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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998 OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11747
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THE ASHTON TECHNOLOGY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-6650372
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1900 MARKET STREET, SUITE 701
PHILADELPHIA, PENNSYLVANIA 19103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(215) 751-1900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's revenue for the fiscal year ended March 31, 1998 was
$3,494,276.
The aggregate market value of the voting stock and nonvoting stock held by
non-affiliates of the registrant based on the closing selling price as
reported on NASDAQ on June 25, 1998 was $22,224,866.84.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, was 8,477,913 as of July 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III-Registrant's Definitive Proxy Statement for its 1998 Annual Meeting
of Stockholders to be filed not later than 120 days after the end of the
fiscal year.
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TABLE OF CONTENTS
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PART I
ITEM 1. DESCRIPTION OF BUSINESS........................................ 1
ITEM 2. DESCRIPTION OF PROPERTY........................................ 9
ITEM 3. LEGAL PROCEEDINGS.............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................... 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 12
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 33
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................... 33
SIGNATURES ............................................................. 38
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FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-KSB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934, as amended (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: dependence on arrangements with
self-regulatory organizations; dependence on proprietary technology;
technological changes and costs of technology; industry trends; competition;
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; general economic and business
conditions; and other factors referenced in this Form 10-KSB. Such forward-
looking statements speak only as of the date of this Form 10-KSB. For
discussion of the factors that might cause performance of the Registrant to
differ with actual results, see Item 1: Description of Business and Item 6:
Management's Discussion and Analysis of Financial Condition and Results of
Operations. 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
The Ashton Technology Group, Inc. ("ATG(TM)", the "Company", "Ashton", or
the "Registrant") is engaged in the development and commercialization of
online 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: (1) Universal Trading Technologies Corporation ("UTTC(TM)"); (2)
Gomez Advisors, Inc. ("GA"); (3) Electronic Market Center, Inc. ("EMC"); and
(4) ATG(TM) International, Inc. ("ATG(TM) International") (not yet
incorporated). REB Securities, Inc. ("REB"), a broker-dealer whose
registration statement with the Securities and Exchange Commission (the "SEC"
or "Commission") is pending, is a wholly-owned subsidiary of UTTC(TM). All
subsidiaries are or will be wholly-owned, except for UTTC(TM), of which the
Company owns approximately 96% of the common stock. During the third quarter
of fiscal 1998, the Company sold its Computer Science Innovations, Inc.
("CSI(R)") subsidiary (see "Computer Science Innovations, Inc.").
During the fiscal year ended March 31, 1997, all of the Company's revenues
were generated by CSI(R). During the most recent fiscal year ended March 31,
1998, approximately 91% of the Company's revenues were generated by CSI(R),
and the remaining 9% of revenues were generated by GA. Following the sale of
CSI(R), the Company continues to seek regulatory approval to operate its
VTS(TM) system (see "Universal Trading Technologies Corporation") and to seek
other means of generating revenue. At the present time, GA (see "Gomez
Advisors, Inc.") is the Company's sole source of revenue.
ATG(TM)
ATG(TM)'s transaction systems incorporate or plan to incorporate the
Company's core areas of technological expertise which include:
. Internet and Extranet technologies and systems;
. Electronic authentication, encryption and trusted systems providing high
grade data and information security;
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. Online transaction systems for use through traditional communication
channels and through the Internet;
. Advanced computing technologies (including neural networks and other
forms of artificial intelligence to provide analytical tools for
prediction and decision support which are being implemented in future
products).
ATG(TM) focuses on the development and application of the Company's data and
information security technologies and initiatives for the future electronic
distribution of the Company's online transaction based products and services.
ATG(TM)'s data and information security products are being designed to provide
the elements of confidentiality, integrity, non-repudiation, access control
and auditability that are necessary to allow the use of both "open" and
proprietary networks in the conduct of Internet commerce.
WORLDCOM INC./COMPUSERVE NETWORK SERVICES, INC. AGREEMENT
In January 1998, the Company announced the signing of a global network
services agreement with CompuServe Network Services, Inc., ("CompuServe
Network") a division of WorldCom Inc. CompuServe Network offers a wide range
of integrated data communications including Internet, Intranet, and Extranet
connectivity to over 1,300 businesses in 115 countries. CompuServe Network's
high speed digital network backbone, which includes Virtual Private Networking
(VPN) and Virtual Private Line (VPL) integrated services, is expected to allow
ATG(TM)'s trusted online transaction systems to be accessed worldwide by
financial intermediaries serving institutional and individual investors.
CompuServe Network's network solutions are expected to provide wide access to
ATG(TM)'s customers and permit ATG(TM) to deploy and control its system's
state-of-the-art encryption, authentication, and firewall technologies.
E.COM INTERNATIONAL STRATEGIC RELATIONSHIP
In November 1997, the Company entered into a strategic relationship with
E.Com International, Inc. ("E.Com") to support its goal of providing remote
wireless access to its family of online transaction systems. Under this
relationship, the Company will be the exclusive distributor of E.Com's
products for the professional financial services market. E.Com develops and
markets integrated wireless mobile computing devices which provide user access
to the Internet, corporate networks, and remote databases. As the exclusive
distributor of E.Com products to the professional financial services market,
ATG(TM) will be able to offer its proprietary online transaction products and
the Company's Universal Trading System ("UTS(TM)"), an electronic pricing and
transaction facility for trading securities with access from remote locations.
The Company purchased 35,000 shares of E.Com common stock and warrants to
purchase E.Com common stock at $3.00 per share in a private placement.
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
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 broker-dealers, pension plan sponsors, institutional money
managers and mutual funds and other members of the professional investment
community. 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
which features:
. Anonymity;
. State-of-the-art data and information security;
. Market neutrality;
. Exchange-standard surveillance;
. Advanced computer and telecommunications technologies;
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. Accessibility from anywhere in the world through the Company's alliance
with CompuServe Network and ultimately through the Internet;
. Total data security through the use of encryption, electronic
authentication and firewalls;
. Seamless integration into major customers' trading and investment
management platforms;
. Electronic connection to pre-trade analytics and post-trade industry
wide clearing and settlement mechanisms; and
. The ability to upgrade and expand to take advantage of the rapid
improvements in computer and communications hardware and software.
UTTC(TM) has developed the 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. All trades through the VTS(TM) system will
be executed at the days VWAP(TM), the average price for a specific stock
weighted by the volume of shares of such stock traded "regular way" during the
day on all securities exchanges throughout the United States as reported to
the appropriate consolidated reporting authority.
THE PHILADELPHIA STOCK EXCHANGE AGREEMENT
On April 22, 1995, the Philadelphia Stock Exchange (the "Exchange" or
"PHLX") and UTTC(TM) agreed to integrate and deploy the VTS(TM) system as a
new trading product of PHLX. On September 18, 1995, UTTC(TM) and PHLX
memorialized the April 22 agreement in a formal contract for a term of five
years commencing from the date the VTS(TM) becomes operational on PHLX.
Operation of the system is contingent upon approval by the SEC of a rule
proposal filed by PHLX in April 1996. The contract provides, among other
things, for the deployment of the VTS(TM) as a new trading product of PHLX.
PHLX RULE CHANGE
On October 28, 1997, PHLX submitted an amendment to its original request for
a rule change, which was required because of the elapsed time since the
original submission, and also reflected enhancements made by UTTC(TM) to
VTS(TM). On December 31, 1997, the SEC republished the rule and amendments in
the Federal Register. The standard notification period for the SEC to respond
is 35 to 90 days--though the SEC may extend this period with the Exchange's
consent. It is management's belief that approval of VTS(TM) as a facility of
the Exchange relates, in part, to operational issues related to the Exchange
and not to UTTC(TM) or the VTS(TM). Since the first filing in April 1996, and
the special investigation of PHLX by the SEC culminating in March 1997, PHLX
adopted significant governance changes, ceased full clearing agency services
and, after receiving merger or acquisition proposals from the Chicago Board
Options Exchange and the American Stock Exchange ("AMEX"), has agreed to enter
into an agreement to be acquired by AMEX.
The Company has developed a working system in accordance with its contract
with PHLX, and continues to support the Exchange in efforts to secure
regulatory approval of VTS(TM) as a facility of the Exchange. The business and
regulatory environment for introducing new trading systems has become more
flexible based on proposals announced by the SEC in April 1998 regarding
alternate trading systems ("ATSs"). On April 16, 1998, the SEC proposed new
rules and rule amendments that, if adopted, will permit ATSs to choose whether
to register as national securities exchanges, or to register as broker-dealers
which must comply with additional requirements depending on their activities
and trading volume. Additionally, the SEC proposed to exclude from rule filing
requirements certain pilot trading systems to be launched by national
securities exchanges and self-regulatory organizations (collectively "SROs").
The latter regulation, if and when adopted, may allow the Company to introduce
its products, regardless of whether PHLX rule proposal is approved by the SEC.
Anticipating adoption of these new regulations, the Company currently is
exploring the best structure for launching its existing electronic trading
product and products under development, e.g. through an existing SRO facility,
as a broker-dealer, or as a new and independent registered exchange.
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GOMEZ ADVISORS, INC.
Gomez Advisors, Inc. ("GA") was formed in May 1997 as a wholly owned
subsidiary by the Company together with Julio Gomez and John Robb, formerly of
Forrester Research, Inc. and Dr. Alex Stein from 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 brokerage 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. GA commenced generating revenue in October 1997 and has continued to
increase its business base since that time.
ELECTRONIC MARKET CENTER, INC.
On June 4, 1998, the Company formed Electronic Market Center, Inc. as a
wholly owned subsidiary. This subsidiary is expected to operate and market the
Company's to be developed distributed open finance system called the
electronic market center ("eMC(TM)"). 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.
REB SECURITIES, INC.
REB is a wholly owned broker-dealer subsidiary of UTTC(TM). REB expects
that, upon approval of its application for registration with the Commission,
National Association of Securities Dealers, Inc., 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.
ATG(TM) INTERNATIONAL, INC.
The Company currently is in the process of forming ATG(TM) International,
Inc. as a wholly owned subsidiary. The international markets represent
potential significant growth opportunities 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. During the past year, CSI(R) was the primary revenue
provider for the Company.
On November 6, 1997, ATG(TM) sold CSI(R) to George H. Milligan and Susanne
L. Cavadeas, as Trustees of the Trust Created by The Computer Science
Innovations, Inc. Leveraged ESOP, for $1,723,000, payable as follows: (1)
repayment of a $500,000 loan plus interest of $28,875, (2) $600,000 in cash,
and (3) a five year 8 1/4% Note of $594,125. The Company recognized an
accounting loss on the sale of $385,930; however, on a cash basis, the Company
realized a gain on the sale of $101,992. In addition, the Company received
cash in the amount of approximately $340,000 due to a Tax Allocation Agreement
(see "Tax Allocation Agreement").
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CAPITALIZATION, OWNERSHIP OF SUBSIDIARIES AND ORGANIZATION
INITIAL PUBLIC OFFERING
On May 2, 1996, ATG(TM) completed an initial public offering (the
"Offering") of 2,472,500 shares of common stock, par value $0.01 per share
(the "Common Stock") at an initial public offering price of $4.50 per share
and 2,472,500 redeemable common stock purchase warrants at $.25 per warrant.
The Common Stock and the warrants are separately tradable. As a result of the
Offering, the Company received net proceeds of approximately $10,395,000.
UTTC(TM) PRIVATE PLACEMENT
In April 1997, UTTC(TM) completed a private placement of $3,000,000 notes,
consisting of $2,550,000 nonconvertible and $450,000 convertible notes, to
accredited investors. The convertible notes are convertible into 450,000
shares of UTTC(TM) common stock. These notes bear interest at 9% per annum,
payable annually in arrears on January 31, 1998 and are due on January 31,
1999 or after the earlier conversion or prepayment of the Notes. The Company
received net proceeds of approximately $2,596,655 after deducting debt
issuance costs of $403,345. A total of $2,975,000 of notes were exchanged into
Series B Convertible Preferred Stock (see "ATG(TM) Series A and Series B
Private Placement and Exchange Offer").
ATG(TM) SERIES A AND SERIES B PRIVATE PLACEMENT AND EXCHANGE OFFER
On September 18, 1997, the Company commenced a private offering and exchange
offer pursuant to which it offered to certain investors (i) up to 250,000
shares of its Series A Convertible PIK Preferred Stock (with a liquidation
preference of $10.00 per share) ( the "Series A Preferred"); (ii) up to
250,000 shares of its Series B Convertible Preferred Stock (with a liquidation
preference of $10.00 per share) (the "Series B Preferred"); and (iii) the
opportunity to exchange (the "Exchange Offer") up to 300,000 shares of its
Series B Preferred for up to $3,000,000 of convertible and non-convertible
notes issued by UTTC(TM) (the "UTTC(TM) Notes"). The Series A Preferred pays
cumulative dividends semi-annually at an annual rate of $0.50 per share and is
payable in additional shares of Series A Preferred until February 15, 2000. At
any time after February 15, 1998, each holder of shares of Series A Preferred
will have the right to convert each share of Series A Preferred into: (i) ten
shares of Common Stock; and (ii) one two-year warrant to purchase three shares
of the common stock, par value $0.01 per share, of UTTC(TM) (the "UTTC(TM)
Common Stock"), with an exercise price of $0.75 per share, subject to
adjustment. The Series B Preferred pays cumulative dividends semi-annually at
an annual rate of $0.90 per share. At any time after June 30, 1998, each
holder of shares of Series B Preferred has the right to convert each share of
Series B Preferred into: (i) six shares of Common Stock; and (ii) one two-year
warrant to purchase two shares of UTTC(TM) Common Stock, with an exercise
price of $0.75 per share, subject to adjustment.
The Company sold all 250,000 shares of its Series A Preferred at $10.00 and
realized gross proceeds of $2,500,000. The Series A Preferred offering closed
on January 15, 1998. The Company closed the Exchange Offer transaction after
receiving the tender of $2,975,000 of the UTTC(TM) Notes for which the Company
issued 297,500 shares of Series B Preferred Stock. The Company extended its
private offering to institutional and accredited investors of Series B
Preferred until May 15, 1998. As of March 31, 1998, the Company had received
signed Subscription Agreements for 587,500 shares of the Series B Preferred
offered. The Series B transaction closed on May 6, 1998 after being
oversubscribed by 40,000 shares of Series B Preferred. The Company realized
gross proceeds of $2,900,000. The Company incurred transaction costs in
connection with the issuance of the Series A Preferred and the Series B
Preferred, as well as the issuance of the Series C Preferred (as defined
below) described below, in the aggregate amount of approximately $1.6 million.
ATG(TM) SERIES C CONVERTIBLE PREFERRED STOCK
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 (the
"Series C Investors"), with a liquidation preference of
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$10.00 per share (the "Series C Preferred"), for an aggregate purchase price
of $1,000,000. Holders of the Series C Preferred will have the right to
convert each share of Series C Preferred into one share of Common Stock at the
conversion price which shall be equal to the following: (i) if the Market
Price (as hereinafter defined) on the Conversion Date (as hereinafter defined)
is less than $1.8774, the conversion price is equal to the lesser of 75% of
the Market Price at the Conversion Date or $1.2516; and (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. The "Market Price" means 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 holder elects to convert the Series C Preferred (the "Conversion
Date"). In addition, the Series C Investors will receive warrants exercisable
into an aggregate of 100,000 shares of Common Stock at an exercise price of
105% of the Market Price for a period of 5 years.
As of March 31, 1998, 50,000 shares of the Series C Preferred were converted
into 281,071 shares of Common Stock. Between March 31 and April 21, 1998, the
remainder of the shares of Series C Preferred were converted into
314,342 shares of Common Stock. The fees paid for the Series C Shares were as
follows: 5,000 Series C Shares, $50,000, and a warrant to purchase 100,000
shares of Common Stock at 105% of the Market Price to Settondown Capital
International Ltd. (the "Placement Agent"). In addition, the Company paid
$50,000 and is expected to grant an option to purchase 150,000 shares of
Common Stock at $1.875 per share to Adirondack Capital, L.L.C., whose managing
director is a director of the Company, for services in structuring the
offering.
