect the Company's business, operating results and consolidated financial
condition.
Rapid Changes in Technology; Maintaining Technological Advantage. The
technologies underlying the Company's products and services are subject to rapid
evolution and change. The Company's future success depends, in large measure,
upon its ability to respond quickly and successfully to technological advances
by developing and introducing new and improved products and services. There can
be no assurance that the Company will be able to foresee and respond to such
advances or that competitors, including those with greater financial and other
resources, will not succeed in developing technologies, products or services
that could be superior to the those of the Company.
Dependence on High Trading Volumes. UTTC(TM) revenues may depend upon the
volume of securities trading. Securities trading volumes may be affected by
national and international economic and political conditions and broad trends in
business and finance. Any of these factors may result in lower share volumes
offered through the UTS(TM) and adversely affect the Company's results of
operations once the UTS(TM) becomes operational. Variations in transaction
volume could also cause the Company's operating results to fluctuate on a
quarterly basis.
Risk of Errors and Malfunctions. The UTS(TM) may be subject to various
risks associated with systems errors and malfunctions and employee errors.
Systems errors and malfunctions which could affect any electronic system could
result in service interruptions. In a competitive environment for electronic
equity trading execution, investors may turn to the Company's competitors on a
temporary or permanent basis to complete their trades. Prolonged service
interruptions resulting from natural disasters or otherwise could result in
decreased trading volumes and the loss of customers.
Year 2000 Compliance. The Company is assessing the potential impact of what
is commonly referred to as the "Year 2000" issue, concerning the inability of
certain information systems and automated equipment to properly recognize and
process dates containing the Year 2000 and beyond. If not corrected, these
systems and equipment could fail or create erroneous results. The Company is
currently in the process of determining if any of its systems and equipment
present Year 2000 issues. Regardless of the Year 2000 compliance of the
Company's systems, there can be no assurance that the Company will not be
adversely affected by the failure of others to become Year 2000 compliant.
Because of these uncertainties regarding the failure of others, there can be no
assurance that the Year 2000 issue will not have a material financial impact in
any future period.
Government Regulation. The UTS(TM) will be subject to regulation by the
Commission, the PHLX, and other SRO's, which are charged with protecting the
interests of the investing public and the integrity of the securities markets.
Failure to comply with any rule or regulation established by these entities may
subject UTTC(TM) to suspension or penalties which could have a material adverse
affect on UTTC(TM) and the consolidated operations of the Company.
On April 17, 1998, the Commission proposed new rules that would allow
alternative trading systems, such as the UTS(TM), to register and operate as
broker-dealers or national securities exchanges independently, rather than
relying on a sponsoring exchange to incorporate such alternative trading system
as a facility of the
-8-
<PAGE>
exchange. In addition, the Commission proposed rules that would allow national
securities exchanges, such as the PHLX, to implement, for a period of two years,
pilot alternative trading systems without prior Commission approval. Ashton and
UTTC(TM) intend to take advantage of opportunities presented by the new
Commission rules. However, there can be no assurance that the Commission will
issue such rules in final form, whether the Commission will alter the scope or
form of the proposed rules, or whether such rules will ultimately be adopted. In
the event such alternative trading system rules are not adopted in their current
form, the Company will seek other avenues to implement its electronic trading
systems.
Dependence on Key Employees. The Company's success is dependent to a
significant degree upon the services of its key employees Fredric W.
Rittereiser, Robert A. Eprile, John A. Blohm, Fred S. Weingard, and Julio Gomez.
The loss of any one or more of these key employees could have a material adverse
effect on the Company's operations. Ashton has entered into a multi-year
employment agreement with Mr. Weingard. In October 1995, the Company obtained
key-man term life insurance policies in the amount of $900,000 each on the lives
of Fred S. Weingard, John A. Blohm, and Robert A. Eprile, and $5,000,000 on the
life of Fred W. Rittereiser in November 1997. The Company further believes that
its future success will depend in large part upon its ability to attract and
retain additional highly-skilled technical, managerial, sales and marketing
personnel. There can be no assurance that the Company will succeed in its effort
to attract appropriate personnel. Competition for such personnel in the
information technology development industry is intense. Failure to attract and
retain such personnel could have an adverse effect on the Company and its
subsidiaries operating results and financial condition.
Possible Unspecified Acquisitions. One of the Company's strategies is to
attempt to grow through the acquisition of one or more products or companies
focused on advanced information technologies. Stockholders of the Company may
not have the power to approve or disapprove an acquisition. The Company receives
and expects to continue to receive inquiries as to its interest in acquiring
other products and companies and forming other business combinations. There can
be no assurance that the Company will find suitable acquisitions or that an
acquisition or other business combination can be completed upon terms acceptable
to the Company. Additionally, the Company may require significant additional
financing to complete any acquisition. There can be no assurance that such
financing will be available, or if it is available, that it will be available on
acceptable terms.
No Dividends and None Anticipated. The payment by Ashton of cash dividends
on its Common Stock, if any, in the future rests within the discretion of its
Board of Directors and will depend, among other things, upon Ashton's earnings,
its capital requirements and its financial condition as well as other relevant
factors. Ashton has not paid or declared any cash dividends upon its Common
Stock since its inception. While there are no contractual limitations on the
Company's ability to pay dividends, by reason of its present financial status
and its contemplated future financial requirements, the Company does not
anticipate making any cash distributions on its Common Stock in the foreseeable
future. The payment of dividends by the Company must also be in compliance with
the provisions of the General Corporation Law of the State of Delaware (the
"GCL").
Possible Issuance of Additional Preferred Stock. Ashton is authorized to
issue up to 3,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"). As described in further detail herein, Preferred Stock has
been issued in the following series: Series A Convertible PIK Preferred Stock;
Series B Convertible Preferred Stock; Series C Convertible Preferred Stock;
Series D Convertible Preferred Stock; and Series E Convertible Preferred Stock.
Further series of Preferred Stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors
without further action by stockholders. The terms of any issuance of Preferred
Stock may include voting rights (including the right to vote as a series on
particular matters) which could be superior to those of the shares of Common
Stock, preferences over the shares of Common Stock as to dividends and
distributions in liquidation, conversion and redemption rights (including the
right to convert into shares of Common Stock) and sinking fund provisions. Four
series of Preferred Stock, in the aggregate 837,503.15 shares are currently
outstanding (250,000 shares of Series A, 587,500 shares of Series B, and 3.15
shares of Series D). Ashton has no current plans for the issuance of any
additional
-9-
<PAGE>
series of Preferred Stock. The issuance of any additional Preferred Stock could
affect the rights of the holders of Common Stock and could reduce the value of
the Common Stock.
Possible Dilution from Conversion of Preferred Stock. The number of shares
of Common Stock issuable upon conversion of the Company's outstanding
Convertible Preferred Stock including the Series A Convertible PIK Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series D Convertible
Preferred Stock, and Series E Convertible Preferred Stock is not fixed and may
result in substantial dilution to current stockholders. The sales of the
underlying shares of Common Stock could adversely affect the market price of the
Common Stock. Purchasers of Common Stock could therefore experience substantial
dilution of their investment upon conversion of any or all of the outstanding
series of Convertible Preferred Stock. The shares of Convertible Preferred Stock
are not registered and may be sold only if registered under the Securities Act
or sold in accordance with an applicable exemption from registration, such as
Rule 144. Shares of Common Stock into which certain series of the Preferred
Stock may be converted are being registered pursuant to this Registration
Statement.
Requirements for Listing Securities on NASDAQ SmallCap Market. The Common
Stock and the Warrants have been approved for quotation on NASDAQ SmallCap
Market. The rules of NASDAQ SmallCap establish criteria for continued quotation
of securities on NASDAQ SmallCap. While the Company expects to meet such
criteria, there can be no assurance that it will be able to maintain the
standards for continued quotation. Continued inclusion on NASDAQ SmallCap
generally requires that: (i) the Company maintain at least $4,000,000 in net
tangible assets, (ii) the minimum bid price of the Common Stock be $1.00 per
share, (iii) there be at least 750,000 shares in the public float valued at $5
million or more, (iv) the shares of Common Stock have at least two active market
makers and (v) the shares of Common Stock be held by at least 400 holders. If
the Company fails to meet the standards for continued quotation, the market for
the securities may be affected adversely and holders may be unable to sell their
shares of Common Stock or Warrants. Trading, if any, in the securities would
thereafter be conducted in the over-the-counter market in what are commonly
referred to as the "pink sheets". If this were to occur, an investor would find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of the securities.
"Penny Stock" Regulations. The Commission has adopted regulations under the
Exchange Act which generally define a "penny stock" to be any equity security
that has a market price (as defined in the Exchange Act) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. If the securities are removed from NASDAQ SmallCap, at the market
prices of the Common Stock and Warrants on the date hereof, the securities may
be deemed to be "penny stocks" and become subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities, information on
the limited market in penny stocks and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. In addition, the broker-dealer must obtain a
written acknowledgment from the customer that such disclosure information was
provided and must retain such acknowledgment for at least three years. Further,
monthly statements must be sent disclosing current price information for the
penny stock held in the account. While many securities quoted on the NASDAQ
Stock Market would otherwise be covered by the definition of penny stock,
transactions in a non-NASDAQ security would be exempt from all but the sole
market maker provision for: (i) securities priced at five dollars more, (ii)
securities registered on a national securities exchange, (iii) securities
authorized for quotation in the NASDAQ system, and (iv) securities whose issuer
has net tangible assets in excess of $2,000,000, if the issuer has been in
continuous operation for at least three years, or $5,000,000, if the issuer has
been in continuous operation for less than three years, or the issuer has
average revenue of at least $6,000,000 for the last 3 years. In addition,
transactions in a NASDAQ security directly with a NASDAQ market maker for such
securities would be subject only to the sole market maker disclosure and the
disclosure with respect to commissions to be paid to the broker-dealer and the
registered representative.