ATG(TM) SERIES D AND E CONVERTIBLE PREFERRED STOCK
On April 3, 1998 (the "Subscription Date"), the Company entered into a
Private Equity Line of Credit Agreement (the "Private Equity Agreement") with
a group of accredited investors (the "Private Equity Investors") which
provides for an aggregate commitment of $18,000,000 to the Company. On the
Subscription Date the Private Equity Investors purchased three shares of
Series D Convertible Preferred Stock (the "Series D Preferred") with a
liquidation preference of $1,000,000 per share for an aggregate purchase price
of $3,000,000 and the Company agreed to promptly file a registration statement
with the Securities and Exchange Commission under the Securities Act,
registering shares of Common Stock issuable in connection with the
transactions contemplated by the Private Equity Agreement (the "Registration
Statement"). The Company filed this registration statement with the Commission
on June 29, 1998. The Agreement provides that within five days after the
Registration Statement has been filed, and subject to the satisfaction of
certain other conditions, the Private Equity Investors will purchase two
shares of Series E Convertible Preferred Stock (the "Series E Preferred") with
a liquidation preference of $1,000,000 per share for an aggregate purchase
price of $2,000,000. Following the purchase of the Series E Preferred and
subject to the satisfaction of certain other conditions, the Company may from
time to time put (each, a "Put") to the Private Equity Investors shares of the
Common Stock for an aggregate Put price of $13,000,000. The Put price per
share is an amount equal to 85% of the average of the lowest bid prices of
such Common Stock over the seven day period beginning three days before and
ending three days after the Company gives notice of a Put. On the completion
of each Put, the Company has agreed to pay the Placement Agent an amount equal
to 5% in cash of the amount of each Put and has agreed to pay a fee of 5% cash
to Adirondack Capital, L.L.C., whose managing director is a director of the
Company.
Under the terms of the Private Equity Agreement, the Company has agreed to
hold $1,000,000 of the proceeds received on the Subscription Date in cash or
government securities until the Company (i) receives shareholder approval for
the issuance of 20% or more of its Common Stock in connection with the
transactions contemplated by the Agreement (the "Required Approval") or (ii)
is able to increase its issued and outstanding Common Stock by at least
4,000,000 shares through the conversion of Convertible Preferred Stock (other
than Common Stock to be issued in connection with the Private Equity
Agreement). If neither of these events has occurred within 90 days after the
Subscription Date, the Company must return the $1,000,000 plus a 10% premium,
to the Private Equity Investors. On May 29, 1998, the Company held a Special
Meeting of its stockholders at which time the stockholders approved the
increase in the Company's Common Stock to 60,000,000 shares and its Preferred
Stock to 3,000,000 shares, thus removing the stipulation on holding the
$1,000,000 cited above.
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The Private Equity Investors are not obligated to purchase the Series E
Preferred or any Put shares unless, among other things, (i) the Company has
received the Required Approval, (ii) the Registration Statement is filed (the
Registration Statement must be effective in order for the Private Equity
Investors to be obligated to purchase the Put shares), (iii) the Company is
listed and its Common Stock is trading on a national exchange or quotation
system, (iv) the closing bid price of the Common stock on the day immediately
preceding such purchase is at least $1.50 per share, and (v) the Common Stock
has traded at an average volume of at least 25,000 shares a day for the thirty
trading days preceding such purchase.
The Series D Preferred may not be converted into Common Stock until the
earlier of (i) 60 days following the Subscription Date or (ii) the date the
Registration Statement has been filed. The conversion price of the Series D
Preferred is an amount equal to 75% of the average closing bid price per share
over the five days preceding the conversion date (the "Market Price"). The
conversion price of the Series E Preferred is 80% of the Market Price. Each of
the Series D Preferred and Series E Preferred (i) ranks pari passu with the
other authorized Preferred Stock of the Company and (ii) is entitled to a
cumulative dividend of 8% per annum on its respective liquidation preference.
On the Subscription Date, the Private Equity Investors received warrants
(each, a "Warrant") to purchase up to an aggregate of 250,000 shares of Common
Stock and will receive additional Warrants to purchase up to an aggregate of
100,000 of such shares on the completion of the purchase of the Series E
Preferred. The Warrants are exercisable for five years at an exercise price of
120% of the average closing bid price of the Common stock over the five
trading days preceding the Subscription Date.
On the Subscription Date, the Company paid the Placement Agent, a fee of (i)
$150,000, (ii) 0.15 shares of Series D Preferred, (iii) a Warrant, on the same
terms as the Warrants issued to the Private Equity Investors, to purchase up
to 190,000 shares of Common Stock, (iv) 20,000 shares of Common Stock and (v)
attorney fees of $30,000. In addition, the Company paid a fee of $150,000 and
is expected to grant an option to purchase 450,000 shares of Common Stock at
$1.875 per share to Adirondack Capital, L.L.C., whose managing director is a
director of the Company, for its assistance in structuring the transaction.
Upon the completion of the purchase of the Series E Shares, the Company has
agreed to pay the Placement Agent (i) an amount equal to 5% of the proceeds of
such purchase, (ii) 0.1 shares of Series E Preferred, and (iii) a Warrant to
purchase up to 60,000 shares of the Common Stock. In addition, the Company
paid an amount equal to 5% of the proceeds of such purchase to Adirondack
Capital, L.L.C., the managing director of which is a director of the Company.
On the completion of each Put by the Company pursuant to the Series E
Agreement, the Company has agreed to pay the Placement Agent an amount equal
to 5% of the proceeds of each such Put.
OWNERSHIP OF SUBSIDIARIES
ATG(TM) owns (i) approximately 96% of the outstanding common stock of
UTTC(TM) and (ii) 100% of the outstanding common stock of GA. During this
fiscal year, the Company increased its ownership of UTTC(TM) from 80% to 96%
by receiving: (i) approximately 6,000,000 shares of UTTC(TM) common stock in
connection with the Exchange Offer; (ii) approximately 4,800,000 shares of
UTTC(TM) common stock for the payment of certain guaranteed obligations; (iii)
3,000,000 shares of UTTC(TM) common stock for existing development advances;
and (iv) 5,000,000 shares of UTTC(TM) common stock for $2.5 million of the
proceeds from the Series B Offering.
COMPETITION
The Company and its subsidiaries operate in several competitive markets.
ATG(TM)'s competition in the commercial markets principally comes from larger,
better-established companies, many of which have financial, sales and
marketing resources substantially greater than ATG(TM). In online trading
systems, the UTS(TM) system 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 includes quality of
trade execution, pricing and reliability of post-execution processing and
settlement operations. The UTS(TM) system will also compete with various
national and
7
<PAGE>
regional securities exchanges for trade execution services. The automated
trade execution and analytical services to be offered by the UTS(TM) system
will compete with services offered by leading brokerage firms and other
information service and transaction processing firms. In the advisory/product
research area, Forrester Research, Inc., Gartner Group and J. D. Power &
Associates are competitors. In distribution networks, the Company's
competition would be national and regional securities exchanges and financial
intermediary private networks such as Merrill Lynch and Bloomberg L.P.
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 the 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 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.
DEVELOPMENT COSTS
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.
During the fiscal year ended March 31, 1998, the Company incurred $196,974 of
development costs compared with $3,382,848 of development costs on a
consolidated basis for the fiscal year ended March 31, 1997. During the
previous fiscal year, ATG(TM) incurred development costs of $2,049,651 for the
design and development of the Ashton Technology Encryption Device ("ATED") and
the encryption client-server. Separately, UTTC(TM) incurred costs of
$1,333,197 for the development of the UTS(TM) system which will be an
electronic pricing and transaction facility for trading securities.
PROPRIETARY RIGHTS
ATG(TM)'s success depends to some degree on the protection of its
proprietary rights. ATG(TM) and its subsidiaries regard their respective
products as proprietary and rely primarily on a combination of trademark and
trade secret protection, employee and third party confidentiality and non-
disclosure agreements, license agreements and other intellectual property
protection methods to protect their proprietary rights. Neither ATG(TM),
UTTC(TM) nor GA currently holds any material patents or has filed for
copyright protection. UTTC(TM) has filed "intent-to-use" or "actual use"
documents to the Patent & Trademark Office for all of the products presently
available or currently being developed. UTTC(TM)'s products are generally
licensed to customers on a "right to use" basis pursuant to a non-transferable
license that generally restricts the customer's use to internal purposes.
GOVERNMENT REGULATION
The UTS(TM) will be subject to significant government regulation by the
Commission and SROs which are charged with protecting the interests of the
investing public and the integrity of the securities markets. Originally, the
VTS(TM) system had been developed as a facility of PHLX, an SRO, and is
subject to regulatory approval by the SEC. Section 19(b) of the Exchange Act
and Rule 19b-4 promulgated thereunder require PHLX to file any proposed rules
changes with the SEC. The concept of the UTS(TM) system, which would
constitute a new PHLX facility accompanied by new PHLX rules, must be filed as
a proposed rule change (the "Rule Change proposal"). In this regard, PHLX
management was authorized by its Board of Governors to submit a proposed rule
change filing relating to the UTS(TM) system with the SEC, which published a
notice of the terms of the substance of the proposed rule change on September
4, 1996 and gave interested persons an opportunity to submit written data,
views, and arguments concerning such proposed rule change. 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
8
<PAGE>
national securities exchanges. In October 1997, PHLX submitted a second
amendment of the proposed Rule Change to the SEC. In December 1997, the SEC
published a notice in the Federal Register soliciting comments on the proposed
rule change. There can be no assurance that the Commission will not require
further amendment to the PHLX Rule Change proposal or that the Commission will
approve the Rule Change proposal in the amended form. The Company is unable to
predict whether or when such approval of PHLX request will be received.
YEAR 2000/DOW 10,000 COMPLIANCE
The Company has assessed 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 currently is 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. The potential liabilities
and costs associated with the Year 2000 compliance cannot be estimated with
certainty at this time. Because of these uncertainties regarding others, there
can be no assurance that the Year 2000 issue will not have a material
financial impact in any future period.
Additionally, the Company has assessed the potential impact of the Dow Jones
Industrial Average (the "Dow" or "DJIA") exceeding 10,000 ("Dow 10,000"). The
potential issue involves whether certain information systems and automated
equipment may be unable to process and recognize a Dow in excess of 9,999. If
not corrected, these systems and equipment could fail or create erroneous
results. The Company currently is in the process of determining if any of its
systems and equipment present Dow 10,000 compliance issues. Regardless of the
Dow 10,000 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
Dow 10,000 compliant. The potential liabilities and costs associated with the
Dow 10,000 compliance cannot be estimated with certainty at this time. Because
of these uncertainties regarding others, there can be no assurance that the
Dow 10,000 issue will not have a material financial impact in any future
period.
EMPLOYEES
As of March 31, 1998, the Company and its subsidiaries employed a total of
25 people.
ITEM 2. DESCRIPTION OF PROPERTY
ATG(TM) and UTTC(TM) lease approximately 10,000 square feet of office space
at 1900 Market Street, Suite 701, Philadelphia, Pennsylvania 19103. ATG(TM)
leases approximately 2,500 square feet of office space at 10420 Little
Patuxent Parkway, Columbia, Maryland 21044. This property is presently
subleased to another tenant. The lease between the building landlord and
ATG(TM) expires in September 1998. UTTC(TM) leases approximately 175 square
feet of office space at 1285 Avenue of the Americas, 35th Floor, New York, New
York 10019. GA leases approximately 300 square feet of office space at 101
Federal Street, Suite 1900, Boston, Massachusetts 02110, and approximately
5,000 square feet of office space at 97 Lowell Road, Suite A-13, Concord,
Massachusetts 01742.
ITEM 3. LEGAL PROCEEDINGS
Alliant Techsystems, Inc. ("Alliant") with whom the Company has a contract
for the production of certain ATED encryption devices, has demanded payment of
approximately $292,000 under that contract, which the Company is contesting.
On October 22, 1997, ATG(TM) filed a complaint against Alliant in the court of
Common Pleas, County of Philadelphia, Pennsylvania for damages for failure of
Alliant to perform its obligations under its contract with ATG(TM). On
December 15, 1997, Alliant filed its answer and counterclaims seeking damages
in an amount "in excess of $50,000."
9
<PAGE>
On May 1, 1997, David N. Rosensaft ("Rosensaft") commenced an action in the
United States District Court for the Southern District of New York entitled
"David N. Rosensaft vs. The Ashton Technology Group, Inc., Universal Trading
Technologies Corporation, The Dover Group, Inc. and Fredric W. Rittereiser
(collectively, the "Defendants")" No. 97 Civ. 3138 ("Rosensaft Action"),
asserting ten claims against the defendants including breach of contract and
securities fraud and seeking, inter alia, specific performance of the
Settlement Agreement, dated January 30, 1997, between and among the parties or
in the alternative, actual and consequential damages in an amount to be proved
at trial in addition to punitive damages.
On April 9, 1998, the parties agreed to a settlement of all claims in
consideration of $1,133,020 paid to Rosensaft by the defendants (ATG(TM),
UTTC(TM) and the Dover Group, Inc.) and a Stipulation and Order of Dismissal
was filed with the Court on April 10, 1998. ATG(TM)'s portion of the
settlement is $760,000.
On May 29, 1998, Rosensaft ("Rosensaft") served the Company with a complaint
in the United States District Court for the Southern District of New York
entitled "David Rosensaft vs. Universal Trading Technologies Corporation and
The Ashton Technology Group, Inc." No. 98 Civ. 3681, asserting five claims
against the Company and its subsidiary, UTTC(TM) for breach of the Company's
fiduciary duty to Rosensaft as a minority shareholder of UTTC(TM) (Third Cause
of Action), for invalid amendments to the certificates of incorporation of
UTTC(TM) and the Company and invalid issuance of UTTC(TM) stock to the Company
(Fourth Cause of Action) and for improper issuance of additional shares of
UTTC(TM) common stock to the Company (Fifth Cause of Action).
More specifically, the First Cause of Action alleges that in 1995 the
Company breached its March 7, 1995 agreement with Rosensaft by issuing only
2,000,000 shares of UTTC(TM) common stock to him in violation of a provision
of that agreement that allegedly entitled him to receive 2,450,000 shares of
UTTC(TM) common stock.
The Second, Third, Fourth and Fifth Causes of Action allege that, in causing
UTTC(TM) to issue approximately 19 million shares of UTTC(TM) common stock to
ATG(TM) in September 1997, allegedly without adequate consideration, the
Company improperly diluted Rosensaft's share of UTTC(TM) common stock from
6.7% to 1.38% in violation of Delaware corporate law and in breach of
Rosensaft's March 7, 1995 agreement with the Company.
The relief sought by Rosensaft is as follows: in the First Cause of Action,
450,000 shares of UTTC(TM) common stock, or damages to be determined at trial,
but not less than $2 Million; in the Second and Third Causes of Action,
damages to be determined at trial; in the Fourth Cause of Action, an order
revoking or canceling the issuance of additional shares of UTTC(TM) common
stock in excess of the 10,000,000 shares authorized by UTTC(TM)'s original
Certificate of Incorporation; and in the Fifth Cause of Action, an order
revoking or canceling the issuance of the approximately 19,000,000 additional
shares of UTTC(TM) common stock to the Company.