The above-described rules may materially adversely affect the liquidity for
the market of the Company's securities should they cease to be quoted on the
NASDAQ SmallCap Market. Such rules may also affect the ability of broker-dealers
to sell the securities and may impede the ability of Warrantholders or
subsequent holders of the shares of Common Stock, Warrants and Preferred Stock
to purchase Common Stock, to sell such securities in the secondary market.
-10-
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
by the Selling Stockholders. Upon exercise of the Series C, Series D, and Series
E Warrants held by the Selling Stockholders, the Company will receive
approximately $2,214,702, which will be used for general corporate purposes.
Upon exercise of all of the Series D&E Puts by the Company, the Company will
receive an aggregate of up to $13 million, which will be used for general
corporate purposes.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
All of the shares of Common Stock of the Company covered by this Prospectus
are being sold for the account of the (i) holders of the Series D Convertible
Preferred Stock, including the Placement Agent for the sale of such preferred
stock (the "Series D Preferred Stockholders"); (ii) holders of the Series E
Convertible Stock, including the Placement Agent for the sale of such preferred
stock (the "Series E Preferred Stockholders"); (iii) holders of the Series C
Warrants, including the Placement Agent for the sale of such Warrants (the
"Series C Warrantholders"); (iv) holders of the Series D Warrants, including the
Placement Agent for the sale of such warrants (the "Series D Warrantholders");
and (v) holders of the Series E Warrants, including the Placement Agent for the
sale of such Warrants (the "Series E Warrantholders"). The Series D and Series E
Preferred Stockholders are also obligated to purchase shares of the Company's
Common Stock upon the exercise of Put Rights obtained by the Company in
connection with the sale of the Series D and Series E Preferred Stock.
An indeterminate number of shares of Common Stock, initially 2,896,350 as
of the date of this Prospectus, are being offered for resale by the Series D
Preferred Stockholders upon conversion of the Series D Preferred. An
indeterminate number of shares of Common Stock, initially 1,810,218 as of the
date of this Prospectus are being offered for resale by the Series E Preferred
Stockholders upon conversion of the Series E Preferred. A total of up to 200,000
shares of Common Stock are being offered for resale by the Series C
Warrantholders upon the exercise of outstanding, unexecised Series C Warrants. A
total of up to 880,000 shares of Common Stock are being offered for resale by
the Series D Warrantholders upon the exercise of outstanding, unexercised Series
D Warrants. A total of up to 320,000 shares of Common Stock are being offered
for resale by the Series E Warrantholders upon the exercise of outstanding,
unexercised Series E Warrants. An indeterminate number of Shares of Common
Stock, 8,897,100 shares as of the date of this Prospectus are being offered for
resale by the Series D and Series E Preferred Stockholders upon the exercise by
the Company of the Series D&E Puts.
The shares of Common Stock being offered by the Selling Stockholders or
their respective pledgees, donees, transferees or other successors in interest,
may be sold in one or more transactions (which may involve block transactions)
on the NASDAQ SmallCap Market or on such other market on which the Common Stock
may from time to time be trading, in privately-negotiated transactions, through
the writing of options on the shares, short sales or any combination thereof.
The sale price to the public may be the market price prevailing at the time of
sale, a price related
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<PAGE>
to such prevailing market price or such other price as the Selling Stockholders
determine from time to time. The shares may also be sold pursuant to Section
4(1) of the Securities Act or Rule 144 thereunder.
The Selling Stockholders or their respective pledgees, donees, transferees,
or other successors in interest, may also sell the shares of Common Stock
directly to market makers acting as principals and/or broker-dealers acting as
agents for themselves or their customers. Brokers acting as agents for the
Selling Stockholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the shares will
do so for their own account and at their own risk. It is possible that a Selling
Stockholder will attempt to sell shares of Common Stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the shares of
Common Stock offered hereby will be issued to, or sold by, the Selling
Stockholders. The Selling Stockholders and any brokers, dealers, or agents, upon
effecting the sale of any of the shares offered hereby, may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations thereunder.
The Selling Stockholders and any other persons participating in the sale or
distribution of the shares of Common Stock will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions of the Exchange Act may limit the timing of purchases and sales of
any other such person. The foregoing may affect the marketability of the shares.
The Company has agreed to indemnify certain Selling Stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments certain Selling
Stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect thereof.
Listed below are the names of each Selling Stockholder, the total number of
shares owned and the number of shares to be offered for each Selling Stockholder
account, and the percentage of Common Stock owned by each Selling Stockholder
before and after this Offering:
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<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK SHARES OF COMMON
SHARES OF BEING OFFERED STOCK OWNED OF
COMMON STOCK FOR SELLING RECORD AFTER
OWNED OF RECORD STOCKHOLDER'S COMPLETION OF
PRIOR TO OFFERING ACCOUNT OFFERING
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
I Series C Warrantholders
Avalon Capital Limited 50,000 * 50,000 0 *
Balmore Funds, S.A 50,000 * 50,000 0 *
Settondown Capital International, 872,482 * 100,000(2) 28,362 *
Ltd.(1)
II Series D Preferred
Stockholders and
Warrantholders(3)
Dominion Capital Fund, Inc. 1,076,947 * 1,076,947 0 *
Canadian Advantage Limited 1,076,947 * 1,076,947 0 *
Partnership
</TABLE>
- ----------
* Less than 1%.
(1) Acted as Placement Agent for the Company in connection with sale of Series
C, Series D, and Series E Preferred Stock and Warrants.
(2) Does not include 517,920 shares issuable upon conversion of the Series D
and 326,200 shares issuable upon conversion of the Series E Preferred Stock
and Warrants.
(3) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Series D and Series E
Preferred Stockholders and Warrantholders. The actual number of shares of
Common Stock issuable upon conversion of the Series D Preferred, and Series
E Preferred and the exercise of the Series C Warrants, Series D Warrants,
and Series E Warrants is indeterminate, subject to adjustment and could be
materially less or more than such estimated number depending on factors
which cannot be predicted by the Company at this time, including, among
other factors, the future market price of the Common Stock. The actual
number of shares of Common Stock offered hereby, and included in the
Registration Statement of which this Prospectus is a part, includes such
additional number of shares of Common Stock as may be issued or issuable
upon conversion of the Series D Preferred, and Series E Preferred and the
exercise of the Series C Warrants, Series D Warrants, and Series E Warrants
by reason of the floating rate conversion price mechanism or other
adjustment mechanisms described therein, or by reason of any stock split,
stock dividend or similar transaction involving the Common Stock, in order
to prevent dilution, in accordance with Rule 416 under the Securities Act.
The Certificates of Designation governing the Series D Preferred, the
Series E Preferred, Series C Warrants, Series D Warrants, and Series E
Warrants each contain provisions which limit the number of shares of Common
Stock into which the shares of Series D Preferred, and Series E Preferred
and the Warrants are convertible. Under these provisions, the number of
shares of Common Stock into which the Series D Preferred, Series E
Preferred are convertible (together with any additional shares of Common
Stock held by these Selling Stockholders) will not exceed 4.99% of the
Company's then outstanding Common Stock. Accordingly, the number of shares
of Common Stock set forth in the table for these Selling Stockholders
exceeds the number of shares of Common Stock that these Selling
Stockholders could own beneficially at any given time through their
ownership of the Series D Preferred and Series E Preferred.
-13-
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK SHARES OF COMMON
SHARES OF BEING OFFERED STOCK OWNED OF
COMMON STOCK FOR SELLING RECORD AFTER
OWNED OF RECORD STOCKHOLDER'S COMPLETION OF
PRIOR TO OFFERING ACCOUNT OFFERING
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Excalibur Limited Partner 807,710 * 807,710 0 *
Sovereign Partners Limited 269,237 * 269,237 0 *
Partnership
Settondown Capital International 872,482 * 517,920 28,362 *
Ltd.(4)
III Series E Preferred
Stockholders and
Warrantholders
Series E Investors(5) 1,923,852 * 1,923,852 0 *
Settondown Capital
International Ltd. 872,482 * 326,200(6) 28,362 *
</TABLE>
- ----------
(4) Does not include 100,000 shares issuable upon conversion of the Series C
Preferred Stock and Warrants and 326,200 shares issuable upon conversion of
the Series E Preferred Stock and Warrants.
(5) The 961,926 shares (for which 1,923,852 shares have been registered by
agreement), issuable upon conversion of the Series E Preferred Stock and
Warrants will be allocated among four investors: (1) Dominion Capital Fund,
Inc., (2) Canadian Advantage Limited Partnership, (3) Excalibur Limited
Partner and (4) Sovereign Partners Limited Partnership, after the date of
this Registration Statement.
(6) Does not include 100,000 shares issuable upon conversion of the Series C
Preferred Stock and Warrants and 517,920 shares issuable upon conversion of
the Series D Preferred Stock and Warrants.
-14-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of May 29, 1998, the authorized capital stock of the Company consisted
of 60,000,000 shares of Common Stock, par value $.01 per share, of which
8,677,913 were issued and outstanding, and 3,000,000 shares of Preferred Stock,
of which 837,503.15 were issued and outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. The Common Stock has
no preemptive or conversion rights or other subscription rights and there are no
redemptive or sinking funds provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and all
the shares of Common Stock offered by the Company hereby will, when issued, be
fully paid and non-assessable.
On January 27, 1998, the Company completed the sale of 100,000 shares of
the Series C Convertible Preferred Stock to a group of foreign investors
including the Placement Agent for such sale, (the "Investors"), with a
liquidation preference of $10.00 per share (the "Series C Preferred"), for an
aggregate purchase price of $1,000,000 ("Series C Shares"). Holders of the
Series C Shares have the right to convert each Series C Share into one share of
Common Stock at a prescribed conversion price. Each of the holders of the Series
C Preferred exercised their conversion rights in March and April, 1998. As of
March 31, 1998, 50,000 shares of the Series C Shares had been converted into
281,071 shares of ATG(TM) Common Stock. Between March 31 and April 21, 1998, the
remainder of the Series C Shares were converted into 314,342 shares of ATG(TM)
Common Stock. In connection with the sale of the Series C, the Investors and the
Placement Agent received Warrants to purchase an aggregate of 200,000 shares of
Common Stock at an exercise price of 105% of the Market Price, as defined in the
Series C Certificate of Designation, for a period of five years.
On April 2, 1998, the Company entered into a Private Equity Line of Credit
Agreement (the "Line of Credit"), pursuant to Regulation D under the Securities
Act with the Series D and Series E Preferred Stockholders. Pursuant to, and upon
the satisfaction of certain conditions set forth in the Line of Credit, the
Company was granted certain put rights allowing the Company to cause the Series
D & Series E Preferred Stockholders to purchase up to $13,000,000 in Common
Stock at certain intervals, and at certain volumes and prices. The number of
shares to be purchased is to be determined by a conversion formula set forth in
the Line of Credit. For purposes of this Registration Statement, were the put
rights to be exercised in their entirety as of June 26, 1998 at a stock price of
$3.438, the Series D Series E Preferred Stockholders would be obligated to
purchase 4,448,550 shares of Common Stock. In addition, pursuant to the Line of
Credit, the Series D and Series E Preferred Stockholders and the Placement Agent
acquired Warrants to purchase, in the aggregate, 600,000 shares of Common Stock
at prices to be determined in the Line of Credit Agreement. In connection with
the foregoing offerings of Preferred Stock and the Line of Credit, K. Ivan F.
Gothner, a director of the Company, received $200,000 and an option to purchase
600,000 shares of Common Stock at an exercise price of $1.875 per share for his
services in structuring the investments. In addition, the Company expects to pay
Mr. Gothner additional compensation in the amount of 5% of the proceeds received
at the time of conversion in connection with these offerings.
-15-
<PAGE>
Anti-Takeover Provisions
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
The Company's Bylaws provide that (i) the authorized number of directors
may be changed only by resolution of the Board of Directors, and (ii) directors
can only be removed with or without cause by a majority vote of the
stockholders. These provisions could have the effect of delaying, deterring or
preventing a change in control of the Company or depressing the market price of
Common Stock or discouraging hostile bids in which stockholders of the Company
could receive a premium for their shares of Common Stock. The Company is
considering whether to adopt additional anti-takeover measures.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is North
American Transfer Company.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Ballard Spahr
Andrews & Ingersoll, L.L.P., Philadelphia, PA.
EXPERTS
The consolidated financial statements of the Company and subsidiaries for
the fiscal year ended March 31, 1997, incorporated by reference in to this
Prospectus and Registration Statement, have been audited by Goldstein Golub
Kessler & Company, P.C. Such financial statements and schedules have been so
incorporated in reliance upon such report given the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is hereby made to such
Registration Statement, exhibits, and schedules. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete with respect to each such contract or document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Commission in Washington, D.C. and copies of such material
may be obtained from such upon payment of the fees prescribed by the Commission.
-16-
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus. If
given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any securities other than the
shares of Common Stock to which it relates or an offer or solicitation to any
person in any jurisdiction where such an offer or soliciation would be unlawful.
Neither delivery of this Prospectus nor sale made hereunder shall under any
circumstances create an implication that information contained herein is correct
as of any time subsequent to its date.
TABLE OF CONTENTS
-----------------
PAGE
----
Available Information 2
Incorporation of Certain
Documents by Reference 2
Description of the Company 3
Risk Factors 5
Use of Proceeds 11
Selling Stockholders
and Plan of Distribution 11
Description of Capital Stock 15
Legal Matters 16
Experts 16
Additional Information 16
----------
================================================================================
================================================================================
================================================================================
================================================================================
================================================================================
15,003,668 Shares
THE ASHTON TECHNOLOGY
GROUP, INC.
Common Stock
----------------
PROSPECTUS
----------------
July __, 1998
================================================================================
================================================================================
================================================================================
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses of the sale and
distribution of the securities being registered, all of which are being borne by
the Company.
Securities and Exchange Commission filing fee.......................$ 15,216.87
Printing expenses...................................................$ 4,145.00
Legal fees and expenses.............................................$ 17,000
Miscellaneous....................................................... -0-
Total..........................................................$ 36,361.87
All of the amounts shown are estimates except for the fee payable to the
Securities and Exchange Commission.
Item 15. Indemnification of Directors and Officers
The Delaware General Corporation Law authorizes the Company to grant
indemnities to directors and officers in terms sufficiently broad to permit
indemnification of such persons under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933. In addition, the Company has obtained Directors' and Officers'
Liability Insurance, which insures its officers and directors against certain
liabilities such persons may incur in their capacities as officers or directors
of the Company.
Article 7 of the Company's Amended Certificate of Incorporation provides as
follows:
SEVENTH: Directors of the Corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation, or (4) a transaction from which the director
derived an improper personal benefit.
Item 16. Exhibits
The following is a list of exhibits filed as part of this Registration
Statement.
Exhibit
Number Description
- ------ -----------
4.1, 4.2, 4.3 Certificates of Designation for the Company's Common Stock and
for the Company's Series C, D, and E of Convertible Preferred
Stock.
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
23.1 Consent of Goldstein Golub Kessler & Company, P.C.
II-1
<PAGE>
27.1 Financial Data Schedule
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of Prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and.
(iii) Include any additional or changed material information on the
plan of distribution;
Provided, however, that, for small business issuers, paragraphs (1)(i) and
(1)(ii) of this section do not apply if the Registration Statement is on Form
S-3 or Form S-8, and the information required in a post-effective amendment is
incorporated by reference from periodic reports filed by the small business
issuer under the Exchange Act.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement of the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of
the securities being registered which remain unsold at the end of the offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on June
29, 1998.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
-----------------------------------------
Fredric W. Rittereiser
President and Chief Executive Officer
We, the undersigned directors and officers of The Ashton Technology Group,
Inc., do hereby constitute and appoint Robert Eprile and John A. Blohm, each
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things either of them may deem necessary
or advisable to enable The Ashton Technology Group, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any or all of us in our names, in the capacities stated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Fredric W. Rittereiser Director, President and Chief Executive June 29, 1998
- ----------------------------------------- Officer (Principal Executive Officer)
Fredric W. Rittereiser
/s/ Robert Eprile Chairman of the Board (Principal Financial June 29, 1998
- ----------------------------------------- Officer)
Robert Eprile
/s/ John A. Blohm Director and Treasurer (Principal Accounting June 29, 1998
- ----------------------------------------- Officer)
John A. Blohm
/s/ Fred S. Weingard Director June 29, 1998
- -----------------------------------------
Fred S. Weingard
Director June 29, 1998
- -----------------------------------------
K. Ivan F. Gothner
Director June 29, 1998
- -----------------------------------------
Richard Butler
/s/ William Uchimoto Director and General Counsel June 29, 1998
- -----------------------------------------
William Uchimoto
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number
- --------------
4.1 Certificate of Designation of the Company's
Series C Convertible Preferred Stock
4.2 Certificate of Designation of the Company's
Series D Convertible Preferred Stock
4.3 Certificate of Designation of the Company's
Series E Convertible Preferred Stock
5.1 Opinion of Ballard Spahr Anderson & Ingersoll, L.L.P.
23.1 Consent of Goldstein Golub Kessler & Company, P.C.
27.1 Financial Data Schedule
II-4
THE ASHTON TECHNOLOGY GROUP, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES C CONVERTIBLE
PREFERRED STOCK
----------
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
----------
The Ashton Technology Group, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that pursuant to the provisions of
Section 151 of the DGCL, the Board of Directors of the Corporation, at a meeting
duly convened on January 26, 1998 at which a quorum was present at all times,
adopted the following resolution, which resolution remains in full force and
effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Corporation's Certificate of
Incorporation, to fix by resolution or resolutions the designation of each class
or series of Preferred Stock (the "Preferred Stock") and the voting powers, and
any designations, preferences, and relative, participating, optional or other
special rights of any such class or series of Preferred Stock, as well as such
other provisions with regard to redemption (at the option of the holders thereof
and/or at the option of the Corporation), dividends, dissolution or the
distribution of assets, conversion or exchange, and any qualifications or
restrictions thereof or such other subjects or matters as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority, to authorize and fix the terms of the series of
Preferred Stock designated as Series C Convertible Preferred Stock;
NOW THEREFORE, be it resolved, that the terms and provisions of such series
and all other right or preferences granted to or imposed upon such series or the
holders thereof are as herein set forth:
-1-
<PAGE>
1. Designation, Amount and Par Value. Of the authorized but unissued shares
of Preferred Stock, 105,000 shares are designated Series C Convertible Preferred
(the "Series C Preferred"). The Series C Preferred will have a par value equal
to $0.01 per share.