The Company believes that none of the above matters will have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
year ended March 31, 1997. A Proxy Statement was filed with the SEC on April
20, 1998 notifying stockholders of a Special Meeting of Stockholders to be
held on May 29, 1998 for the purpose of considering and voting upon: (i)
increasing the number of authorized shares of ATG(TM) Common Stock from
20,000,000 to 60,000,000; (ii) increasing the number of authorized shares of
ATG(TM) Preferred Stock from 1,000,000 to 3,000,000; and (iii) authorizing the
issuance of ATG(TM) Common Stock pursuant to certain put rights and upon the
conversion or exercise, as the case may be, of ATG(TM)'s Series D Convertible
Preferred Stock, Series E Convertible Preferred Stock and warrants to purchase
shares of Common Stock issued or issuable pursuant to the Private Equity Line
of Credit Agreement dated April 2, 1998. All three items were approved by the
stockholders at the May 29, 1998 Special Meeting of Stockholders.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On May 2, 1996, ATG(TM) completed an initial public offering of 2,472,500
shares of common stock ("Common Stock") at an initial public offering price of
$4.50 per share and 2,472,500 redeemable common stock purchases warrants
("Warrants") at $0.25 per warrant. The Common Stock and the Warrants are
traded on the Nasdaq Small Cap Market.
The following sets forth the initial offering, and high and low prices for
the Common Stock during the periods indicated:
<TABLE>
<CAPTION>
LOW
HIGH ($) ($)
-------- ------
<S> <C> <C>
Initial Offering Price 4.50 4.50
May 2, 1996 through June 30, 1996: 15.50 7.00
July 1, 1996 through September 30, 1996: 11.625 4.25
October 1, 1996 through December 31, 1996: 8.125 5.00
January 1, 1997 through March 31, 1997: 7.6875 3.00
April 1, 1997 through June 30, 1997: 4.125 2.375
July 1, 1997 through September 30, 1997: 2.75 0.8125
October 1, 1997 through December 31, 1997: 2.125 0.8125
January 1, 1998 through March 31, 1998: 4.375 1.125
The following sets forth the initial offering, and high and low prices for
the Warrants during the periods indicated:
<CAPTION>
LOW
HIGH ($) ($)
-------- ------
<S> <C> <C>
Initial Offering Price 0.25 0.25
May 2, 1996 through June 30, 1996: 9.25 3.25
July 1, 1996 through September 30, 1996: 5.375 1.25
October 1, 1996 through December 31, 1996: 4.00 2.00
January 1, 1997 through March 31, 1997: 3.25 1.625
April 1, 1997 through June 30, 1997: 2.25 1.0625
July 1, 1997 through September 30, 1997: 1.375 0.375
October 1, 1997 through December 31, 1997: 1.00 0.1875
January 1, 1998 through March 31, 1998: 1.875 0.1875
</TABLE>
On March 31, 1998, the closing price of the Common Stock was $3.9375 and the
closing price of the Warrants was $1.50.
As of March 31, 1998, there were approximately 86 holders of record of
Common Stock in "Street Name" representing approximately 2000 stockholders and
approximately 28 holders of record of Warrants in "Street Name" representing
approximately 1000 stockholders.
DIVIDEND POLICY
No dividends have been declared on the Common Stock through June 30, 1998
and the Board of Directors has no current intention to declare or pay
dividends on the Common Stock in the foreseeable future.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and
liquidity and capital resources should be read in conjunction with the
consolidated financial statements and related notes of the Company for the
years ended March 31, 1996, 1997 and 1998. The results for the year ended
March 31, 1998 are not comparable to the prior fiscal year (i) because the
Company established GA, which began to generate revenues in October 1997, and
(ii) because the Company sold, in November 1997, its CSI(R) subsidiary, which
had been the Company's primary source of revenues.
REVENUES AND EXPENSES
The Company had consolidated revenues of $3,494,276 for the fiscal year
ended March 31, 1998 which compares with $4,938,330 for the fiscal year ended
March 31, 1997. All but $313,659 of the Company's current fiscal year revenues
and the related "cost of revenues" were generated by CSI(R), and all of the
Company's previous fiscal year revenues were generated by CSI(R). (The
consolidated revenues for last fiscal year do not include $1,386,143 paid by
ATG(TM) and UTTC(TM) to CSI(R) for software engineering services.) During this
fiscal year, the Company sold CSI(R), and continues to seek regulatory
approval to operate its VTS(TM) system and to seek other sources of operating
revenues, including the expansion and development of its subsidiaries.
However, there can be no assurance that the Company will obtain such
regulatory approval, that the company will locate other sources of operating
revenues, or that the Company's subsidiaries, other than GA, will generate
revenues.
During the twelve months ended March 31, 1998, the Company incurred a net
loss of $8,674,902, compared to a loss of $6,842,406 in the prior fiscal year.
These losses include the following significant one-time expenses:
. $1,804,917 related to the issuance of non-employee stock options to
consultants and professional advisors. This is a non-cash charge which
impacts the Company's profit and loss ("P&L") in the current year but
does not affect the balance sheet (the $1,804,917 reduction in retained
earnings is offset by a corresponding increase in additional paid-in
capital to reflect the grant of the options.) The options are not
registered and are subject to the trading restrictions imposed by SEC
rules.
. $385,930 loss on the sale of CSI(R). (On a "cash-on-cash" basis, the
Company purchased CSI(R) for approximately $1.6 million, sold it for
$1.7 million, and received $340,000 in cash from CSI(R) per a Tax
Allocation agreement.)
. $760,000 settlement of the Rosensaft litigation (see Item 3).
Although the Company reported a higher P&L loss in Fiscal 1998 than in the
prior fiscal year, the "net cash used in operating activities" was less in
fiscal 1998 ($5,749,180) than in fiscal 1997 ($6,377,582). (See "Consolidated
Financial Statement: Statement of Cash Flows")
GOMEZ ADVISORS
At the beginning of fiscal 1998, the Company established GA. GA has grown
from an initial staff of three to seven employees at fiscal year end. GA
started to generate revenues in October 1997, and these have increased to
$313,659 for the year ended March 31, 1998. Costs of revenues are direct
costs, which include labor costs, subcontract costs, material costs and other
direct costs related to contract revenue and overhead.
CSI(R)
CSI(R)'s revenues for the year ended March 31, 1997 increased by 5%,
$2,657,000, to approximately $6,324,000, from approximately $3,667,000 for the
year ended March 31, 1996. This increase was attributable to an increase in
commercial sales of $2,872,000. CSI(R) also recorded revenue of approximately
$1,386,000 from ATG(TM) for the year ended March 31, 1997.
12
<PAGE>
Costs of revenues for the year ended March 31, 1997 increased by $1,739,000,
or 58.2%, to approximately $4,725,000, from approximately $2,986,000 for the
year ended March 31, 1996. This change has occurred primarily due to the
higher concentration of commercial sales.
Operating expenses for the year ended March 31, 1997 increased by $120,000,
or 28.0%, to approximately $549,000, from approximately $429,000 for the year
ended March 31, 1996.
Net income for the year ended March 31, 1997 increased by $357,000, or
146.9%, to approximately $600,000, from approximately $243,000 in the year
ended March 31, 1996, based upon increased revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the fiscal year ended March 31, 1998, the Company incurred $5,718,443
of selling, general and administrative ("SG&A") expenses. This compares to the
$3,479,660 of SG&A expenses incurred during the fiscal year ended March 31,
1997. On a per subsidiary basis this fiscal year, ATG(TM) incurred $2,918,187
compared with last year's $2,140,582 of SG&A expense, UTTC(TM) incurred
$1,816,880 compared with last year's $876,069 SG&A expense and GA incurred
$492,901 of SG&A expense. The largest components of ATG(TM)'s increased SG&A
expenses were salaries, professional fees and public company expenses which
include directors and officers insurance.
DEVELOPMENT COSTS
During the fiscal year ended March 31, 1998, the Company incurred
development costs of $196,974 which compares with the $3,382,848 of
development costs incurred last fiscal year on a consolidated basis. The
reduction in development costs occurred with the VTS(TM) system being
developed and ready for operation in April 1997. During the previous fiscal
year ended on March 31, 1997, ATG(TM) incurred development costs of $2,049,651
primarily for the design and development of the ATED encryption device and the
encryption client-server. Separately, UTTC(TM) incurred costs of $1,333,197
for the development of the UTS(TM) system.
INTEREST EXPENSE
For the year ended March 31, 1998, the Company incurred interest expenses of
$393,813, which included the interest paid on the $3,000,000 in UTTC(TM) notes
payable, interest paid on a loan to CSI(R), and amortization of the deferred
placement expenses associated with its UTTC(TM) notes. This compares to the
interest expense of $39,792 shown last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended March 31, 1998, the Company had cash and cash equivalents
of $5,050,680 after giving pro-forma effect to the private placement of Series
D Preferred Stock consummated on April 3, 1998 and after giving effect to the
additional Series B Preferred issuance. This compares to the cash and cash
equivalents of $2,691,854 in the last fiscal year after giving pro-forma
effect to the UTTC(TM) private placement that was consummated in April 1997.
Management expects to raise additional capital for the development of new
online transactional products for UTTC(TM), GA and ATG(TM) from the Series E
Equity Line of Credit or other sources. The Company has committed $1.5 million
of any such additional capital to the expansion of GA to complete its initial
business strategy. Management also expects to generate revenues from the
VTS(TM) system once regulatory approval has been obtained and the Company can
begin marketing the product to the professional investment community. However,
there can be no assurance that approval will be received or when such approval
will be received.
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 Preferred together with the Put (when and if
exercised), will provide sufficient working capital for at least the next 18
months. The Company may need
13
<PAGE>
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 Preferred and Series E Preferred
private placements prove to be insufficient for the Company's continued
operations. 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 receive rights, preferences or
privileges senior to those of the holders of Common Stock.
CAPITAL EXPENDITURES
During the current fiscal year ended March 31, 1998, the Company spent
$348,392 for the acquisition of capital equipment. This compares with the
$1,104,336 the Company spent for the acquisition of capital equipment
(primarily computer hardware and software for the UTS(TM) system) and for
leasehold improvements during the previous fiscal year.
TAX ALLOCATION AGREEMENT
On or about March 27, 1997, the Company entered into an agreement with each
of its subsidiaries at the time, CSI(R) and UTTC(TM) (together with the
Company, the "Affiliated Group"), providing for the allocation of the
consolidated tax liability of the Affiliated Group among its members, for
reimbursing the Company for payment of such tax liability, for compensating
any party for use of its losses or tax credits, and for the allocation and
payment of any refund arising from a carryback of losses or tax credits from
subsequent tax years. The tax allocation agreement with CSI(R) was terminated
on its sale by the Company.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report............................................... 16
Consolidated Financial Statements:
Balance Sheet as of March 31, 1998....................................... 17
Statement of Operations for the Years Ended March 31, 1997 and 1998...... 18
Statement of Stockholders' Equity for the Years Ended March 31, 1997 and
1998.................................................................... 19
Statement of Cash Flows for the Years Ended March 31, 1997 and 1998...... 20
Notes to Consolidated Financial Statements............................... 21
</TABLE>
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
The Ashton Technology Group, Inc.
We have audited the accompanying consolidated balance sheet of The Ashton
Technology Group Inc. and Subsidiaries as of March 31, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period then ended. We have also audited the
pro forma consolidated balance sheet which gives effect to the receipt of
proceeds from issuance of preferred stock as described in Note 15 to the
consolidated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Ashton
Technology Group, Inc. and Subsidiaries as of March 31, 1998 and the results
of their operations and their cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the pro forma balance sheet presents fairly the
financial position of The Ashton Technology Group, Inc. and Subsidiaries as it
would have appeared at March 31, 1998 had the transaction described in Note 15
been consummated at that date.
Goldstein Golub Kessler & Company,
P.C.