2. Rank. The Series C Preferred shall, with respect to dividend rights or
rights upon liquidation, dissolution and winding-up of the Corporation, rank
pari passu with all other series of Preferred Stock or other class of security
expressly ranking pari passu ("Pari Passu Classes") with the Series C Preferred
(including, without limitation, the Series A Convertible PIK Preferred Stock and
Series B Convertible Preferred Stock of the Corporation) and prior to all series
or classes of Common Stock of the Corporation ("Common Stock). Nothing contained
herein shall be construed to prohibit the Corporation from authorizing or
issuing, in accordance with its Certificate of Incorporation and By-Laws, as the
same may be amended and in effect from time to time, any classes or series of
equity securities of the Corporation ranking senior to or pari passu with the
Series C Preferred with respect to dividend rights or rights upon liquidation,
dissolution and winding-up of the Corporation or both.
3. Dividends. The holders of the shares of the Series C Preferred shall not
be entitled to dividends.
4. Liquidation Preference.
a) Subject to the rights of holders of any class of capital stock or
series thereof expressly ranking senior to the Series C Preferred, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, the holder of each share of the Series C Preferred then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to $10.00 for
each share of Series C Preferred then held by such holder (such amount being
herein called the "Liquidation Preference") before any payment shall be made or
any assets distributed to the holders of Common Stock or any other series of
capital stock junior to the Series C Preferred. If the assets of the Corporation
are not sufficient to pay in full the payments payable to the holders of
outstanding shares of Series C Preferred and any Pari Passu Classes upon the
liquidation, dissolution or winding-up of the affairs of the Corporation, then
the holders of all such shares shall share ratably with all other holders of
shares of Series C Preferred and Pari Passu Classes in such distribution of
assets in proportion to the Liquidation Preference of the respective shares.
b) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more other corporations or other entities shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation, voluntarily or
involuntarily.
-2-
<PAGE>
5. Conversion.
a) Rights of Holder to Convert. The holders of shares of Series C
Preferred shall have the right to convert all or a portion of the Series C
Preferred into shares of the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation so that each share of Series C Preferred is
convertible into such numbers of shares of Common Stock determined by dividing
the Liquidation Preference of each share of Series C Preferred by the Conversion
Price. For the purposes hereof, the Conversion Price shall be equal to the
following: (i) if the Market Price at the Conversion Date is less than $1.8774,
the Conversion Price is equal to the lessor of 75% of the Market Price at the
Conversion Date or $1.2516; or (ii) if the Market Price at the Conversion Date
is equal to or greater than $1.8774, the Conversion Price is equal to $1.2516
plus 50% of the difference between the Market Price at the Conversion Date and
$1.8774. For purposes of this Section 5, the "Market Price" shall mean the
average of the closing bid prices per share of the Common Stock over the five
consecutive trading days ending on the trading day immediately preceding the
date the applicable holder of Series C Preferred Stock elects to have shares of
Series C Preferred Stock converted (the "Conversion Date") (i) as reported by
the National Association of Securities Automated Quotation System (' NASDAQ"),
or (ii) if not quoted by NASDAQ, then as reported in the over-the-counter
market; or (iii) in the event the Common Stock is listed on a national stock
exchange, as reported on such exchange, in each case as reported by Bloomberg,
L.P.
Each outstanding share of Series C Preferred Stock shall be
automatically converted into Common Stock on January 26, 2000 (the "Expiration
Date") in accordance with the then applicable Conversion Ratio.
b) Adjustments to Conversion Ratio. The Conversion Ratio shall be
adjusted from time to time by the Board of Directors of the Corporation to
reflect the effect of any stock dividend, stock split, reverse stock split,
merger, consolidation, recapitalization (other than the issuance of Common Stock
in exchange for indebtedness or other obligation of similar value),
reorganization or other similar transaction affecting the Corporation so that
immediately following such event the holders of the Series C Preferred shall be
entitled to receive upon conversion thereof the kind and amount of shares of
securities of the Corporation and other property which they would have owned or
been entitled to receive upon or by reason of such event if such shares of
Series C Preferred had been converted immediately before the record date (or, if
no record date, the effective date) for such event. An adjustment made pursuant
to this paragraph b) of this Section 5 shall become effective immediately after
the opening of business on the day next following the record date in the case of
a dividend or distribution and shall become effective immediately after the
opening of business on the day next following the effective date in the case of
a subdivision, combination, reclassification, merger, recapitalization,
reorganization or other similar transaction. In case of (i) any consolidation or
merger to which the Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change (other than a change in
par value or from par value to no par value or from no par value to par value,
or as a result of a
-3-
<PAGE>
subdivision or combination) in, outstanding shares of Common Stock (or such
other class or series of Common Stock into which shares of Series C Preferred
are then convertible), or (ii) any sale or conveyance of all or substantially
all of the property and assets of the Corporation, then provision shall be made
as part of the terms of such transaction whereby the holder of each share of
Series C Preferred which is not converted into the right to receive stock or
other securities and property in connection with such transaction shall have the
right thereafter to convert such shares of Series C Preferred into the kind and
amount of shares of stock or other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of Series C Preferred could have been
converted immediately prior to such consolidation, merger, sale or conveyance,
subject to adjustment which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this paragraph b) of this Section 5. The
Corporation shall not enter into any of the transactions referred to in clauses
(i) or (ii) of the first sentence of this paragraph unless, prior to the
consummation thereof, effective provisions shall be made in a certificate or
articles of incorporation or other constituent document or written instrument of
the Corporation or the Surviving Entity, as the case may be, so as to provide
for the assumption by the Corporation or such Surviving Entity, as the case may
be, of the obligation to deliver to each holder of shares of Series C Preferred
such stock or other securities and property and otherwise give effect to the
provisions set forth in this paragraph. For the purposes hereof, "Surviving
Entity" means any entity (other than the Corporation) surviving any
consolidation or merger referred to in this paragraph, or the entity acquiring
the Corporation's assets. The provisions of this paragraph shall apply similarly
to successive consolidations, mergers, sales or conveyances.
The Corporation shall give each holder of Series C Preferred prior
written notice delivered to the applicable address set forth on the record books
of the Corporation of each adjustment made pursuant to this paragraph b) of
Section 5.
c) Procedures for Conversion. Any holder of Series C Preferred
electing to convert such shares or any portion thereof shall deliver to the
Corporation at its principal office by telecopy an executed and completed Notice
of Conversion and, by express courier, the certificate representing the Series C
Preferred Stock to the Corporation. Each business date on which a Notice of
Conversion is telecopied to and received by the Corporation in accordance with
the provisions hereof shall be deemed the Conversion Date. The Corporation will
transmit the certificates representing shares of Common Stock issuable upon
conversion of any Series C Preferred Stock (together with the certificates
representing the Series C Preferred Stock not so converted) to the holders via
express courier, by electronic transfer or otherwise within three business days
after the Conversion Date if the Corporation has received the original Notice of
Conversion and Series C Preferred Stock certificate being so converted by such
date. In addition to any other remedies which may be available to the holders,
in the event that the Corporation fails for any reason to effect delivery of
such shares of Common Stock within such three business day period, the holders
will be entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Corporation whereupon the Corporation and the
holders shall each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion.
-4-
<PAGE>
The Notice of Conversion and Series C Preferred Stock representing the portion
of the shares converted shall be delivered to the principal office of the
Corporation at its then current address.
In the event that the Common Stock issuable upon conversion of the
Series C Preferred Stock is not delivered within three business days of receipt
by the Corporation of a valid Conversion Notice and the Series C Preferred Stock
to be converted, the Corporation shall pay to the holders. in immediately
available funds. upon demand, as liquidated damages for such failure and not as
a penalty, for each share of Series C Preferred Stock sought to be converted,
$0.05 for each of the first 10 days and $.10 per day thereafter that the
conversion shares are not delivered. Such liquidated damages shall run from the
sixth business day after the Conversion Date up until the time that either the
Notice of Conversion is revoked or the Common Stock has been delivered, at which
time liquidated damages shall cease. Any and all payments required pursuant to
this paragraph shall be payable only in immediately available funds to the
stockholders at the addresses indicated in the records of the Corporation.
d) No Fractional Securities. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series C Preferred. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any share or shares of Series C Preferred, the Corporation shall
pay a cash adjustment in respect of such fraction in such amount as the Board of
Directors of the Corporation shall in good faith determine.
e) Taxes. If a holder converts shares of Series C Preferred, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation to the holder upon the
conversion. The holder shall pay any such tax due because any shares are issued
in a name other than the holder's.
f) Reservation of Shares. The Corporation shall at all times reserve
out of its authorized but unissued shares of Common Stock, or such shares held
in treasury enough of such shares (or other securities deliverable upon
conversion) to permit the conversion of all of the Series C Preferred then
outstanding. All shares of Common Stock issued upon due conversion of shares of
Series C Preferred shall be validly issued, fully paid and non-assessable.
6. Redemption.
a) General. At any time and from time to time, the Corporation may
redeem all or any portion of the then outstanding Series C Preferred for an
amount in cash equal to the Conversion Price (the "Redemption Funds"), as such
Conversion Price is to be determined on the day prior to the date the Redemption
Notice as defined below is received by the holders of shares of Series C
Preferred multiplied by the number of shares of Series C Preferred to be
redeemed in accordance with the provisions of this Section 6.
b) Redemption Procedure. If the Corporation shall determine to redeem
less than all shares of the Series C Preferred then outstanding pursuant to
paragraph a) of this Section 6, the shares to be redeemed shall be selected pro
rata (or as nearly as may be) so that the
-5-
<PAGE>
number of shares redeemed from each holder shall bear the same proportion to all
the shares to be redeemed that the total number of shares then held by such
holder bears to the total number of shares then outstanding.
c) Notice. Notice of every redemption pursuant to this Section 6 (the
"Redemption Notice") shall be sent by facsimile and mailed. by reputable express
courier, not less than 10 days prior to the date fixed for redemption
(the"Redemption Date"), to each holder's address as it appears on the books of
the Corporation. Each such notice shall state: the Redemption Date; the number
of shares of Series C Preferred to be redeemed, and, if less than all shares of
Series C Preferred held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; the redemption price applicable to the
shares to be redeemed; and the place or places where such shares are to be
surrendered.
d) Rights of Holders. (i) Each holder of shares of Series C Preferred
called for redemption shall have the right to effect the conversion as provided
in Section 5 hereof within 10 days after the date of the Redemption Notice; (ii)
if the Corporation fails to deliver the Redemption Funds to the holders of the
shares called for redemption on the 10th day from the date of the receipt of the
Redemption Notice by the holder, the redemption shall be declared null and void
and the Corporation shall lose any further redemption privileges but the holders
shall retain their right to effect the conversion; and (iii) if less than all
the shares represented by any surrendered certificate are redeemed, a new
certificate representing the unredeemed shares shall be promptly issued to the
holder who surrendered such certificate.
e) Status of Redeemed Shares. Any share of Series C Preferred redeemed
or otherwise purchased or acquired by the Corporation shall be retired, shall no
longer be deemed outstanding, and shall not be reissued.
7. Voting Rights.
a) Generally. The holders of record of shares of Series C Preferred
shall not be entitled to vote on any matters presented to the stockholders of
the Company for approval, except as required by law.
8. General Provisions.
a) "Outstanding" Securities. The term "outstanding", when used with
reference to shares of stock, shall mean issued shares, excluding shares held by
the Corporation, or a subsidiary thereof.
-6-
<PAGE>
b) Headings. The headings of the paragraphs, subparagraphs, clauses,
and sub-clauses of this Certificate of Designations are for convenience of
reference only and shall not define, limit, or affect any of the provisions
hereof.
IN WITNESS WHEREOF, The Ashton Technology Group, Inc. has caused this
certificate to be signed by its Chairman and Secretary, respectively, this 26th
day of January, 1998.
----------------------------------------
Name: Robert A. Eprile
Title: Chairman
----------------------------------------
Name: John Blohm
Title: Secretary
-7-
THE ASHTON TECHNOLOGY GROUP, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES D CONVERTIBLE
PREFERRED STOCK
----------
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
----------
The Ashton Technology Group, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that pursuant to the provisions of
Section 151 of the DGCL, the Board of Directors of the Corporation, at a meeting
duly convened on March 31, 1998 at which a quorum was present at all times,
adopted the following resolution, which resolution remains in full force and
effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Corporation's Certificate of
Incorporation, to fix by resolution or resolutions the designation of each class
or series of Preferred Stock (the "Preferred Stock") and the voting powers, and
any designations, preferences, and relative, participating, optional or other
special rights of any such class or series of Preferred Stock, as well as such
other provisions with regard to redemption (at the option of the holders thereof
and/or at the option of the Corporation), dividends, dissolution or the
distribution of assets, conversion or exchange, and any qualifications or
restrictions thereof or such other subjects or matters as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority, to authorize and fix the terms of the series of
Preferred Stock designated as Series D Convertible Preferred Stock;
NOW THEREFORE, be it resolved, that the terms and provisions of such series
and all other right or preferences granted to or imposed upon such series or the
holders thereof are as herein set forth:
1. Designation, Amount and Par Value. Of the authorized but unissued shares
of Preferred Stock, ten (10) shares are designated Series D Convertible
Preferred (the "Series D Preferred"). The Series D Preferred will have a par
value equal to $0.01 per share.
2. Rank. The Series D Preferred shall, with respect to dividend rights or
rights upon liquidation, dissolution and winding-up of the Corporation, rank
pari passu with all other series of Preferred Stock or other class of security
expressly ranking pari passu ("Pari Passu Classes") with the Series D Preferred
(including, without limitation, the Series A Convertible PIK Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock of
the Corporation) and prior to all series or classes of Common Stock of the
Corporation ("Common Stock"). Nothing contained herein shall be construed to
prohibit the Corporation from authorizing or issuing, in accordance with its
Certificate of Incorporation and By-Laws, as the same may be amended and in
effect from time to time, any classes or series of equity
-1-
<PAGE>
securities of the Corporation ranking senior to or pari passu with the Series D
Preferred with respect to dividend rights or rights upon liquidation,
dissolution and winding-up of the Corporation or both.
3. Dividends. The holders of the shares of the Series D Preferred shall be
entitled to receive a dividend, payable, at the option of the Corporation, in
cash or shares of Series D Preferred, on each share of Series D Preferred held
by such holders (the "Series D Dividend") in an amount equal to eight percent
(8%) per annum (computed on the basis of a 360 day year of twelve 30 day months)
of the Series D Liquidation Preference (as defined below). Such dividend shall
be cumulative and payable promptly following the end of each calendar year or
upon conversion.
4. Liquidation Preference.
a) Subject to the rights of holders of any class of capital stock or
series thereof expressly ranking senior to the Series D Preferred, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, the holder of each share of the Series D Preferred then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to One Million
Dollars ($1,000,000) for each share of Series D Preferred then held by such
holder (such amount being herein called the "Liquidation Preference") before any
payment shall be made or any assets distributed to the holders of Common Stock
or any other series of capital stock junior to the Series D Preferred. If the
assets of the Corporation are not sufficient to pay in full the payments payable
to the holders of outstanding shares of Series D Preferred and any Pari Passu
Classes upon the liquidation, dissolution or winding-up of the affairs of the
Corporation, then the holders of all such shares shall share ratably with all
other holders of shares of Series D Preferred and Pari Passu Classes in such
distribution of assets in proportion to the Liquidation Preference of the
respective shares.
b) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation not the consolidation or merger of the Corporation with or into one
or more other corporations or other entities shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation, voluntarily or
involuntarily.
5. Conversion
a) Rights of Holder to Convert. The holders of shares of Series D
Preferred shall have the right to convert all or a portion of the Series D
Preferred into shares of the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation so that each share of Series D Preferred is
convertible into such numbers of shares of Common Stock determined by dividing
the Liquidation Preference of each share of Series D Preferred by the Conversion
Price defined herein (the "Conversion Ratio"). For the purposes hereof, the
Conversion Price shall be equal to the following: the Market Price at the
Conversion Date as defined below multiplied by the Applicable Conversion Rate.
For purposes of this Section 5, the "Market Price" shall mean the average of the
closing bid price per share of the Common Stock over the five consecutive
trading days ending on the trading day immediately preceding the date the
applicable holder of Series D Preferred Stock elects to have shares of Series D
Preferred Stock converted (the "Conversion Date") (i) as reported by the
National Association of Securities Automated Quotation System ("NASDAQ"); or
(ii) if not quoted by NASDAQ, then as reported in the over-the-counter market;
or (iii) in the event the Common Stock is listed on a national stock exchange,
as reported on such exchange, in each case as reported by Bloomberg, L.P. The
"Applicable Conversion Rate" shall be seventy-five percent (75%).
Notwithstanding the foregoing, the Maximum Conversion Price shall be one hundred
and twenty-five percent (125%) of the
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closing bid price of the Corporation's Common Stock on the date the Series D
Preferred to be converted was purchased. A holder may convert the shares of
Series D Preferred in fractional increments of not less than .05 percent (.05%)
or 1/20 of a share (such that the shares are converted in increments which have
a Liquidation Preference equal to Fifty Thousand Dollars ($50,000.00)).