New York, New York
May 7, 1998, except for the last
paragraph of Note 7 and the 8th
paragraph of Note 14, as to
which the date is May 29, 1998
16
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
1998 (NOTE 15)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 815,680 $ 5,050,680
Accounts receivable.............................. 130,843 130,843
Stock subscription receivable.................... 245,000 --
Current portion of note receivable............... 103,619 103,619
------------ ------------
Total current assets........................... 1,295,142 5,285,142
Property and Equipment, net........................ 849,799 849,799
Investment in E. Com International, Inc............ 105,000 105,000
Deferred Income Tax Asset, net of valuation allow-
ance of $6,260,000................................ -- --
Note Receivable, net of current portion............ 458,040 458,040
Computer Software Development Costs................ 224,686 224,686
Other Assets....................................... 65,353 65,353
============ ============
Total Assets................................... $ 2,998,020 $ 6,988,020
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses............ $ 1,736,447 $ 1,936,447
Notes payable.................................... 25,000 25,000
------------ ------------
Total current liabilities...................... 1,761,447 1,961,447
------------ ------------
Commitment and Contingencies
Stockholders' Equity:
Preferred stock--authorized 3,000,000 shares:
250,000 shares designated as Series A (liquida-
tion preference equals stated value); issued and
outstanding 250,000 shares...................... 2,500,000 2,500,000
590,000 shares designated as Series B (liquida-
tion preference $10 per share); issued and out-
standing 460,000 shares; issued and outstanding
587,500 shares for pro forma.................... 3,188,875 3,977,013
105,000 shares designated as Series C $.01 par
value; (liquidation preference equals stated
value); issued and outstanding 55,000 shares.... 550,000 550,000
10 shares designated as Series D $.01 par value;
(liquidation preference equals stated value);
none issued and outstanding; issued and out-
standing 3.15 shares for pro forma.............. -- 3,150,000
10 shares designated as Series E $.01 par value;
$1,000,000 per share liquidation preference;
none issued..................................... -- --
Common stock--$.01 par value; authorized
60,000,000 shares, issued outstanding 8,143,571
shares; issued and outstanding 8,163,571 shares
for pro forma................................... 81,436 81,636
Additional paid-in capital......................... 15,730,870 17,560,530
Deferred consulting expense........................ (438,281) (438,281)
Accumulated deficit................................ (20,376,327) (22,354,325)
------------ ------------
Stockholders' equity........................... 1,236,573 5,026,573
------------ ------------
Total Liabilities and Stockholders' Equity..... $ 2,998,020 $ 6,988,020
============ ============
</TABLE>
(See Notes to Consolidated Financial Statements)
17
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net revenue.......................................... $ 4,938,330 $ 3,494,276
----------- -----------
Costs and expenses:
Cost of revenue.................................... 3,544,556 2,620,896
Development costs.................................. 3,382,848 196,974
Selling, general and administrative expenses....... 3,479,660 5,718,443
Noncash compensatory charges....................... -- 1,804,917
Depreciation and amortization...................... 280,678 326,736
----------- -----------
Total costs and expenses......................... 10,687,742 10,667,966
----------- -----------
Other income (expenses):
Loss on sale of subsidiary......................... -- (385,930)
Interest income.................................... 144,341 91,996
Interest expense................................... (39,792) (393,813)
Corporate restructuring costs...................... (957,487) --
Settlement expense................................. -- (760,000)
----------- -----------
Total other income (expenses).................... (852,938) (1,447,747)
----------- -----------
Loss before provision for income taxes and minority
interest in earnings of subsidiary.................. (6,602,350) (8,621,437)
Provision for income taxes........................... 110,000 42,000
----------- -----------
Loss before minority interest in earnings of subsidi-
ary................................................. (6,712,350) (8,663,437)
Minority interest in earnings of subsidiary.......... 130,056 11,465
----------- -----------
Net loss............................................. $(6,842,406) $(8,674,902)
=========== ===========
Net loss per common share............................ $ (.93) $ (1.46)
=========== ===========
</TABLE>
(see Notes to Consolidated Financial Statements)
18
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON STOCK SERIES A SERIES B SERIES C
----------------- -------------------- -------------------- -------------------- ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF NUMBER OF PAID-IN TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK
--------- ------- --------- ---------- --------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1996........ 5,290,000 $52,900 -- -- -- -- -- -- $ 1,341,109 $(300,000)
Issuance of
common stock and
warrants in
initial public
offering........ 2,272,500 22,725 -- -- -- -- -- -- 9,141,088 300,000
Net loss........ -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ---------- ------- ---------- ------- ---------- ----------- ---------
Balance at March
31, 1997........ 7,562,500 75,625 -- -- -- -- -- -- 10,482,197 0
Issuance of
Series A
Convertible
Preferred
Stock........... -- -- 250,000 $2,500,000 -- -- -- -- -- --
Issuance of
Series B
Convertible
Preferred
Stock........... -- -- -- -- 162,500 $1,625,000 -- -- -- --
Issuance of
Series B
Convertible
Preferred Stock
in connection
with the
exchange of
UTTC(TM) notes
payable......... -- -- -- -- 297,500 2,975,000 -- -- (309,005) --
Issuance of
Series C
Convertible
Preferred
Stock........... -- -- -- -- -- -- 105,000 $1,050,000 -- --
Recognition of
beneficial
conversion
feature of
preferred
stock........... -- -- -- -- -- (1,411,125) -- -- 3,617,605 --
Series C
Convertible
Preferred Stock
converted to
common stock.... 281,071 2,811 -- -- -- -- (50,000) (500,000) 497,189 --
Issuance costs
in connection
with preferred
stock........... -- -- -- -- -- -- -- -- (1,594,466) --
Issuance of
common stock for
consulting
services........ 300,000 3,000 -- -- -- -- -- -- 475,125 --
Issuance of
options to
purchase common
stock........... -- -- -- -- -- -- -- -- 2,562,225 --
Net loss........ -- -- -- -- -- -- -- -- -- --
--------- ------- ------- ---------- ------- ---------- ------- ---------- ----------- ---------
Balance at March
31, 1998........ 8,143,571 $81,436 250,000 $2,500,000 460,000 $3,188,875 55,000 $ 550,000 $15,730,870 $ 0
========= ======= ======= ========== ======= ========== ======= ========== =========== =========
<CAPTION>
DEFERRED
ACCUMULATED CONSULTING STOCKHOLDERS'
DEFICIT EXPENSE EQUITY
------------- ----------- -------------
<S> <C> <C> <C>
Balance at March
31, 1996........ $ (2,652,539) -- $(1,558,530)
Issuance of
common stock and
warrants in
initial public
offering........ -- -- 9,463,813
Net loss........ (6,842,406) -- (6,842,406)
------------- ----------- -------------
Balance at March
31, 1997........ (9,494,945) -- 1,062,877
Issuance of
Series A
Convertible
Preferred
Stock........... -- -- 2,500,000
Issuance of
Series B
Convertible
Preferred
Stock........... -- -- 1,625,000
Issuance of
Series B
Convertible
Preferred Stock
in connection
with the
exchange of
UTTC(TM) notes
payable......... -- -- 2,665,995
Issuance of
Series C
Convertible
Preferred
Stock........... -- -- 1,050,000
Recognition of
beneficial
conversion
feature of
preferred
stock........... (2,206,480) -- --
Series C
Convertible
Preferred Stock
converted to
common stock.... -- -- --
Issuance costs
in connection
with preferred
stock........... -- -- (1,594,466)
Issuance of
common stock for
consulting
services........ -- $ (438,281) 39,844
Issuance of
options to
purchase common
stock........... -- -- 2,562,225
Net loss........ (8,674,902) -- (8,674,902)
------------- ----------- -------------
Balance at March
31, 1998........ $(20,376,327) $ (438,281) $ 1,236,573
============= =========== =============
</TABLE>
(See Notes to Consolidated Financial Statements)
19
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(6,842,406) $(8,674,902)
Adjustments to reconcile net loss to net cash used
in operating activities:
Bad debt expense.................................... 50,000 --
Depreciation and amortization....................... 280,678 326,736
Interest expense forgiven upon sale of subsidiary... -- 28,875
Loss on sale of subsidiary.......................... -- 385,930
Common stock issued in connection with consulting
services........................................... -- 39,844
Common stock options issued to nonemployees......... -- 1,804,917
Minority interest in earnings of subsidiary......... 130,056 11,465
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (553,816) 221,227
(Increase) decrease in prepaid expenses and other
current assets.................................... (23,784) 40,310
Increase in computer software development costs.... -- (224,686)
Decrease (increase) in other assets................ 60,392 (6,863)
Increase in accounts payable and accrued
expenses.......................................... 468,576 344,732
Increase (decrease) in billings in excess of costs
and estimated earnings............................ 52,722 (46,765)
----------- -----------
Net Cash used in operating activities............. (6,377,582) (5,749,180)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................. (1,104,336) (348,392)
Purchase of subsidiary, net of cash acquired........ (600,160) --
Investment in E. Com International, Inc............. -- (105,000)
Proceeds from sale of subsidiary, net of cash
disposed........................................... -- 154,108
Proceeds from collection of note receivable......... -- 32,466
----------- -----------
Net cash used in investing activities............. (1,704,496) (266,818)
----------- -----------
Cash flows from financing activities:
Issuance costs for initial public offering.......... (316,040) --
Net proceeds from the sale of stock and warrants.... 10,394,709 --
Proceeds from the sale of preferred stock........... -- 4,930,000
Proceeds from notes payable......................... -- 3,000,000
Issuance costs for private placement of preferred
stock and notes payable............................ -- (1,159,163)
Payments of notes payable........................... (1,966,771) --
----------- -----------
Net cash provided by financing activities......... 8,111,898 6,770,837
----------- -----------
Net increase in cash and cash equivalents............ 29,820 754,839
Cash and cash equivalents at beginning of the year... 31,021 60,841
----------- -----------
Cash and cash equivalents at end of year............. $ 60,841 $ 815,680
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................ $ 84,796 $ 364,938
=========== ===========
Income taxes........................................ $ 5,694 $ 20,198
=========== ===========
Supplemental schedule of noncash investing and
financing activities:
Forgiveness of note payable in connection with the
sale of subsidiary................................. -- $ 500,000
=========== ===========
Receipt of note receivable in connection with the
sale of subsidiary................................. -- $ 594,125
=========== ===========
Exchange of UTTC(TM) notes for Ashton preferred
stock.............................................. -- $ 2,975,000
=========== ===========
</TABLE>
(See Notes to Consolidated Financial Statements)
20
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, PRESENTATION, PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT
ACCOUNTING POLICIES:
The accompanying consolidated financial statements include the accounts of
The Ashton Technology Group, Inc. ("Ashton") and its Subsidiaries, Universal
Trading Technologies Corporation ("UTTC(TM)"), and Gomez Advisors, Inc., a
company formed in May 1997 ("Gomez"), (collectively the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
On May 2, 1996, Ashton purchased sufficient shares of Class A voting and
Class B nonvoting common stock of Computer Science Innovations inc. ("CSI(R)")
to enable Ashton to own 80% of each class of CSI(R)'s common stock, giving
Ashton a controlling interest in CSI(R). On November 4, 1997, Ashton sold
CSI(R) (see Note 9). The results of operations of CSI(R) are included in the
accompanying consolidated financial statements since May 2, 1996, the date of
acquisition, through November 4, 1997, the date of disposition of CSI(R). In
May 1997, the Company formed a wholly owned subsidiary, Gomez. Gomez provides
banks, broker-dealers, insurance companies and other financial intermediaries
with advice concerning the business potential of the Internet as a tool for
use in marketing and in the interactive distribution of financial products.
The range of services provided includes strategy development, marketing,
product and interface design and implementation planning. Gomez recognizes
revenue when services are performed. The results of operations of Gomez are
included from the date of formation.
The Company was founded to take advantage of opportunities in the rapidly
evolving businesses of Internet and electronic commerce through the
application of its skills and advanced technologies in securities trading and
information security. The Company designs, develops and markets online
transactional systems, especially for the securities industry, and information
security technologies. Ashton has designed and developed the Ashton Technology
Encryption Device ("ATED") and UTTC(TM) has designed and developed the
Universal Trading System ("UTS(TM)").
CSI(R)'s revenue on time and materials-type contracts is recognized as work
performed. Revenue from cost-reimbursement contracts is recorded as costs
incurred and includes estimated earned fees in the proportion that costs
incurred to date bear to total estimated costs. CSI(R) recognizes revenue from
long-term fixed-price contracts on the percentage-of-completion method,
measured by the percentage of contract costs incurred to date to estimated
total contract costs for each contract.
CSI(R)'s cost of revenue includes all direct material and labor costs and
those indirect costs related to contract performance. Provisions for estimated
losses on uncompleted fixed-price contracts are made in the period in which
such losses are first estimated. The cumulative effect of revisions to
estimated total contract costs and revenue is recorded in the period in which
the facts requiring the revision become known. Claims, including change
orders, are reflected at estimated recoverable amounts. An allowance for
doubtful accounts is recorded in the period in which such accounts are
determined to be uncollectible.
Development costs are expensed as incurred until technical feasibility is
obtained. Development costs incurred subsequent to technical feasibility are
capitalized and amortized on a straight-line basis over the estimated economic
life of the product of 18 months.
At each balance sheet date, the capitalized computer software costs are
compared to the net realizable value of the related product. The net
realizable value is the estimated future gross revenue from the related
product reduced by the estimated future costs of completing and disposing of
such product. In the event that the unamortized capitalized computer software
costs exceed the net realizable value of the related product, such excess
amount is to be written off.
Advertising and marketing costs are charged to operations when incurred.
These costs amounted to approximately $175,000 and $245,000 for the years
ended March 31, 1997 and 1998, respectively.
21
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The Company considers highly liquid investments with an original maturity of
three months or less to be cash equivalents.
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share. The adoption of this statement does not
change net loss per common share for the year ended March 31, 1997. Net loss
per common share is computed using the weighted-average number of shares
outstanding.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. In February 1998, the
FASB issued SFAS No. 132, Employer's Disclosures about Pensions and Other
Postretirement Benefits. SFAS No. 130 establishes new standards for reporting
and displaying comprehensive income and its components. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. SFAS No. 132
revises employer's disclosures about pensions and other postretirement benefit
plans. Adoption of these statements is expected to have no significant impact
on the Company's consolidated financial position, results of operations or
cash flows.
Depreciation of property and equipment is provided for using the straight-
line method over the estimated useful life of the related assets. Amortization
of leasehold improvements is provided for using the straight-line method over
the term of the lease.
The Company maintains life insurance policies on its key officers and
employees in the aggregate amount of $8,600,000.
In 1997, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has elected to apply APB Opinion No. 25 and related
interpretations in accounting for its stock options issued to employees and
has adopted the disclosure-only provisions of SFAS No. 123.
In 1998, the Company purchased a 1.5% interest in E. Com International, Inc.
for $105,000. The investment is accounted for on the cost method.
2. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-------------
<S> <C> <C>
Office equipment................................... $ 165,250 3 to 5 years
Computer equipment................................. 923,907 3 years
Furniture and fixtures............................. 134,835 7 years
Leasehold improvements............................. 112,332 Term of lease
----------
1,336,324
Less accumulated depreciation and amortization..... (486,525)
----------
$ 849,799
==========
</TABLE>
22
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization expense for the years ended March 31, 1997 and
1998 was approximately $242,000 and $327,000, respectively.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<S> <C>
Trade accounts payable.......................................... $ 47,786
Accrued litigation settlement (see Note 14)..................... 760,000
Accrued compensation............................................ 115,500
Accrued professional fees....................................... 797,807
Accrued other expenses.......................................... 15,354
----------
$1,736,447
==========
</TABLE>
4. LONG-TERM DEBT:
In October 1995, the Company raised $650,000 by issuing 13 units through a
private placement. Each unit consisted of a $49,000 10% nonconvertible
promissory note due in April 1997 and a $1,000 10% convertible promissory note
due in October 1998. The $1,000 convertible notes were convertible into
warrants to purchase 20,000 shares of common stock through October 1998 at $8
per share. Interest is payable semiannually on these notes. The nonconvertible
notes were repaid in May 1996 with the proceeds of the Offering (see Note 6).
5. NOTES PAYABLE TO STOCKHOLDERS:
At March 31, 1996, the Company had a note payable in the amount of $615,176
to The Dover Group Inc. ("Dover"), a stockholder of the Company, which note
was issued in connection with the acquisition of the common stock of CSI(R)
(see Note 9). In addition, during 1995, Dover loaned UTTC(TM) $43,430.
As of March 31, 1996, the Company had a $100,000 loan payable to Medford
Financial, Inc. ("Medford"), a company whose principals are stockholders of
the Company. Medford has agreed to provide certain consulting services to the
Company over a three-year period.
In January 1996, the Company purchased 200,000 shares of its common stock
from a stockholder for an aggregate purchase price of $300,000. The purchase
price was paid by Ashton with a promissory note.
In January 1996, an officer/stockholder loaned the Company $150,000.
Additionally, the Company had other stockholder loans totaling $36,165.
All of the loans mentioned above were repaid in May 1996 with the proceeds
of the Offering (see Note 6).
6. INITIAL PUBLIC OFFERING:
On May 2, 1996, the Company completed an Offering of 2,150,000 shares of
common stock at an offering price of $4.50 per share and 2,150,000 warrants at
$.25 per warrant. The common stock and the warrants are separately tradable.
The Company granted to the underwriters the right to exercise over-allotment
options of 322,500 shares of common stock and/or 322,500 warrants at the
Offering price, within 45 days of May 2, 1996. On May 7, 1996, the
underwriters exercised the over-allotment options and offered an additional
322,500 shares of common stock and 322,500 warrants to the public at $4.50 per
share and $.25 per warrant. As a result of the Offering, the Company received
net proceeds of approximately $10,395,000 and increased its total shares of
common stock and warrants outstanding by 2,472,500 each. The net proceeds from
the Offering were used to
23
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
repay all notes payable to stockholders, certain notes payable and related
accrued interest in existence through the date of the Offering and provided
working capital. The net proceeds were also used to purchase the additional
shares of CSI(R) stock as described in Note 9.
Concurrent with the Offering, the Company registered 760,000 additional
warrants to purchase common stock. Such warrants are identical to the warrants
described above and were issuable automatically upon the completion of the
Offering in exchange for the already existing outstanding common stock
warrants.
7. STOCKHOLDERS' EQUITY:
In 1998, the Company completed a series of private offerings and an exchange
offering pursuant to which it issued to certain investors (i) 250,000 shares
of its Series A Convertible PIK Preferred Stock (with a liquidation preference
of $10.00 per share) (the "Series A Preferred"); (ii) 162,500 shares of its
Series B Convertible Preferred Stock (with a liquidation preference of $10.00
per share) ("Series B Preferred"); and (iii) exchanged 297,500 shares of its
Series B Preferred for $2,975,000 of convertible and nonconvertible notes
issued by UTTC(TM) (see below). The Series A Preferred pays cumulative
dividends semiannually at an annual rate of $.50 per share payable in
additional shares of Series A Preferred until February 15, 2000. At any time
after February 15, 1998, each holder of shares of Series A Preferred will have
the right to convert each share of Series A Preferred into: (i) ten shares of
common stock of Ashton, and (ii) one two-year warrant to purchase three shares
of the common stock, par value $.01 per share, of UTTC(TM) (the "UTTC(TM)
Common Stock"), with an exercise price of $.75 per share, subject to
adjustment. The Series B Preferred pays cumulative dividends semiannually at
an annual rate of $.90 per share. At any time after June 30, 1998, each holder
of shares of Series B Preferred will have the right to convert each share of
Series B Preferred into: (i) six shares of common stock, and (ii) one two-year
warrant to purchase two shares of UTTC(TM) Common Stock, with an exercise
price of $.75 per share, subject to adjustment.
Dividends in arrears amounted to $47,705 and $60,044 for Series A Preferred
and Series B Preferred, respectively.
In addition, in January 1998, the Company completed the sale of 100,000
shares of its Series C Convertible Preferred Stock to a group of foreign
investors (the "Series C Investors"), with a liquidation preference of $10.00
per share (the "Series C Preferred"), for an aggregate purchase price of
$1,000,000. Holders of the Series C Preferred will have the right to convert
each share of Series C Preferred into one share of common stock at the
conversion price which shall be equal to the following: (i) if the Market
Price (as hereinafter defined) on the Conversion Date (as hereinafter defined)
is less than $1.8774, the conversion price is equal to the lesser of 75% of
the Market Price at the Conversion Date or $1.2516; and (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. The Market Price shall mean
the average of the closing bid prices per share of the common stock over the
five consecutive trading days preceding the Conversion Date. The Conversion
Date shall mean the date the holder elects to have shares converted into
common stock. In addition, the Series C Investors will receive warrants
exercisable into an aggregate of 100,000 shares of common stock at an exercise
price of 105% of the Market Price for a period of five years. In connection
with the sale, the Company has agreed to pay a placement fee to a placement
agent of $50,000 and to transfer to it 5,000 shares of the Series C Preferred
and a warrant to purchase 100,000 shares of common stock at an exercise price
of 105% of Market Price for a period of five years. In March 1998, 50,000
shares of Series C Preferred were converted into 281,071 shares of common
stock. In addition, subsequent to March 31, 1998, the remaining 55,000 shares
of Series C Preferred were converted into 314,343 shares of common stock.
At the time of issuance, the preferred stock described above was convertible
at prices below the market price of the underlying common stock. The
beneficial conversion feature represented by the intrinsic value is calculated
as the difference between the conversion price and the market price of the
underlying common stock
24
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
multiplied by the number of shares to be issued upon conversion. The
beneficial conversion feature is recognized as a return to the preferred
stockholders over the minimum period in which the preferred stockholders can
realize that return. At March 31, 1998, the beneficial conversion feature
amounted to $1,643,900, $212,637 and $349,943 for Series A Preferred, Series B
Preferred and Series C Preferred, respectively.
The Company received net proceeds from the above transactions of
approximately $3,734,000 after deducting issue costs of approximately
$1,146,000.
In April 1997, UTTC(TM) completed a private placement of $3,000,000 in
notes, consisting of $2,550,000 nonconvertible and $450,000 convertible notes,
to accredited investors. The Company received net proceeds of approximately
$2,600,000 after deducting debt issue costs of approximately $400,000. As
described above, $2,975,000 of these notes were exchanged for Series B
Preferred.
At March 31, 1998, notes payable consist of $21,250 nonconvertible and
$3,750 convertible UTTC(TM) notes. The convertible notes are convertible into
3,750 shares of UTTC common stock. The notes bear interest at 9% per annum
payable on January 31, annually, and are due January 31, 1999.
In February 1998, the Company entered into a consulting agreement whereby
the Company issued 300,000 shares of common stock, with a fair market value of
$475,125, in exchange for promotional services through February 1999. The
consulting costs will be amortized over the term of the agreement. For the
year ended March 31, 1998, the Company charged $39,844 to operations and
recorded a deferred consulting expense of $438,281 as a reduction to
stockholders' equity at March 31, 1998.
In May 1998, the Company's stockholders authorized an increase in the number
of shares of common stock from 20,000,000 to 60,000,000 and in the number of
shares of preferred stock from 1,000,000 to 3,000,000.
8. DEFINED CONTRIBUTION PLAN:
The Company maintains a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering all qualified employees. The Company may
make nonmandatory contributions. Certain officers of the Company serve as
trustees of the plan. No contributions were made during the years ended March
31, 1997 and 1998.
9. ACQUISITIONS AND DISPOSITION:
On May 2, 1996, Ashton purchased 469,155 shares of CSI(R)'s Class A voting
stock and 1,557,210 shares of Class B nonvoting common stock for $865,565. On
June 11, 1996, Ashton acquired an additional 12,053 of Class A voting common
shares and 1,261 Class B nonvoting common shares of CSI(R) for $6,100, and
subsequently purchased additional shares. After such purchases, Ashton owned
83.18% of the aggregate Class A and Class B common stock.
The following pro forma information presents the results of operations of
the Company as though the acquisitions occurred on April 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1997
-----------
<S> <C>
Net revenue..................................................... $ 5,341,000
Net loss........................................................ (6,813,000)
Loss per common share........................................... (.93)
</TABLE>
25
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On November 4, 1997, Ashton sold CSI(R) to a trust created by the Computer
Science Innovations Inc. Leveraged ESOP for $1,723,000. The Company received
$600,000 in cash, a $594,125 five-year 8 1/4% note and the forgiveness of
$528,875 due to CSI(R), which included $28,875 of accrued interest. The sale
resulted in a loss of $385,930, which is included in the accompanying
consolidated statement of operations. Based on rates of return currently
available to the Company for investments with similar terms and maturities,
the fair value of the note receivable approximates the carrying amount.
10. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Current--state.......................................... $ 59,000 $ 42,000
========== =========
Deferred:
Federal............................................... 48,000 --
State................................................. 3,000 --
---------- ---------
51,000 --
---------- ---------
$ 110,000 $ 42,000
========== =========
</TABLE>
The Company has net operating loss carryforwards at March 31, 1998 of
approximately $11,800,000, which will begin to expire in 2011, available to
reduce future federal taxable income. Additionally, the income tax basis of
intangibles and nonqualified options exceeds the basis for financial reporting
purposes by approximately $1,400,000 and $2,600,000, respectively. The
carryforwards and the temporary difference result in a deferred tax asset of
approximately $6,260,000 at March 31, 1998 for which the Company has provided
a full valuation allowance due to the uncertainty about the future realization
of this tax benefit.
The components of deferred income taxes at March 31, 1998 were as follows:
<TABLE>
<S> <C>
Net operating loss carryforward................................. $ 4,695,000
Basis of intangible asset....................................... 540,000
Grant of nonqualified options................................... 1,025,000
Valuation allowance............................................. (6,260,000)
-----------
$ 0
===========
</TABLE>
The difference between the income tax benefit computed at the federal
statutory rate and the actual provision for income taxes is accounted for as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Tax benefit computed at the federal statutory
rate of 34%..................................... $(2,290,000) $(2,885,000)
Change in valuation allowance.................... 2,290,000 2,885,000
State income taxes, net of federal income tax
effect.......................................... 110,000 42,000
----------- -----------
$ 110,000 $ 42,000
=========== ===========
</TABLE>
The Company files a consolidated federal income tax return. In 1997, Ashton
entered into an agreement with CSI(R) and UTTC(TM). The agreement provides
that any member of the group which has taxable income must compensate any
other member for the use of net operating losses and tax credits. The
agreement with CSI(R) was terminated upon disposition.
26
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED PARTY TRANSACTIONS:
For the year ended March 31, 1998, the Company paid consulting fees to Dover
and Adirondack Capital, L.L.C, an entity controlled by a member of the
Company's board of directors, amounting to $125,000 and $115,000,
respectively.
In addition, as a placement fee on the issuance of Series A Preferred and
Series B Preferred, the Company issued 30,000 options to purchase common stock
to a person related to a member of the Company's board of directors. The fair
value of the options, approximately $76,000, was charged to additional paid-in
capital.
12. EMPLOYEE STOCK OPTIONS:
Stock options are granted to employees at the discretion of the board of
directors. A summary of the status of the Company's employee stock options as
of March 31, 1997 and 1998 and changes during those years are as follows:
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 350,000 $ 4.00 450,000 $6.28
Granted during year..................... 100,000 14.25 -- --
------- ------ ------- -----
Outstanding at end of year.............. 450,000 $ 6.28 450,000 $6.28
======= ====== ======= =====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE
------------ ----------- ---------------- --------
<S> <C> <C> <C>
$4.00-$14.25 450,000 8 years $6.28
============ ======= ======= =====
</TABLE>
At March 31, 1998, 90,000 of the above options were exercisable.
In addition, a summary of the status of UTTC(TM)'s employee stock options as
of March 31, 1998 and changes during the year ended is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at beginning and end of year.............. 400,000 $1.50
======= =====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE NUMBER REMAINING EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE
-------- ----------- ---------------- --------
<S> <C> <C> <C>
$1.50 400,000 3.36 $1.50
===== ======= ==== =====
</TABLE>
None of the above options were exercisable at March 31, 1998.
Had the Company elected to recognize compensation cost based on the fair
value of the options granted during the year ended March 31, 1997 at the grant
date as prescribed by SFAS No. 123, net loss and loss per
27
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
share would not have materially changed because the options issued had no
value at the grant date based on an independent valuation of the Company.
13. LOSS PER COMMON SHARE:
Net loss per common share is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net loss......................................... $(6,842,406) $ (8,674,902)
Less:
Dividends in arrears on preferred stock........ -- (107,749)
Recognition of beneficial conversion feature of
preferred stock............................... -- (2,206,480)
=========== ============
Net loss available to common stockholders........ $(6,842,406) $(10,989,131)
=========== ============
Weighted-average shares used in computing net
loss per common share........................... 7,341,314 7,519,555
=========== ============
Net loss per common share........................ $ (.93) $ (1.46)
=========== ============
</TABLE>
14. COMMITMENTS, CONTINGENCIES AND SETTLEMENTS:
The Company leases office facilities under noncancelable operating leases
expiring through May 2005. Future minimum operating lease payments are as
follows:
<TABLE>
<S> <C>
Year ending March 31,
1999............................................................ $ 172,000
2000............................................................ 144,000
2001............................................................ 144,000
2002............................................................ 154,000
2003............................................................ 158,000
Thereafter...................................................... 343,000
----------
$1,115,000
==========
</TABLE>
The leases are subject to escalation for the Company's share of increases in
real estate taxes and other operating expenses. In addition, the Company
leases office facilities on a month-to-month basis. Rent expense for the years
ended March 31, 1997 and 1998 totaled approximately $390,000 and $253,000,
respectively.
The Company has employment agreements which require the Company to pay
approximately $672,000 through September 1999.
In September 1995, UTTC(TM) entered into an agreement with the Philadelphia
Stock Exchange ("PHLX") whereby PHLX has agreed to employ UTTC(TM)'s UTS(TM)
on its equity trading floor. In connection with this agreement, UTTC(TM) is
required to reimburse PHLX up to $100,000 for the first year of the agreement
for marketing costs incurred by PHLX. UTTC(TM) is also required to assume up
to $200,000 of PHLX's initial technology development costs in implementing the
UTS(TM). UTTC(TM) is required to contribute to a PHLX administered "claim
fund" for potential claims relating to the UTS(TM) operations. UTTC(TM) is
required to contribute $100,000 after commencement of the UTS(TM) trading and,
if necessary, to make additional contributions of up to $100,000 per year to
such claim fund. PHLX is also entitled to receive an annual
28
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
royalty from UTTC(TM) of 3% of annual gross revenue based on UTTC(TM)'s
average revenue in the first three years of operations for each year the PHLX
agreement is in effect. These payments are required to begin at the end of the
second full year of operation and continue for the life of the PHLX agreement.
On January 30, 1997, Ashton, along with UTTC(TM), Fredric W. Rittereiser
("Rittereiser") and Dover (of which Rittereiser is the chairman) entered into
a settlement agreement ("Settlement Agreement dated January 30, 1997") related
to a dispute with David N. Rosensaft ("Rosensaft") (a cofounder of UTTC(TM))
under which a consulting agreement among Ashton, UTTC(TM) and Rosensaft dated
January 19, 1996 was deemed to be void ab initio and each of the parties
released and discharged each of the other parties from any and all agreements
and claims which any of them have against any of the other parties. The
Settlement Agreement dated January 30, 1997 granted Rosensaft registration
rights under the Securities Act of 1933, as amended (the "Securities Act")
under certain terms and conditions for the 333,333 shares of UTTC(TM) common
stock that he owns. Also on January 30, 1997, Ashton, Dover, Rittereiser and
Rosensaft entered into a Stock Purchase Agreement under which Dover and
Rittereiser or his or its designee, agreed to purchase the 750,000 shares of
Ashton common stock owned by Rosensaft on April 10, 1997 for a total purchase
price of $2,000,000 and Ashton granted Dover and Rittereiser or his or its
designees, registration rights under the Securities Act under certain
conditions for the 750,000 shares. On or about April 10, 1997, Ashton advised
Rosensaft that the Rosensaft agreement was null and void and Rittereiser and
Dover declined to purchase the 750,000 shares.
On May 1, 1997, Rosensaft commenced an action in the United States District
Court for the Southern District of New York entitled David N. Rosensaft vs.
The Ashton Technology Group, Inc., UTTC(TM), Dover and Fredric Rittereiser
(collectively the "defendants") No. 97 Civ. 3138, asserting 10 claims against
the defendants including breach of contract and securities fraud and seeking,
inter alia, specific performance of the Settlement Agreement dated January 30,
1997, between and among the parties or in the alternative, actual and
consequential damages in an amount to be proved at trial in addition to
punitive damages. On June 11, 1997, Rosensaft served a First Amended Complaint
adding three additional claims against the defendants, relating to Ashton's
refusal to allow Rosensaft's sale of his Ashton shares.
On June 26, 1997, the defendants filed their answers and counterclaims
generally denying the allegations of the First Amended Complaint and alleging
six counterclaims against Rosensaft including that (i) Rosensaft acquired
1,100,000 shares of Ashton common stock from Ashton on the basis of false and
misleading statements and common law fraud, and (ii) Rosensaft breached his
January 19, 1996 consulting agreement with the Company (the "Agreement") by
(a) failing to carry out his duties as a consultant under the Agreement, (b)
violating the provisions of the Agreement restricting his use of confidential
information of the Company, (c) failing to adhere to the noncompetition
provisions of the Agreement, (d) misappropriating for himself the property
rights of UTTC(TM) relating to the Company's UTS(TM) and (e) failing to return
to UTTC(TM) and/or Ashton valuable property and information, including
confidential documents and computer equipment belonging to UTTC(TM) and/or
Ashton.
On April 10, 1998, the Company and Dover entered into a settlement agreement
pursuant to which Rosensaft is to receive $1,133,000 in settlement of the
above claims and counterclaims. The Company's portion of the settlement, which
amount has been accrued and charged to operations for the year ended March 31,
1998 is $760,000.
On May 29, 1998, Rosensaft filed a complaint alleging that UTTC(TM) had
improperly amended its certificate of incorporation increasing the number of
authorized shares of UTTC(TM) common stock. Rosensaft is asserting inter alia
claims regarding (i) breach of contract, (ii) improper dilution of Rosensaft's
ownership share of UTTC(TM), (iii) breach of fiduciary duty, (iv) fraud, and
(v) violations of Delaware corporate law. The Company and counsel for the
Company are of the opinion that the claims are unfounded and without merit.
29
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 22, 1996, the Company entered into a settlement agreement (the
"Settlement Agreement") related to a dispute involving Robert A. Eprile, John
A. Blohm, Rittereiser, Dover, F.E. Weimmer, Jr., F.E. Weimmer, Sr., F.E.
Rittereiser, Sr. and Thomas Rittereiser, as trustee for Alexis J. Rittereiser,
Amanda Weimmer and John Weimmer, Raymond T. Tate ("Tate"), Helen J. Tate, as
trustee for the Andrew Patrick Tate Trust, Helen J. Tate, as trustee for the
Susan Katherine Tate Burrowbridge Trust and Helen J. Tate, as trustee for the
Elizabeth Tate Winters Trust (collectively the "Tate Trusts"). The Settlement
Agreement resolved all differences among the parties thereto, and all parties
to the Settlement Agreement agreed to release each of the other parties from
any and all actions or claims arising out of or in connection with the matters
covered by the Settlement Agreement. Pursuant to the Settlement Agreement, on
October 22, 1996, Tate resigned from his position as director of the Company
and its Subsidiaries and all officer positions held by him in the Company and
its Subsidiaries. Pursuant to the Settlement Agreement, on October 22, 1996,
the board of directors of the Company elected Fred S. Weingard, executive vice
president of UTTC(TM), to fill the vacancy on the Company's board of directors
created by the resignation of Tate.
Pursuant to the Settlement Agreement and in consideration of the payment of
$250,000 on October 22, 1996, Helen J. Tate as trustee for the Tate Trusts
granted to Rittereiser or his designee the option (the "Call Option"),
exercisable at any time from April 2, 1997 through June 2, 1997, to purchase
1,000,000 shares of the Company's common stock, par value $.01 per share (the
"Tate Common Stock"), from the Tate Trusts for a total purchase price of
$4,500,000. Pursuant to the Settlement Agreement and in consideration for $1,
Rittereiser granted Tate the option (the "Put Option"), exercisable at any
time during the five business days following the exercise of the Call Option,
to require Rittereiser to purchase from Tate the 107,500 shares of Tate Common
Stock owned, beneficially or otherwise, by Tate for a total purchase price of
$483,750. Rittereiser did not exercise the Call Option prior to its
expiration.