Each outstanding share of Series D Preferred Stock shall be
automatically converted into Common Stock on March 31, 2000 (the "Expiration
Date") in accordance with the then applicable Conversion Ratio.
b) Adjustments to Conversion Ratio. The Conversion Ratio shall be adjusted,
from time to time by the Board of Directors of the Corporation, to reflect the
effect of any stock dividend, stock split, reverse stock split, merger,
consolidation, recapitalization (other than the issuance of Common Stock in
exchange for indebtedness or other obligation of similar value), reorganization
or other similar transaction affecting the Corporation so that immediately
following such event the holders of the Series D Preferred shall be entitled to
receive upon conversion thereof the kind and amount of shares of securities of
the Corporation and other property which they would have owned or been entitled
to receive upon or by reason of such event if such shares of Series D Preferred
had been converted immediately before the record date (or, if no record date,
the effective date) for such event. An adjustment made pursuant to this
paragraph b) of this Section 5 shall become effective immediately after the
opening of business on the day next following the effective date in the case of
a subdivision, combination, reclassification, merger, recapitalization,
reorganization or other similar transaction. In case of (i) any consolidation or
merger to which the Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change (other than a change in
part value or from par value to no par value or from no par value to par value,
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock (or such other class or series of Common Stock into which shares of Series
D Preferred are then convertible), or (ii) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then provisions
shall be made as part of the terms of such transaction whereby the holder of
each share of Series D Preferred which is not converted into the right to
receive stock or other securities and property in connection with such
transaction shall have the right thereafter to convert such shares of Series D
Preferred into the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such shares of Series
D Preferred could have been converted immediately prior to such consolidation,
merger, sale or conveyance, subject to adjustment which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
paragraph b) of this Section 5. The Corporation shall not enter into any of the
transactions referred to in clauses (i) or (ii) of the first sentence of this
paragraph unless, prior to the consummation thereof, effective provisions shall
be made in a certificate or articles of incorporation or other constituent
document or written instrument of the Corporation or the Surviving Entity, as
the case may be, so as to provide for the assumption by the Corporation or such
Surviving Entity, as the case may be, of the obligation to deliver to each
holder of shares of Series D Preferred such stock or other securities and
property and otherwise give effect to the provisions set forth in this
paragraph. For the purposes hereof, "Surviving Entity" means any entity (other
than the Corporation) surviving any consolidation or merger referred to in this
paragraph, or the entity acquiring the Corporation's assets. The provisions of
this paragraph shall apply similarly to successive consolidations, mergers,
sales or conveyances.
The Corporation shall give each holder of Series D Preferred prior
written notice delivered to the applicable address set forth on the record books
of the Corporation of each adjustment made pursuant to this paragraph b) of
Section 5.
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c) Procedures for Conversion. Any holder of Series D Preferred
electing to convert such shares or any portion thereof shall deliver to the
Corporation at its principal office by telecopying an executed and completed
Notice of Conversion and, by express courier within 3 business days, the
certificate representing the Series D Preferred Stock to the Corporation. Each
business date on which a Notice of Conversion is telecopied to and received by
the Corporation in accordance with the provisions hereof shall be deemed the
Conversion Date. The Corporation will transmit the certificates representing
shares of Common Stock issuable upon conversion of any Series D Preferred Stock
(together with the certificates representing the Series D Preferred Stock not so
converted) to the holders via express courier, by electronic transfer or
otherwise within three business days after the Conversion Date if the
Corporation has received the original Notice of Conversion and Series D
Preferred Stock certificate being so converted by such date. In addition to any
other remedies which may be available to the holders, in the event that the
Corporation fails for any reason to effect delivery of such shares of Common
Stock within such three business day period, the holders will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such effect
to the Corporation whereupon the Corporation and the holders shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. The Notice of Conversion and Series D Preferred Stock
representing the portion of the shares converted shall be delivered to the
principal office of the Corporation at its then current address.
In the event that the Common Stock issuable upon conversion of the
Series D Preferred Stock is not delivered within three business days of receipt
by the Corporation of a valid Conversion Notice and the Series D Preferred Stock
to be converted, the Corporation shall pay to the holders, in immediately
available funds, upon demand, as liquidated damages for such failure and not as
a penalty, for each share of Series D Preferred Stock sought to be converted,
Five Thousand Dollars ($5,000.00) for each of the first 10 days and Ten Thousand
Dollars ($10,000.00) per day thereafter that the conversion shares are not
delivered. Such liquidated damages shall run from the fifth business day after
the Conversion Date up until the time that either the Notice of Conversion is
revoked or the Common Stock has been delivered, at which time liquidated damages
shall cease. Any and all payments required pursuant to this paragraph shall be
payable only in immediately available funds to the stockholders at the addresses
indicated in the records of the Corporation.
d) No Fractional Securities. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series D Preferred. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any share or shares of Series D Preferred, the Corporation shall
pay a cash adjustment in respect of such fraction in such amount as the Board of
Directors of the Corporation shall in good faith determine.
e) Taxes. If a holder converts shares of Series D Preferred, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation to the holder upon the
conversion. The holder shall pay any such tax due because any shares are issued
in a name other than the holder's.
f) Reservation of Shares. The Corporation shall at all times reserve
out of its authorized but unissued shares of Common Stock, or such shares held
in treasury enough of such shares (or other securities deliverable upon
conversion) to permit the conversion of all of the Series D Preferred then
outstanding. All shares of Common Stock issued upon due conversion of shares of
Series D Preferred shall be validly issued, fully paid and non-assessable.
6. Redemption.
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<PAGE>
a) Definitions. For the purposes of this Section 6,
"Applicable Premium" means if the Redemption Date occurs: (a) within
30 days (inclusive) after the date any shares of Series D Preferred are issued
(the "Issue Date"), ten percent (10%) of the liquidation preference, (b) between
31 and 60 days after the Issue Date, twenty percent (20%) of the Liquidation
Preference, (c) between 61 and 90 days after the Issue Date, thirty percent
(30%) of the Liquidation Preference and (d) after 90 days after the Issue Date,
the Economic Benefit.
"Economic Benefit" means an amount equal to the market value of the
shares of Preferred Stock to be redeemed assuming such shares had been converted
to Common Stock on the Redemption Notice Date in accordance with the formula set
forth above.
"Interest" means interest at the rate of eight percent (8%) per annum
compounded annually on the Liquidation Preference from the Issue Date to the
Redemption Date calculated as set forth in Section 3 above.
"Redemption Amount" means (i) the Redemption Price, plus (ii) the
Applicable Premium plus (iii) Interest.
"Redemption Date" means the date specified in a Redemption Notice as
received by the holder of Series D Preferred in respect of shares to be redeemed
in accordance with this Section 6.
"Redemption Notice" means a notice to a holder of Series D Preferred
in accordance with this Section 6.
"Redemption Price" means the highest closing ask price (determined in
the same manner as the closing bid price in Section 5(a) above) of the Common
Stock over the five (5) day trading period ending on the Redemption Date.
b) General. At any time and from time to time, the Corporation may
redeem all or any portion of the then outstanding Series D Preferred for an
amount in cash equal to the (i) Redemption Amount on the Redemption Date
multiplied by (b) The number of shares of Series D Preferred to be redeemed in
accordance with the provisions of this Section 6.
c) Redemption Procedure. If the Corporation shall determine to redeem
less than all shares of the Series D Preferred then outstanding pursuant to
paragraph a) of this Section 6, the shares to be redeemed shall be selected pro
rata (or as nearly as may be) so that the number of shares redeemed from each
holder shall bear the same proportion to all the shares to be redeemed that the
total number of shares then held by such holder bears to the total number of
shares then outstanding.
d) Notice. Notice of every redemption pursuant to this Section 6 shall
be sent by facsimile and mailed, by reputable express courier, not less than 10
days prior to the Redemption Date, to each holder's address as it appears on the
books of the Corporation. Each such notice shall state: the Redemption Date; the
number of shares of Series D Preferred to be redeemed, and, if less than all
shares of Series D Preferred held by such holder are to be redeemed, the number
of such shares to be redeemed from such holder; the Redemption Price, Applicable
Premium, Interest Redemption Amount applicable to the shares to be redeemed; and
the place or places where such shares are to be surrendered.
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<PAGE>
e) Rights of Holders. (i) Each holder of shares of Series D Preferred
called for redemption shall have the right to effect the conversion as provided
in section 5 hereof within 10 days after the date of the Redemption Notice; (ii)
if the Corporation fails to deliver the Redemption Amount to the holders of the
shares called for redemption on the 10th day from the date of the receipt of the
Redemption Notice by the holder, the redemption shall be declared null and void
and the Corporation shall lose any further redemption privileges but the holders
shall retain their right to effect the conversion; and (iii) if less than all
the shares represented by any surrendered certificate are redeemed, a new
certificate representing the unredeemed shares shall be promptly issued to the
holder who surrendered such certificate.
f) Status of Redeemed Shares. Any share of Series D Preferred redeemed
or otherwise purchased or acquired by the Corporation shall be retired, shall no
longer be deemed outstanding, and shall not be reissued.