In addition, on October 22, 1996, Tate and the Company also entered into a
license agreement (the "License Agreement"). Under the terms of the License
Agreement, the Company granted Tate a perpetual, worldwide license, at his own
cost, to use, sublicense, reproduce and make derivative works and enhancements
of the technology used by the Company to develop the ATED, including the ATED
Key Management System, encryption software and cryptoserver technology (the
"Licensed Technology") in any field of use other than the Financial Services
Industry (as such term is defined in the License Agreement). In consideration
for granting the license, Tate (or his permitted assigns under the License
Agreement) must pay a perpetual annual royalty to the Company equal to 2% of
the total gross revenue earned from the use of the Licensed Technology. Tate's
right to use the Licensed Technology will be exclusive, provided Tate pays to
the Company a cumulative license fee of at least $100,000 by October 22, 2000.
The license fee will be reduced by the total amount of royalties paid to the
Company. Tate may assign the license to any person or entity controlled by
Tate.
Additionally, the Company and Tate entered into a consulting agreement,
dated October 22, 1996 (the "Consulting Agreement"). Under the terms of the
Consulting Agreement, the Company retained Tate to act as a consultant to
CSI(R) for the period from October 22, 1996 to December 31, 1998. As
compensation for such services, for the period from October 22, 1996 through
December 31, 1996, the Company paid Tate $40,000. For the period from October
22, 1996 through December 31, 1998, the Company will also pay to Raymond Tate
Associates, Inc. $120,000 per annum which was charged to operations during the
year ended March 31, 1997 and is included in corporate restructuring costs.
Tate also agreed not to compete with the Company in the Financial Services
Industry (as such term is defined in the Consulting Agreement) during the term
of the Consulting Agreement.
On October 24, 1996, the Securities and Exchange Commission (the "SEC")
commenced a private investigation concerning the circumstances under which
Ashton's subsidiary, UTTC(TM), obtained a contract with PHLX to develop and
install an electronic trading and pricing system. Ashton provided testimony to
the SEC
30
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
on February 12, 1997 through its chairman, Robert Eprile, and has not been
contacted about the matter since that date. In March 1997, the SEC directed
PHLX to make certain changes in its governance procedures and in April 1997
PHLX announced a reorganization of its board of governors and changes in its
governance procedures.
In addition to the above claims, the Company is involved in various claims
and legal actions arising in the ordinary course of business. Management is of
the opinion that the ultimate outcome of these matters would not have a
material adverse impact on the financial position of the Company or the
results of its operations.
15. SUBSEQUENT EVENTS:
On April 3, 1998 (the "Subscription Date"), the Company entered into a
Private Equity Line of Credit Agreement (the "Private Equity Agreement") with
a group of accredited investors (the "Private Equity Investors") which
provides for an aggregate commitment of $18,000,000 to the Company. On the
Subscription Date the Private Equity Investors purchased three shares of
Series D Convertible Preferred Stock (the "Series D Preferred") with a
liquidation preference of $1,000,000 per share for an aggregate purchase price
of $3,000,000 and the Company agreed to promptly file a registration statement
(the "Registration Statement") under the Securities Act, registering shares of
the Company's common stock (the "Registered Common Stock") issuable in
connection with the transactions contemplated by the Private Equity Agreement.
The Private Equity Agreement provides that within five days after the
Registration Statement has been filed and subject to the satisfaction of
certain other conditions, the Private Equity Investors will purchase two
shares of Series E Convertible Preferred Stock (the "Series E Preferred") with
a liquidation preference of $1,000,000 per share for an aggregate purchase
price of $2,000,000. Following the purchase of the Series E Preferred and
subject to the satisfaction of certain other conditions, the Company may from
time to time put (each, a "Put") to the Private Equity Investors shares of the
Registered Common Stock for an aggregate Put price of $13,000,000. The Put
price per share is an amount equal to 85% of the average of the lowest bid
prices of such Registered Common Stock over the seven-day period beginning
three days before and ending three days after the Company gives notice of a
Put. On the completion of each Put, the Company has agreed to pay the
placement agent an amount equal to 5% of the proceeds of such Put.
The Private Equity Investors are not obligated to purchase the Series E
Preferred or any Put shares unless, among other things, (i) the Company has
received the required approval, (ii) the Registration Statement is filed (the
Registration Statement must be effective in order for the Private Equity
Investors to be obligated to purchase any Put shares), (iii) the Company is
listed and trading on a national exchange or quotation system, (iv) the
closing bid price of the common stock on the day immediately preceding such
purchase is at least $1.50 per share, and (v) the common stock has traded at a
volume of at least 25,000 shares a day for the 30 trading days preceding such
purchase.
The Series D Preferred may not be converted into common stock until the
earlier of (i) 60 days following the Subscription Date or (ii) the
Registration Statement has been filed. The conversion price of the Series D
Preferred is an amount equal to 75% of the Market Price. The conversion price
of the Series E Preferred is 80% of the Market Price. Each of the Series D
Preferred and Series E Preferred is entitled to a cumulative dividend of 8%
per annum on its respective liquidation preference.
On the Subscription Date the Private Equity Investors received warrants
(each, a "Warrant") to purchase up to an aggregate of 250,000 shares of
Registered Common Stock and will receive additional Warrants to purchase up to
an aggregate of 100,000 of such shares on the completion of the purchase of
the Series E Preferred. The Warrants are exercisable for five years at an
exercise price of 120% of average closing bid price of the common stock over
the five trading days preceding the Subscription Date.
31
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On the Subscription Date, the Company paid the placement agent a fee of (i)
$150,000, (ii) .15 shares of Series D Preferred, (iii) a Warrant, on the same
terms as the Warrants issued to the Private Equity Investors, to purchase up
to 190,000 shares of Registered Common Stock and (iv) 20,000 shares of common
stock.
In addition, upon the completion of the purchase of Series E Preferred, the
Company will pay a placement fee of (i) 5% of the purchase proceeds and (ii)
.10 shares of Series E Preferred and a warrant to purchase 60,000 shares of
common stock.
In April 1998, the Company issued 127,500 shares of Series B Preferred and
3.15 shares of Series D Preferred. The Company received net proceeds from the
above transactions of approximately $3,790,000 after deducting issue costs of
approximately $485,000 of which $200,000 was paid to a member of the Company's
board of directors.
The accompanying pro forma balance sheet presents the financial position of
the Company as it would have appeared at March 31, 1998 had the additional
Series B Preferred and Series D Preferred been issued on that date. The
issuance included a beneficial conversion feature aggregating $1,977,998.
In April 1998, UTTC(TM) formed a wholly owned subsidiary, REB Securities,
Inc. ("REB"). REB will operate as a registered broker-dealer.
Subsequent to March 31, 1998, the Company formed a wholly owned subsidiary,
Electronic Market Center, Inc. ("EMC"). EMC will develop and operate a
transactional Web site for the financial community.
32
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 3, 1996, the Company, with the approval of its Board of Directors,
decided not to continue its relationship with its independent public
accountants, Goldstein Golub Kessler & Company, P.C. ("GGK"), which principal
executive offices are in New York, New York. GGK served as the Company's
independent public accountants for the fiscal year ended March 31, 1995 and
for the Offering. However, as the Company was located in Columbia, Maryland at
that time, the Board of Directors of the Company decided to engage a Maryland-
based accounting firm. GGK's reports on the financial statements of the
Company did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with GGK on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of GGK, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its report.
The Baltimore, Maryland office of Arthur Andersen LLP ("Andersen") was
engaged as the Company's independent public accountants effective June 3, 1996
and performed the audit for the fiscal year ended March 31, 1996. However,
after the principal executive offices of the Company were relocated to
Philadelphia, Pennsylvania, the Company decided to re-engage GGK. The decision
to change accountants was approved by the Company's Board of Directors. On
April 30, 1997, Andersen was dismissed as the principal independent
accountants engaged in auditing the financial statements of the Company.
Andersen's report on the financial statements of the Company for the 1996
fiscal year (which was the only year for which Andersen acted as the Company's
principal independent accountants) did not contain an adverse opinion or a
disclaimer of opinion and was not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Andersen on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to the satisfaction of
Andersen, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
On April 30, 1997, GGK was re-engaged as principal independent accountants
to audit the financial statements of the Company and its subsidiaries. As
noted, GGK was the Company's auditor for its fiscal year ended March 31, 1995
and for Ashton's Offering.
PART III
The information called for by Item 9, Directors, Executive Officers,
Promoters and Control Persons, Compliance with Section 16(a) of the Exchange
Act, Item 10, Executive Compensation, Item 11, Security Ownership of Certain
Beneficial Owners and Management, and Item 12, Certain Relationships and
Related Transactions, is incorporated herein by reference to the Registrant's
definitive Proxy Statement for its Annual Meeting of Shareholders, presently
scheduled to be held on August 24, 1998, which will be filed with the
Securities and Exchange Commission within 120 days from the end of the
Registrant's fiscal year.
33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.* DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Reorganization, dated as of October 25, 1995,
among Ashton, Universal Trading Technologies Corp. ("UTTC(TM)"),
Robert A. Eprile ("Eprile"), David N. Rosensaft ("Rosensaft"), The
Dover Group, Inc. ("Dover") and Medford Financial Inc.(1)
3 Certificate of Incorporation of Ashton filed February 16, 1994.(1)
3.1 Certificate of Amendment of Ashton filed October 27, 1995.(1)
3.1A Certificate of Amendment of Ashton filed December 7, 1995.(1)
3.2 Certificate of Amendment of Ashton filed in February 1996.(1)
3.3 Bylaws of Ashton. (1)
3.4 Amendment to Bylaws of Ashton, dated October 22, 1996.
3.5 Certificate of Designation for Series A Convertible PIK Preferred
Stock.
3.6 Certificate of Designation for Series B Convertible Preferred Stock.
3.7 Certificate of Designation for Series C Convertible Preferred
Stock.(9)
3.8 Certificate of Designation for Series D Convertible Preferred
Stock.(9)
3.9 Certificate of Designation for Series E Convertible Preferred
Stock.(9)
4. Specimen of Common Stock.(1)
4.1 Form of Representative's Warrant Agreement (including Specimen of
Redeemable Common Stock Purchase Warrant).(1)
4.2 Form of Warrant Agreement (including Specimen of Redeemable Common
Stock Purchase Warrant).(1)
4.3A Form of 9% Subordinated Non-Convertible Promissory Note issued
pursuant to UTTC(TM) Confidential Private Placement, dated December
26, 1996.
4.3B Form of 9% Subordinated Convertible Promissory Note convertible into
Shares of UTTC(TM) Common Stock at $1.00 per share issued pursuant to
UTTC(TM) Confidential Private Placement, dated December 26, 1996.
10 Agreement, dated as of September 18, 1995, between UTTC(TM) and the
Philadelphia Stock Exchange.(1)
10.1 Employment Agreement, dated as of January 1, 1996, between Ashton and
Raymond T. Tate ("Tate").(1)
10.2 Employment Agreement, dated as of January 22, 1996, between UTTC(TM)
and Eprile.(1)
10.3 Agreement, dated October 27, 1995, between Information Security
Systems Incorporated and Ashton.(1)
10.4 Agreement, dated as of March 7, 1995, among Dover, Ashton, Eprile and
Rosensaft.(1)
10.5 Agreement, dated as of November 29, 1995, between Ashton and Computer
Science Innovations, Inc. ("CSI(R)").(1)
10.5A Agreement, dated February 7, 1996 between Ashton and CSI(R).(1)
10.6 Agreement, dated as of January 19, 1996, among Ashton, UTTC(TM) and
Rosensaft.(1)
10.7 Escrow Agreement, dated as of January 19, 1996, among Ashton,
Rosensaft and First United Equities Corporation.(1)
10.8 Stock Purchase Agreement, dated as of January 19, 1996, between Ashton
and Rosensaft.(1)
10.9 Assignment and Termination Agreement, dated as of January 19, 1996,
among Dover, Ashton, Eprile and Rosensaft.(1)
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
10.10 Promissory Note, dated as of January 19, 1996, in principal amount of
$300,000 issued by Ashton in favor of Rosensaft.(1)
10.11 Agreement, dated as of August 24, 1995, between Motorola, Inc. and
CSI(R), as amended.(1)
10.12 Letter, dated December 8, 1995, from CSI(R) to Ashton regarding
issuance of Common Stock of CSI(R).(1)
10.12A Letter, dated March 20, 1996, from George Milligan to Ashton regarding
the transfer of Common Stock of CSI(R).(1)
10.13 Sample CSI(R) Stockholder Letters, dated February 6, 1995 and January
18, 1996, from Ashton to certain CSI(R) Shareholders.(1)
10.13A Sample CSI(R) Stockholder Letter, dated March 27, 1996, from Ashton to
certain CSI(R) Shareholders.(1)
10.13B Sample CSI(R) Stockholder Letter, dated April 25, 1996, from Ashton to
certain CSI(R) Shareholders.(1)
10.14 Agreement, dated April 30, 1995, between Dover and Medford regarding
consulting services to UTTC(TM).(1)
10.15 Lease Agreement, dated September 8, 1995, between Columbia Mall, Inc.
and Ashton.(1)
10.16 Lease Agreement, dated April 22, 1992, between Overlook Development,
Inc. and CSI(R).(1)
10.17 Promissory Note, dated January 31, 1996, in principal amount of
$150,000 issued by Ashton in favor of John A. Blohm.(1)
10.18 Form of 10% Subordinated Promissory Note due April 10, 1997, dated
October 10, 1995, issued by Ashton pursuant to a private placement.(1)
10.19 Form of 10% Subordinated Convertible Promissory Note due October 10,
1998, dated October 10, 1995, issued by Ashton pursuant to a private
placement (including Form of Warrant issued upon conversion of the
note not pursuant to a public offering).(1)
10.20 Promissory Note, dated October 1, 1995, in principal amount of $43,430
issued by UTTC(TM) in favor of Dover and guaranteed by Ashton.(1)
10.21 Promissory Note, dated October 26, 1995, in principal amount of
$100,000 issued by Ashton in favor of Medford.(1)
10.22 Promissory Note, dated October 1, 1995, in principal amount of
$615,175.83 issued by Ashton in favor of Dover.(1)
10.23 Common Stock Purchase Warrant of Ashton, dated June 27, 1995, held by
Dover.(1)
10.24 Common Stock Purchase Option of Ashton, dated January 30, 1996, held by
John A. Blohm.(1)
10.25 Letter agreement, dated March 21, 1996, from Ashton to CSI(R) regarding
software for ATED, including original letter agreement of December 11,
1995 as Exhibit A thereto.(1)
10.26 Promissory Note, dated April 16, 1996 in principal amount of $250,000
issued by Ashton in favor of Ronnie J. Adams.(1)
10.27 Pledge and Security Agreement, dated April 15, 1996, between Dover and
Ronnie J. Adams.(1)
10.28 Option to purchase Common Stock, dated as of March 15, 1996, between
Rosensaft and Dover.(1)
10.29 Option to Purchase Common Stock, dated as of March 15, 1996, between
Eprile and Dover.(1)
10.29A Agreement dated April 24, 1996 between Dover and Robert A. Eprile
relating to Exhibit 10.29.(1)
10.30 Form of Assignment Agreement, dated April 16, 1996, between Dover and
Antebe Investment Gp. Limited.(1)
</TABLE>
35
<PAGE>
<TABLE>
<C> <S>
10.31 Employment Agreement between Fred S. Weingard and UTTC(TM), dated June
21, 1996.(4)
10.32 Settlement Agreement, dated October 22, 1996, by and among the Company,
Raymond T. Tate, Helen J. Tate, as trustee for the Andrew Patrick Tate
Trust, Helen J. Tate, as trustee for the Susan Katherine Tate
Burrowbridge Trust, Helen J. Tate, as trustee for the Elizabeth Tate
Winters Trust and Robert A. Eprile, John A. Blohm, Fredric W.
Rittereiser, The Dover Group, Inc., F.E. Weimmer, Jr., F.E. Weimmer,
Sr., F.E. Rittereiser, Sr. and, Thomas Rittereiser, as trustee for
Alexis J. Rittereiser, Amanda Weimmer and John Weimmer.(3)
10.33 License Agreement dated October 22, 1996, between the Company and
Tate.(3)
10.34 Consulting Agreement dated October 22, 1996, between the Company and
Tate.(3)
10.35 Settlement Agreement by and among Ashton, UTTC(TM), Rittereiser, Dover
and Rosensaft, dated January 30, 1997.(5)(7)
10.36 Stock Purchase Agreement by and among Ashton, Dover, Rittereiser, and
Rosensaft, dated January 30, 1997.(5)
10.37 Loan Agreement between CSI(R) and Sun Bank, National Association, dated
January 8, 1991, as amended September 5, 1996.
10.38 Short-Term Loan and Security Agreement between Ashton (Borrower) and
CSI(R) (Lender), dated February 18, 1997.
10.39 Tax Allocation Agreement, between Ashton, CSI(R) and UTTC(TM), dated
March 27, 1997.
10.40 Letters from Ashton to Alliant Techsystems, dated January 23, 1996,
March 29, 1996 and August 1, 1996.
10.41 Contracts between Motorola, Inc. and CSI(R): (1) Task Order No. 1,
effective January 16, 1996; (2) Change Order/Contract Amendment No. 2,
dated February 26, 1996; (3) Change Order/Contract Amendment No. 3,
dated January 12, 1996; (4) Change Order/Contract Amendment No. 4,
dated August 12, 1996; (5) Contract between Motorola, Inc. Government
and Space Technology Group Satellite Communications Division and
CSI(R), effective January 1, 1997.
10.42 Letters from Ashton to CSI(R) re: ATED, dated May 15, 1996, December 16,
1996, February 5, 1997.
10.43 Letters from Ashton to CSI(R) re: Universal Trading System ("UTS"),
dated March 22, 1996, May 15, 1996, December 16, 1996, February 5,
1997.
10.44 Memorandum of Understanding between Ashton and E. Com International,
Inc., dated October 31, 1997.
10.45 Network Services Agreement between Ashton and CompuServe Incorporated,
as amended, dated January 13, 1998. Material omitted pursuant to a
request for confidential treatment and filed separately with the
Securities and Exchange Commission.
10.46 Form of Nonqualified Employee Stock Option Agreement.
10.47 Form of Nonqualified Deferred Stock Option Agreement.
10.48 Form of Nonqualified Stock Option Agreement.
16.1 Letter for Changes in Registrant's Certifying Accountant, dated June 18,
1996.(2)
16.2 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission regarding change in Certifying Accountant, dated May 5, 1997
and received May 14, 1997.(8)
21 Subsidiaries of Ashton.
27 Financial Data Schedule.
99.1 Press Release of the Company re: Raymond Tate Steps Down as Chairman and
President of Ashton, dated October 1996.(3)
99.2 Press Release of the Company, dated April 8, 1997, re: Ashton Completes
Development of Initial Online Trading Product for the Financial
Securities Industry.(6)
</TABLE>
36
<PAGE>
- --------
* Incorporated by reference as indicated in the applicable footnote.
(1) Incorporated by reference to the Company's Form SB-2 Registration
Statement No. 33-1182.
(2)Incorporated by reference to Form 8-K, dated June 18, 1996.
(3)Incorporated by reference to Form 8-K, dated October 22, 1996.
(4)Incorporated by reference to Form 10-QSB, for the period ended September
30, 1996.
(5)Incorporated by reference to Form 10-QSB, for the period ended December 31,
1996.
(6) Incorporated by reference to Form 8-K, dated April 15, 1997.
(7) Incorporated by reference to Amendment No. 1 to Form 10-QSB for the period
ended December 31, 1996, filed April 18, 1997.
(8) Incorporated by reference to Form 8-K, dated April 30, 1997.
(9) Incorporated by reference to Registration Statement on Form S-3 filed June
29, 1998.
(b) REPORTS ON FORM 8-K
(1) Form 8-K, dated January 27, 1998 was filed pursuant to Item 5.
(2) Form 8-K, dated April 9, 1998 was filed pursuant to Item 5.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on July 9, 1998.
The Ashton Technology Group, Inc.
/s/ Fredric W. Rittereiser
By: _________________________________
FREDRIC W. RITTEREISER
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
/s/ Robert A. Eprile
By: _________________________________
ROBERT A. EPRILE CHIEF FINANCIAL
OFFICER
In accordance with the Exchange Act, this report has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Fredric W. Rittereiser Director, President July 9, 1998
- ------------------------------------- and Chief Executive
FREDRIC W. RITTEREISER Officer (Principal
Executive Officer)
/s/ Robert A. Eprile Chairman of the July 9, 1998
- ------------------------------------- Board and Chief
ROBERT A. EPRILE Financial Officer
(Principal
Financial Officer)
/s/ John A. Blohm Director, Executive July 9, 1998
- ------------------------------------- Vice President,
JOHN A. BLOHM Secretary and
Treasurer
(Principal
Accounting Officer)
/s/ Fred S. Weingard Director July 9, 1998
- -------------------------------------
FRED S. WEINGARD
/s/ K. Ivan F. Gothner Director July 9, 1998
- -------------------------------------
K. IVAN F. GOTHNER
/s/ Richard Butler Director July 9, 1998
- -------------------------------------
RICHARD BUTLER
/s/ William W. Uchimoto Director July 9, 1998
- -------------------------------------
WILLIAM W. UCHIMOTO
38
<PAGE>
EXHIBIT 3.4
At a meeting of the Board of Directors of The Ashton Technology Group, Inc.
held on October 22, 1996, the first paragraph of Article V, Section 6 of the
By-Laws of Ashton was duly amended to provide in its entirety as follows:
"The chairman of the board shall preside at each meeting of the
stockholders and of the board and shall be an ex officio member of all
committees of the board. He shall perform all duties incident to the office of
chairman of the board and such duties as may from time to time be assigned to
him by the board of directors.
The president shall be the chief executive officer of the Corporation
and shall have the general and active supervision and direction over the
business operations and affairs of the Corporation and over its several
officers, agents and employees, subject, however, to the direction of the
chairman of the board and the control of the board of directors. At the request
of the chairman of the board, or in the case of his absence or inability to act,
the president shall perform the duties of the chairman of the board, including
presiding at meetings of stockholders and directors and when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
chairman of the board. In general, the president shall have such other powers
and shall perform such other duties as usually pertain to the office of
president or as may be assigned to him, from time to time, by the board, the
chairman of the board or these by-laws."
-1-
<PAGE>
EXHIBIT 3.5
THE ASHTON TECHNOLOGY GROUP, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES A CONVERTIBLE
PIK 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 September 11, 1997 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 A Convertible PIK Preferred Stock
(the "Series A Preferred"):
------------------
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:
2
<PAGE>
1. Rank. The Series A 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 A Preferred of the Corporation (including, without limitation, the 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 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 A Preferred with respect to dividend rights or rights upon liquidation,
dissolution and winding-up of the Corporation or both.
2. Dividends. (a) The holders of the shares of the Series A
---------
Preferred shall be entitled to be paid, when, as and if declared by the Board of
Directors of the Corporation out of funds legally-available for the payment of
dividends, dividends at an annual rate of $0.50 per share payable semiannually
February 15 and August 15, of each year commencing February 15, 1998 ( a
"Dividend Payment Date"). Such dividends shall, if declared, be paid to holders
of the Series A Preferred at the close of business on February 15 and August 15
of each year, commencing February 15, 1998. Each of semi-annual dividends
(whether in cash or stock) shall be fully cumulative and shall accrue (whether
or not declared), without interest, from the date of the immediately preceding
Dividend Payment Date, except with respect to the first dividend payment which
will accrue from the date of issuance of the Series A Preferred. Any dividend
payments made with respect to the Series A Preferred prior to and including
February 15, 2000 (the "Pay-In-Kind Period") may be made, at the option of and
------------------
in the sole discretion of the Board of Directors, in cash or by issuing
additional fully paid and nonassessable shares of Series A Preferred at the rate
of 0.05 of one share for each $1.00 of such dividend not paid in cash, and the
issuance of such additional shares shall constitute full payment of such
dividend; provided, however, that if the Corporation shall fail to pay a
-------- -------
dividend payment in cash during the Pay-In-Kind Period, then the Corporation
shall make such dividend payment in additional shares.
(b) Each fractional share of Series A Preferred outstanding
shall be entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of Series A Preferred pursuant to Section
2(a) hereof, and all such dividends with respect to such outstanding fractional
shares shall be fully cumulative and shall accrue (whether or not declared),
without interest, and shall be payable in the same manner and at the such times
as provided in Section 2(a) hereof with respect to dividends on each outstanding
share of Series A Preferred.
3. Liquidation Preference.
----------------------
a) Subject to the rights of holders of any class of capital
stock or series thereof expressly ranking senior to the Series A Preferred, upon
any voluntary or
3
<PAGE>
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holder of each share of the Series A 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 A Preferred then held by such holder plus an amount equal to all
accumulated but unpaid dividends thereon through the date of payment (whether or
not earned or declared and whether or not there are funds legally available for
the payment of dividends) (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 A 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 A
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 A
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 3, 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.
4. Conversion.
----------
a) Rights of Holder of Convert. At any time after 90 days
---------------------------
following the date of the issuance of the Series A Preferred, each holder of
shares of Series A Preferred may, at the option of the holder exercisable at any
time and from time to time, convert some or all of each of such holder's shares
of Series A Preferred into: (i) ten shares of the Common Stock, par value $0.01
per share (the "Common Stock"), of the Corporation, and (ii) one two-year
------------
warrant to purchase two shares of the Common Stock, par value $0.01 per share
(the "UTTC Common"), of Universal Trading Technologies Corporation, a Delaware
corporation ("UTTC"), with an exercise price of $0.75 per share (the "Warrants")
--------
(such number of securities, as adjusted from time to time pursuant hereto, is
herein called the "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 or UTTC so
that immediately following such event the holders of the Series A Preferred
shall be entitled to receive upon conversion thereof the kind and amount of
shares of securities of the Corporation and UTTC 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 A Preferred had been converted immediately before the
record date (or, if no record date, the effective date) for such event. An
adjustment
4
<PAGE>
made pursuant to this paragraph b) of this Section 4 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 or UTTC is a party,
other than a merger or consolidation in which the Corporation or UTTC, as the
case may be, 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 subdivision or combination) in, outstanding shares of Common Stock
(or such other class or series of common stock into which shares of Series A
Preferred are then convertible, including Warrants) or (ii) any sale or
conveyance of all or substantially all of the property and assets of the
Corporation or UTTC, then provision shall be made as part of the terms of such
transaction whereby the holder of each share of Series A 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 share of Series A 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 and/or UTTC
Common issuable upon the exercise of the Warrants (or such other class or series
of common stock into which shares of Series A Preferred are then convertible)
into which such shares of Series A 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 4. 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 provision shall be made in a certificate or articles of
incorporation or other constituent document or written instrument of the
Corporation or the entity surviving the consolidation or merger, if other than
the Corporation, or the entity acquiring the Corporation's assets, unless, in
either case, such entity is a direct or indirect subsidiary of another entity,
in which case such provision shall be made in the certificate or articles of
incorporation or other constituent document or written instrument of such other
entity (any such entity or other entity being the "Surviving Entity") so as to
----------------
assume the obligation to deliver to each holder of shares of Series A Preferred
such stock or other securities and property and otherwise give effect to the
provisions set forth in this paragraph. The provisions of this paragraph shall
apply similarly to successive consolidations, mergers, sales or conveyances.
The Corporation shall give each holder of Series A 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 4.
c) Procedures for Conversion. Any holder of Series A Preferred
-------------------------
electing to convert such shares or any portion thereof shall deliver the
certificates therefor to the principal office of the Corporation, with the form
of notice of election to convert endorsed on such
5
<PAGE>
certificates fully completed and duly executed. The conversion right with
respect to such Series A Preferred shall be deemed to have been exercised on the
date upon which the certificates therefor with such notice of election duly
executed shall have been so delivered, and the person or persons entitled to
receive Common Stock and Warrants issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common Stock and
Warrants on such date. Any declared but unpaid dividends payable through the
Conversion Date with respect to Series A Preferred so converted shall be payable
upon such conversion.
d) No Fractional Securities. No fractional shares of Common Stock
------------------------
nor Warrants to purchase fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred. Instead of any fractional shares of
Common Stock or Warrants to purchase fractional shares of UTTC Common which
would otherwise be issuable upon conversion of any share or shares of Series A
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 A Preferred, the
-----
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation or UTTC 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 (and use reasonable efforts to cause UTTC to reserve out of its
authorized but unissued shares of UTTC Common, 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 A Preferred then outstanding and the
issuance of shares of UTTC Common issuable upon the exercise of the Warrants
issuable upon the conversion of all of the Series A Preferred then outstanding.
All shares of Common Stock issued upon due conversion of shares of Series A
Preferred shall be validly issued, fully paid and non-assessable. All shares of
UTTC Common issuable upon (i) exercise of the Warrants issued upon due
conversion of the Series A Preferred, and (ii) receipt by UTTC of the applicable
exercise price therefor, shall be fully paid, and non-assessable.
5. Redemption.
----------
a) General. At any time and from time to time (i) after the
-------
second anniversary of the date of issuance of the Series A Preferred, or (ii)
after the date upon which the trading price for the Common Stock on the
principal exchange or automated quotation system upon which the Common Stock
then trades equals or exceeds $3.25 per share of Common Stock for a period of at
least 10 consecutive trading days, the Corporation may redeem all or any portion
of the then outstanding Series A Preferred for an amount in cash equal to the
Liquidation Preference in accordance with the provisions of this paragraph 5.
6
<PAGE>
b) Redemption Procedure. If the Corporation shall determine to
--------------------
redeem less than all shares of the Series A Preferred then outstanding pursuant
to subparagraph (a) of this paragraph 5, (i) 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 or (ii) if the number of holders of the Series
A Preferred Stock exceeds 50, and the Board of Directors so determines, the
shares to be redeemed shall be selected by lot.
c) Notice. Notice of every redemption pursuant to this
------
paragraph 5 shall be mailed, first class, postage prepaid, not less than 30 nor
more than 60 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 A Preferred to be redeemed, and, if less than all shares of Series A
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; the place or places where such shares are to be surrendered; and
that dividends on shares to be redeemed will cease to accrue on the Redemption
Date.
d) Rights of Holders. Notice having been mailed as aforesaid,
-----------------
from and after the Redemption Date (unless the Corporation defaults in providing
money for the payment of the redemption price) dividends on shares called for
redemption shall cease to accrue, said shares shall no longer be deemed to be
outstanding, all rights of holders thereof as stockholders of the Corporation
(except the right to receive the redemption price thereof, without interest)
shall terminate, and, upon surrender, in accordance with said notice, of the
certificates representing any such shares (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require), such
shares shall be redeemed by the Corporation at the applicable redemption price;
provided, however, that the Corporation may include in such notice a statement
- -----------------
that the money required for the payment of the redemption price will be
deposited on a specified date, prior to the Redemption Date, with a specified
bank or trust company (which shall have an office in The City of New York and
which shall have a combined capital and surplus of not less than $50,000,000) in
trust for the benefit of holders of shares called for redemption, and, notice
having been given, from and after such deposit shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith upon such deposit cease and terminate except for the
right to receive the amount payable upon surrender of the certificates
representing such shares from such bank or trust company (but not from the
Corporation). If less than all the shares represented by any surrendered
certificate are redeemed, a new certificate representing the unredeemed shares
shall be issued to the holder who surrendered such certificate. Holders of
shares of Series A Preferred called for redemption shall not be entitled to any
interest allowed by any such depositary on money deposited to effect the
redemption but any such interest shall be paid to the Corporation. Any money
deposited as aforesaid for redemption of any shares and remaining unclaimed for
four years and eleven months after the date of such deposit shall then be repaid
to the
7
<PAGE>
Corporation upon its request, and the holders of such shares shall thereafter
look only to the Corporation for payment of the redemption price thereof,
without interest.
e) Status of Redeemed Shares. Any share of Series A Preferred
-------------------------
redeemed or otherwise purchased or acquired by the Corporation shall be retired,
shall no longer be deemed outstanding, and shall not be reissued.