7. Voting Rights.
a) Generally. The holders of record of shares of Series D Preferred
shall not be entitled to vote on any matters presented to the stockholders of
the Company for approval, except as required by law.
8. General Provisions.
a) "Outstanding" Securities. The term "outstanding", when used with
reference to shares of stock, shall mean issued shares, excluding shares held by
the Corporation, or a subsidiary thereof.
b) Headings. The headings of the paragraphs, subparagraphs, clauses
and sub-clauses of this Certificate of Designation are for convenience of
reference only and shall not define, limit, or affect any of the provisions
hereof.
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<PAGE>
IN WITNESS WHEREOF, the Ashton Technology Group, Inc. has caused this
certificate to be signed by its Chairman and Secretary, respectively, this 31st
day of March, 1998.
----------------------------------------
Name: Robert A. Eprile
Title: Chairman
----------------------------------------
Name: John Blohm
Title: Secretary
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THE ASHTON TECHNOLOGY GROUP, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES E CONVERTIBLE
PREFERRED STOCK
----------
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
----------
The Ashton Technology Group, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that pursuant to the provisions of
Section 151 of the DGCL, the Board of Directors of the Corporation, at a meeting
duly convened on March 31, 1998 at which a quorum was present at all times,
adopted the following resolution, which resolution remains in full force and
effect as of the date hereof.
WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Corporation's Certificate of
Incorporation, to fix by resolution or resolutions the designation of each class
or series of Preferred Stock (the "Preferred Stock") and the voting powers, and
any designations, preferences, and relative, participating, optional or other
special rights of any such class or series of Preferred Stock, as well as such
other provisions with regard to redemption (at the option of the holders thereof
and/or at the option of the Corporation), dividends, dissolution or the
distribution of assets, conversion or exchange, and any qualifications or
restrictions thereof or such other subjects or matters as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority, to authorize and fix the terms of the series of
Preferred Stock designated as Series E Convertible Preferred Stock;
NOW THEREFORE, be it resolved, that the terms and provisions of such series
and all other rights or preferences granted to or imposed upon such series or
the holders thereof are as herein set forth:
1. Designation, Amount and Par Value. Of the authorized but unissued shares
of Preferred Stock, ten (10) shares are designated Series E Convertible
Preferred (the "Series E Preferred"). The Series E Preferred will have a par
value equal to $0.01 per share.
2. Rank. The Series E Preferred shall, with respect to dividend rights or
rights upon liquidation, dissolution and winding-up of the Corporation, rank
pari passu with all other series of Preferred Stock or other class of security
expressly ranking pari passu ("Pari Passu Classes") with the Series E Preferred
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<PAGE>
(including, without limitation, the Series A Convertible PIK Preferred Stock,
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and
Series D Convertible Preferred Stock of the Corporation) and prior to all series
or classes of Common Stock of the Corporation ("Common Stock"). Nothing
contained herein shall be construed to prohibit the Corporation from authorizing
or issuing, in accordance with its Certificate of Incorporation and By-Laws, as
the same may be amended and in effect from time to time, any classes or series
of equity securities of the Corporation ranking senior to or pari passu with the
Series E Preferred with respect to dividend rights or rights upon liquidation,
dissolution and winding-up of the Corporation or both.
3. Dividends. The holders of the shares of the Series E Preferred shall be
entitled to receive a dividend, payable, at the option of the Corporation, in
cash or shares of Series E Preferred, on each share of Series E Preferred held
by such holders (the "Series E Dividend") in an amount equal to eight percent
(8%) per annum (computed on the basis of a 360 day year of twelve 30 day months)
of the Series E Liquidation Preference (as defined below). Such dividend shall
be cumulative and payable promptly following the end of each calendar year or
upon conversion.
4. Liquidation Preference.
a) Subject to the rights of holders of any class of capital stock or
series thereof expressly ranking senior to the Series E Preferred, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation, the holder of each share of the Series E Preferred then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to One Million
dollars ($1,000,000) for each share of Series E Preferred then held by such
holder (such amount being herein called the "Liquidation Preference") before any
payment shall be made or any assets distributed to the holders of Common Stock
or any other series of capital stock junior to the Series E Preferred. If the
assets of the Corporation are not sufficient to pay in full the payments payable
to the holders of outstanding shares of Series E Preferred and any Pari Passu
Classes upon the liquidation, dissolution or winding-up of the affairs of the
Corporation, then the holders of all such shares shall share ratably with all
other holders of shares of Series E Preferred and Pari Passu Classes in such
distribution of assets in proportion to the Liquidation Preference of the
respective shares.
b) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more other corporations or other entities shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation, voluntarily or
involuntarily.
5. Conversion.
a) Rights of Holder to Convert. The holders of shares of Series E
Preferred shall have the right to convert all or a portion of the Series E
Preferred into shares of the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation so that each share of Series E Preferred is
convertible
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<PAGE>
into such numbers of shares of Common Stock determined by dividing the
Liquidation Preference of each share of Series E Preferred by the Conversion
Price defined herein (the "Conversion Ratio"). For the purposes hereof, the
Conversion Price shall be equal to the following: the Market Price at the
Conversion Date as defined below multiplied by the Applicable Conversion Rate.
For purposes of this Section 5, the "Market Price" shall mean the average of the
closing bid price per share of the Common Stock over the five consecutive
trading days ending on the trading day immediately preceding the date the
applicable holder of Series E Preferred Stock elects to have shares of Series E
Preferred Stock converted (the "Conversion Date") (i) as reported by the
National Association of Securities Automated Quotation System ("NASDAO"); or
(ii) if not quoted by NASDAQ, then as reported in the over-the-counter market;
or (iii) in the event the Common Stock is listed on a national stock exchange,
as reported on such exchange, in each case as reported by Bloomberg, L.P. The
"Applicable Conversion Rate" shall be eighty percent (80%). Notwithstanding the
foregoing, the Maximum Conversion Price shall be the lesser of (a) one-hundred
and twenty-five percent (125%) of the closing bid price of the Corporation's
Common Stock on the date the Series E Preferred was purchased, or (b) Five
Dollars ($5.00). A holder may convert the shares of Series E Preferred in
fractional increments of not less than .05 percent (.05%) or 1/20 of a share
(such that the shares are converted in increments which have a Liquidation
Preference equal to Fifty Thousand Dollars ($50,000.00)).
Each outstanding share of Series E Preferred Stock shall be
automatically converted into Common Stock on March 31, 2000 (the "Expiration
Date") in accordance with the then applicable Conversion Ratio.
b) Adjustments to Conversion Ratio. The Conversion Ratio shall be
adjusted, from time to time by the Board of Directors of the Corporation, to
reflect the effect of any stock dividend, stock split, reverse stock split,
merger, consolidation, recapitalization (other than the issuance of Common Stock
in exchange for indebtedness or other obligation of similar value),
reorganization or other similar transaction affecting the Corporation so that
immediately following such event the holders of the Series E Preferred shall be
entitled to receive upon conversion thereof the kind and amount of shares of
securities of the Corporation and other property which they would have owned or
been entitled to receive upon or by reason of such event if such shares of
Series E Preferred had been converted immediately before the record date (or, if
no record date, the effective date) for such event. An adjustment made pursuant
to this paragraph b) of this Section 5 shall become effective immediately after
the opening of business on the day next following the record date in the case of
a dividend or distribution and shall become effective immediately after the
opening of business on the day next following the effective date in the case of
a subdivision, combination, reclassification, merger, recapitalization,
reorganization or other similar transaction. In case of (i) any consolidation or
merger to which the Corporation is a party, other than a merger or consolidation
in which the corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change (other than a change in
par
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<PAGE>
value or from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of Common Stock
(or such other class or series of Common Stock into which shares of Series E
Preferred are then convertible), or (ii) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then provisions
shall be made as part of the terms of such transaction whereby the holder of
each share of Series E Preferred which is not converted into the right to
receive stock or other securities and property in connection with such
transaction shall have the right thereafter to convert such shares of Series E
Preferred into the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such shares of Series
E Preferred could have been converted immediately prior to such consolidation,
merger, sale or conveyance, subject to adjustment which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
paragraph b) of this Section 5. The Corporation shall not enter into any of the
transactions referred to in clauses (i) or (ii) of the first sentence of this
paragraph unless, prior to the consummation thereof, effective provisions shall
be made in a certificate or articles of incorporation or other constituent
document or written instrument of the Corporation or the Surviving Entity, as
the case may be, so as to provide for the assumption by the Corporation or such
Surviving Entity, as the case may be, of the obligation to deliver to each
holder of shares of Series E Preferred such stock or other securities and
property and otherwise give effect to the provisions set forth in this
paragraph. For the purposes hereof, "Surviving Entity" means any entity (other
than the Corporation) surviving any consolidation or merger referred to in this
paragraph, or the entity acquiring the Corporation's assets. The provisions of
this paragraph shall apply similarly to successive consolidations, mergers,
sales or conveyances.
The Corporation shall give each holder of Series E Preferred prior
written notice delivered to the applicable address set forth on the record books
of the Corporation of each adjustment made pursuant to this paragraph (b) of
Section 5.
c) Procedures for Conversion. Any holder of Series E Preferred
electing to convert such shares or any portion thereof shall deliver to the
Corporation at its principal office by telecopying an executed and completed
Notice of Conversion and, by express courier within three business days, the
certificate representing the Series E Preferred Stock to the Corporation. Each
business date on which a Notice of Conversion is telecopied to and received by
the Corporation in accordance with the provisions hereof shall be deemed the
Conversion Date. The Corporation will transmit the certificates representing
shares of Common Stock issuable upon conversion of any Series E Preferred Stock
(together with the certificates representing the Series E Preferred Stock not so
converted) to the holders via express courier, by electronic transfer or
otherwise within three business days after the Conversion Date if the
Corporation has received the original Notice of Conversion and Series E
Preferred Stock certificate being so converted by such date. In addition to any
other remedies which may be available to the holders, in the event that the
Corporation fails for any reason to effect delivery of such
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<PAGE>
shares of Common Stock within such three business day period, the holders will
be entitled to revoke the relevant Notice of Conversion by delivering a notice
to such effect to the Corporation whereupon the Corporation and the holders
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion. The Notice of Conversion and Series E
Preferred Stock representing the portion of the shares converted shall be
delivered to the principal office of the Corporation at its then current
address.
In the event that the Common Stock issuable upon conversion of the
Series E Preferred Stock is not delivered within three business days of receipt
by the Corporation of a valid Conversion Notice and the Series E Preferred Stock
to be converted, the Corporation shall pay to the holders, in immediately
available funds, upon demand, as liquidated damages for such failure and not as
a penalty, for each share of Series E Preferred Stock sought to be converted,
Five Thousand Dollars ($5,000.00) for each of the first 10 days and Ten Thousand
Dollars ($10,000.00) per day thereafter that the conversion shares are not
delivered. Such liquidated damages shall run from the fifth business day after
the Conversion Date up until the time that either the Notice of Conversion is
revoked or the Common Stock has been delivered, at which time liquidated damages
shall cease. Any and all payments required pursuant to this paragraph shall be
payable only in immediately available funds to the stockholders at the addresses
indicated in the records of the Corporation.
d) No Fractional Securities. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series E Preferred. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any share or shares of Series E Preferred, the Corporation shall
pay a cash adjustment in respect of such fraction in such amount as the Board of
Directors of the Corporation shall in good faith determine.
e) Taxes. If a holder converts shares of Series E Preferred, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation to the holder upon the
conversion. The holder shall pay any such tax due because any shares are issued
in a name other than the holder's.
f) Reservation of Shares. The Corporation shall at all times reserve
out of its authorized but unissued shares of Common Stock, or such shares held
in treasury enough of such shares (or other securities deliverable upon
conversion) to permit the conversion of all of the Series E Preferred then
outstanding. All shares of Common Stock issued upon due conversion of shares of
Series E Preferred shall be validly issued, fully paid and non-assessable.
(6) Redemption.
a) Definitions. For the purposes of this Section 6.
"Applicable Premium" means if the Redemption Date occurs: (a) within
30 days (inclusive) after the date any shares of Series E Preferred are issued
(the "Issue Date"), ten percent (10%) of the liquidation preference, (b) between
31 and 60 days after the Issue Date, twenty percent (20%) of the Liquidation
Preference, (c) between 61 and 90 days after the Issue Date, thirty percent
(30%) of the Liquidation Preference and (d) after 90 days after the Issue Date,
the Economic Benefit.
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<PAGE>
"Economic Benefit" means an amount equal to the market value of the
shares of Preferred Stock to be redeemed assuming such shares had been converted
to Common Stock on the Redemption Date in accordance with the formula set forth
above.
"Interest" means interest at the rate of eight percent (8%) per annum
compounded annually on the Liquidation Preference from the Issue Date to the
Redemption Date calculated as set forth in Section 3 above.
"Redemption Amount" means (i) the Redemption Price, plus (ii) the
Applicable Premium plus (iii) Interest.
"Redemption Date" means the date specified in a Redemption Notice as
received by the holder of Series E Preferred in respect of shares to be redeemed
in accordance with this Section 6.
"Redemption Notice" means a notice to a holder of Series E Preferred
in accordance with this Section 6.
"Redemption Price" means the highest closing ask price (determined in
the same manner as the closing bid price in Section 5(a) above) of the Common
Stock over the five (5) day trading period ending on the Redemption Date.
b) General. At any time and from time to time, the Corporation may
redeem all or any portion of the then outstanding Series E Preferred for an
amount in cash equal to the (i) Redemption Amount on the Redemption Date
multiplied by (b) the number of shares of Series E Preferred to be redeemed in
accordance with the provisions of this Section 6.
c) Redemption Procedure. If the Corporation shall determine to redeem
less than all shares of the Series E Preferred then outstanding pursuant to
paragraph a) of this Section 6, the shares to be redeemed shall be selected pro
rata (or as nearly as may be) so that the number of shares redeemed from each
holder shall bear the same proportion to all the shares to be redeemed that the
total number of shares then held by such holder bears to the total number of
shares then outstanding.
d) Notice. Notice of every redemption pursuant to this Section 6 shall
be sent by facsimile and mailed, by reputable express courier, not less than 10
days prior to the Redemption Date, to each holder's address as it appears on the
books of the Corporation. Each such notice shall state: the Redemption Date; the
number of shares of Series E Preferred to be redeemed, and, if less than all
shares of Series E Preferred held by such holder are to be redeemed, the number
of such shares to be redeemed from such holder; the Redemption Price, Applicable
Premium, Interest Redemption Amount applicable to the shares to be redeemed; and
the place or places where such shares are to be surrendered.
e) Rights of Holders. (i) Each holder of shares of Series E Preferred
called for redemption shall have the right to effect the conversion as provided
in section 5 hereof within 10 days after the date of the Redemption Notice; (ii)
if the Corporation fails to deliver the Redemption Amount to the holders of the
shares called for redemption on the 10th day from the date of the receipt of the
Redemption Notice by the holder, the redemption shall be declared null and void
and the Corporation shall lose any further redemption privileges but the holders
shall retain their right to effect the conversion; and (iii) if less than all
the shares represented by any surrendered certificate are redeemed, a new
certificate representing the unredeemed shares shall be promptly issued to the
holder who surrendered such certificate.
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<PAGE>
f) Status of Redeemed Shares. Any share of Series E Preferred redeemed
or otherwise purchased or acquired by the Corporation shall be retired, shall no
longer be deemed outstanding, and shall not be reissued.
7. Voting Rights.
a) Generally. The holders of record of shares of Series E Preferred
shall not be entitled to vote on any matters presented to the stockholders of
the Company for approval, except as required by law.
8. General Provisions.
a) "Outstanding" Securities. The term "outstanding", when used with
reference to shares of stock, shall mean issued shares, excluding shares held by
the Corporation, or a subsidiary thereof.
b) Headings. The headings of the paragraphs, subparagraphs, clauses
and sub-clauses of this Certificate of Designations are for convenience of
reference only and shall not define, limit, or affect any of the provisions
hereof.
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<PAGE>
IN WITNESS WHEREOF, The Ashton Technology Group, Inc. has caused this
certificate to be signed by its Chairman and Secretary, respectively, this 31st
day of March, 1998.
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Name: Robert A. Eprile
Title: Chairman
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Name: John Blohm
Title: Secretary
-8-
Exhibit 5.1
(Letterhead of Ballard Spahr Andrews & Ingersoll, LLP)
July , 1998
VIA EDGAR
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Re: The Ashton Technology Group, Inc. Registration Statement on Form S-3
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Ladies and Gentlemen:
You have requested our opinion regarding the validity of the issuance of
shares of The Ashton Technology Group, Inc. Common Stock covered by the
above-referenced Registration Statement on Form S-3. These shares include: (i)
2,896,350 shares issuable upon the conversion of outstanding Series D
Convertible Preferred Stock; (ii) 1,810,218 shares issuable upon the conversion
of outstanding Series E Convertible Preferred Stock; (iii) 200,000 shares
issuable upon the exercise of outstanding Series C Warrants; (iv) 880,000 shares
issuable upon the exercise of outstanding Series D Warrants; (v) 320,000 shares
issuable upon the exercise of outstanding Series E Warrants; and (vi) 8,897,100
shares issuable upon the exercise of certain put rights by the Company.
In our opinion the 4,706,568 shares of Common Stock issuable upon
conversion of the Series D and Series E Convertible Preferred Stock and the
10,297,100 shares of Common Stock issuable upon exercise of the Series C, Series
D, and Series E Warrants and the put rights, when issued in accordance with the
terms of the Convertible Preferred Stock, Warrants and put rights, as the case
may be, will be duly and validly issued by the Company, fully paid and
non-assessable.
We hereby consent to the inclusion of this opinion in the Registration
Statement, including any amendments thereto, and to the reference to this firm
in the Registration Statement under the section entitled "Legal Matters."
Very truly yours,
Exhibit 23.1
CONSENT OF GOLDSTEIN GOLUB KESSLER & Company P.C.
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of our report dated
May 7, 1998, on the consolidated balance sheet of The Ashton Technology Group,
Inc. and Subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period then ended, which report appears in the March 31, 1998
annual report on Form 10-KSB of The Ashton Technology Group, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER & Company P.C.
New York, New York
June 29, 1998