6. Voting Rights.
-------------
a) Generally. The holders of record of shares of Series A
---------
Preferred shall not be entitled to vote on any matters presented to the
stockholders of the Company for approval, except as required by law.
7. 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.
<PAGE>
IN WITNESS WHEREOF, The Ashton Technology Group, Inc. has caused this
certificate to be signed by its President and Secretary, respectively, this __
day of September, 1997.
/s/ Fredric W. Rittereiser
--------------------------
President
/s/ John A. Blohm
-----------------
Secretary
9
<PAGE>
EXHIBIT 3.6
THE ASHTON TECHNOLOGY GROUP, INC.
CERTIFICATE OF DESIGNATION
FOR
SERIES B 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 September 11, 1997 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 B Convertible Preferred Stock
(the "Series B Preferred"):
------------------
2
<PAGE>
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. Rank. The Series B 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 A Preferred of the Corporation (including, without limitation, the Series
A Convertible PIK Preferred 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 B Preferred with respect to dividend rights or rights upon liquidation,
dissolution and winding-up of the Corporation or both.
2. Dividends. The holders of the shares of the Series B Preferred
---------
shall be entitled to be paid, when, as and if declared by the Board of Directors
of the Corporation out of funds legally available for the payment of dividends,
dividends at the rate of 9% per annum payable semiannually on February 15 and
August 15 of each year, commencing February 15, 1998 (a "Dividend Payment
Date"). Such dividends shall, if declared, be paid to the holders of record of
the Series B Preferred at the close of the business day on February 15 and
August 15 of each year commencing February 15, 1998. Each of such semi-annual
dividends shall be fully cumulative and shall accrue (whether or not declared),
without interest, from the date of the immediately preceding Dividend Payment
Date, except with respect to the first dividend payment which will accrue from
the date of issuance of the Series B Preferred.
3. Liquidation Preference.
----------------------
a) Subject to the rights of holders of any class of capital
stock or series thereof expressly ranking senior to the Series B 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 B 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 B Preferred then held by such holder plus an
amount equal to all accumulated but unpaid dividends thereon through the date of
payment (whether or not earned or declared and whether or not there are funds
legally available for the payment of dividends) (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 B 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 B 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 B
Preferred
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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 3, 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.
4. Conversion.
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a) Rights of Holder of Convert. At any time after 90 days
---------------------------
following the date of the issuance of the Series B Preferred, each holder of
shares of Series B Preferred may, at the option of the holder exercisable at any
time and from time to time, convert some or all of each of such holder's shares
of Series B Preferred into: (i) six shares of the Common Stock, par value $0.01
per share (the "Common Stock"), of the Corporation, and (ii) one two-year
------------
warrant to purchase two shares of the Common Stock, par value $0.01 per share
(the "UTTC Common"), of Universal Trading Technologies Corporation, a Delaware
-----------
corporation ("UTTC"), with an exercise price of $0.75 per share (the "Warrants")
---- --------
(such number of securities, as adjusted from time to time pursuant hereto, is
herein called the "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 or UTTC so
that immediately following such event the holders of the Series B Preferred
shall be entitled to receive upon conversion thereof the kind and amount of
shares of securities of the Corporation and UTTC 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 B 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 4 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 an applicable subdivision, combination,
reclassification, merger, recapitalization, reorganization or other similar
transaction. In case of (i) any consolidation or merger to which the Corporation
or UTTC is a party, other than a merger or consolidation in which the
Corporation or UTTC, as the case may be, 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 subdivision or combination) in,
outstanding shares of Common Stock (or such other class or series of common
stock into which shares of Series B Preferred are then convertible, including
Warrants) or (ii) any sale or conveyance of all or substantially all of the
property and
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<PAGE>
assets of the Corporation or UTTC, then provision shall be made as part of the
terms of such transaction whereby the holder of each share of Series B 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 share of Series B 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
and/or shares of UTTC Common issuable upon the exercise of the Warrants (or such
other class or series of common stock into which shares of Series B Preferred
are then convertible) into which such shares of Series B 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
4. 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 provision shall be made in a certificate or
articles of incorporation or other constituent document or written instrument of
the Corporation or the entity surviving the consolidation or merger, if other
than the Corporation, or the entity acquiring the Corporation's assets, unless,
in either case, such entity is a direct or indirect subsidiary of another
entity, in which case such provision shall be made in the certificate or
articles of incorporation or other constituent document or written instrument of
such other entity (any such entity or other entity being the "Surviving Entity")
----------------
so as to assume the obligation to deliver to each holder of shares of Series B
Preferred such stock or other securities and property and otherwise give effect
to the provisions set forth in this paragraph. The provisions of this paragraph
shall apply similarly to successive consolidations, mergers, sales or
conveyances.
The Corporation shall give each holder of Series B 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 4.
c) Procedures for Conversion. Any holder of Series B Preferred
-------------------------
electing to convert such shares or any portion thereof shall deliver the
certificates therefor to the principal office of the Corporation, with the form
of notice of election to convert endorsed on such certificates fully completed
and duly executed. The conversion right with respect to such Series B Preferred
shall be deemed to have been exercised on the date upon which the certificates
therefor with such notice of election duly executed shall have been so
delivered, and the person or persons entitled to receive Common Stock and
Warrants issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Stock and Warrants on such date. Any
declared but unpaid dividends payable through the Conversion Date with respect
to Series B Preferred so converted shall be payable upon such conversion.
d) No Fractional Securities. No fractional shares of Common Stock
------------------------
nor Warrants to purchase fractional shares of UTTC Common shall be issued upon
conversion of shares of Series B Preferred. Instead of any fractional shares of
Common Stock or Warrants to purchase fractional shares of UTTC Common which
would otherwise be issuable upon
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<PAGE>
conversion of any share or shares of Series B 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 B Preferred, the
-----
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation or UTTC 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 (and use reasonable efforts to cause UTTC to reserve out
of its authorized but unissued shares of UTTC Common, 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 B Preferred then
outstanding and the issuance of shares of Common Stock and the issuance of UTTC
Common issuable upon the exercise of the Warrants, in each case issuable upon
the conversion of all of the Series B Preferred then outstanding. All shares of
Common Stock issued upon due conversion of shares of Series B Preferred shall be
validly issued, fully paid and non-assessable. All shares of Common Stock
issuable upon (i) exercise of the Warrants issued upon due conversion of the
Series B Preferred, and (ii) receipt by UTTC of the applicable exercise price
therefor, shall be fully paid, and non-assessable.
5. Redemption.
----------
a) General. At any time and from time to time (i) after the
-------
second anniversary of the date of issuance of the Series B Preferred, or (ii)
after the date upon which the trading price for the Parent Common Stock on the
principal exchange or automated quotation system upon which the Parent Common
Stock then trades equals or exceeds $3.25 per share of Parent Common Stock for a
period of at least 10 consecutive trading days, the Corporation may redeem all
or any portion of the then outstanding Series B Preferred for an amount in cash
equal to the Liquidation Preference in accordance with the provisions of this
paragraph 5.
b) Redemption Procedure. If the Corporation shall determine to
--------------------
redeem less than all shares of the Series B Preferred then outstanding pursuant
to subparagraph (a) of this paragraph 5, (i) 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 or (ii) if the number of holders of the Series
B Preferred Stock exceeds 50, and the Board of Directors so determines, the
shares to be redeemed shall be selected by lot.
c) Notice. Notice of every redemption pursuant to this
------
paragraph 5 shall be mailed, first class, postage prepaid, not less than 30 nor
more than 60 days prior to the
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<PAGE>
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 B Preferred to be redeemed, and,
if less than all shares of Series B 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; the place or places
where such shares are to be surrendered; and that dividends on shares to be
redeemed will cease to accrue on the Redemption Date.
d) Rights of Holders. Notice having been mailed as aforesaid,
-----------------
from and after the Redemption Date (unless the Corporation defaults in providing
money for the payment of the redemption price) dividends on shares called for
redemption shall cease to accrue, said shares shall no longer be deemed to be
outstanding, all rights of holders thereof as stockholders of the Corporation
(except the right to receive the redemption price thereof, without interest)
shall terminate, and, upon surrender, in accordance with said notice, of the
certificates representing any such shares (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require), such
shares shall be redeemed by the Corporation at the applicable redemption price;
provided, however, that the Corporation may include in such notice a statement
that the money required for the payment of the redemption price will be
deposited on a specified date, prior to the Redemption Date, with a specified
bank or trust company (which shall have an office in The City of New York and
which shall have a combined capital and surplus of not less than $50,000,000) in
trust for the benefit of holders of shares called for redemption, and, notice
having been given, from and after such deposit shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith upon such deposit cease and terminate except for the
right to receive the amount payable upon surrender of the certificates
representing such shares from such bank or trust company (but not from the
Corporation). If less than all the shares represented by any surrendered
certificate are redeemed, a new certificate representing the unredeemed shares
shall be issued to the holder who surrendered such certificate. Holders of
shares of Series B Preferred called for redemption shall not be entitled to any
interest allowed by any such depositary on money deposited to effect the
redemption but any such interest shall be paid to the Corporation. Any money
deposited as aforesaid for redemption of any shares and remaining unclaimed for
four years and eleven months after the date of such deposit shall then be repaid
to the Corporation upon its request, and the holders of such shares shall
thereafter look only to the Corporation for payment of the redemption price
thereof, without interest.
e) Status of Redeemed Shares. Any share of Series B Preferred
-------------------------
redeemed or otherwise purchased or acquired by the Corporation shall be retired,
shall no longer be deemed outstanding, and shall not be reissued.
6. Voting Rights. The holders of record of shares of Series B
-------------
Preferred shall not be entitled to vote on any matters presented to the
stockholders of the Company for approval, except as required by law.
7
<PAGE>
7. 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.
8
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IN WITNESS WHEREOF, The Ashton Technology Group, Inc. has caused this
certificate to be signed by its President and Secretary, respectively, this ____
day of September, 1997.
/s/ Fredric W. Rittereiser
--------------------------
President
/s/ John A. Blohm
-----------------
Secretary
9
<PAGE>
EXHIBIT 4.3A
------------
Note No. 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY
STATE. THIS NOTE MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT OR
AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
9% SUBORDINATED NON-CONVERTIBLE PROMISSORY NOTE DUE
JANUARY 31, 1999
$___________ U.S. April 18, 1997
UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Company"), for value received, promises to pay to the order of
_______________ ________________________ at _________________________________ or
at the offices of the Company, the sum of $_________ U.S. on JANUARY 31, 1999
with interest from the date hereof on the unpaid principal hereof until maturity
(whether as stated or by acceleration), according to the tenor hereof, at a rate
of 9% per annum (and after such maturity or demand at a rate per annum equal to
9%) until such principal is paid in full. Interest shall be payable annually in
arrears on JANUARY 31, 1998 and on JANUARY 31, 1999 or upon the earlier of the
prepayment or due date of the note. Interest shall be calculated on the basis
of a 360-day year for actual days elapsed. This note is one of a series of 9%
subordinated non-convertible promissory notes that have been delivered to
investors in a Private Placement by the Company, all of which notes are
hereinafter referred to as the "Notes". The Notes are direct, unsecured
obligations of the Company.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of the Notes, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, the Notes is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holders of the
Notes receive any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by the Notes;
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<PAGE>
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the holders of
the Notes would be entitled except for the subordination provisions hereof shall
be paid and/or delivered by the liquidating trustee or agent or other person
making such payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of amounts remaining unpaid on account of
the Senior Indebtedness held or represented by each to the extent necessary to
make payment in full of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution (or provision therefor) to the
holders of such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holders of the Notes before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holders of
the Notes shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the unpaid principal of, premium, if
any, and interest on the Notes shall be paid in full. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on account
of the Notes. The subordination provisions of the Notes are intended solely for
the purpose of defining the relative rights of the holders of the Notes, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
Nothing contained herein is intended to or shall impair, as between
the Company, its creditors other than the holders of Senior Indebtedness, and
the holders of the Notes, the obligation of the Company, which is unconditional
and absolute, to pay to the holders of the Notes the principal of (and premium,
if any) and interest on the Notes as and when the same shall become due and
payable in accordance with its terms, or to affect the relative rights of the
holders of the Notes and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the holders of
the Notes from exercising all remedies otherwise permitted by applicable law
upon default under the Notes, subject to the rights, if any, under the
subordination provisions of the Notes of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
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<PAGE>
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of the Notes, the holders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holders of the
Notes for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of the Notes.
No payments on account of principal, premium, if any, or interest on
the Notes, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on the Notes, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on the Notes; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of the Notes, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during the continuance of any default specified in the immediately
preceding paragraph (not cured or waived), payments at any time of principal of,
and premium or interest on, the Notes.
The term "Senior Indebtedness" shall mean the principal of, and
premium (if any) on, and interest on all indebtedness of the Company (other than
the Notes), whether outstanding on the date of the Notes or hereafter created
for money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors
-3-
<PAGE>
or suppliers on open account for work, labor, services and materials and
excluding any indebtedness which by the terms of the instrument creating or
evidencing the same is stated to be not superior in right of payment to the
Notes. During the continuation of any default in the payment of principal or
interest on any Senior Indebtedness, no payment of principal or interest may be
made by the Company on the Notes. The Notes contain no limitation on the amount
of additional Senior Indebtedness or other indebtedness that may be issued or
incurred. However, the Company will not in the future until the Notes have been
repaid in full incur indebtedness that is senior to the Notes other than Senior
Indebtedness; provided, however, that nothing shall prohibit the Company from
incurring secured indebtedness.
The transferability of the Notes is restricted under the Federal and
state securities laws.
NO SALE, OFFER TO SELL OR TRANSFER OF THE NOTES SHALL BE MADE UNLESS A
REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED,
WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE TO SUCH
TRANSFER.
THE NOTES ARE NOT CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
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<PAGE>
ARTICLE I
REDEMPTION
1.1 Subject to the subordination provisions of the Notes, the Company
may, at its option, redeem the Notes in whole and not in part, at 100% of the
face value of the Notes plus accrued and unpaid interest to such date by giving
written notice to the holders of the Notes to that effect at least 30 calendar
days prior to the redemption date.
Notice of redemption to the holders of the Notes shall be mailed by
the Company by first class mail, postage prepaid, at least 30 and not more than
60 days prior to the redemption date, to the holders of Notes, at their last
addresses as they shall appear in the books of Registration, but failure of a
Note holder to receive such notice shall not affect the validity of the
proceedings for the redemption of any of the Notes.
1.2 Upon the giving of notice of redemption as above provided, the
Notes shall become due and payable on the date and at the place stated in such
notice at the applicable redemption price, together with interest accrued to the
date fixed for redemption, and on and after such date fixed for redemption
(unless the Company shall make default in the payment of such Notes at the
redemption), interest on the Notes so called for redemption shall cease to
accrue and such Notes shall be deemed not to be outstanding.
1.3 Upon the completion by the Company of a private placement or
public offering wherein the Company receives gross proceeds of at least
$10,000,000 U.S. in any one transaction, the Company will promptly notify its
noteholders that it will redeem the Notes at 100% of the face amount of the
Notes plus accrued and unpaid interest. Such notice will provide for the
redemption of the Notes six months after the completion of such offering.
ARTICLE II
VOTING RIGHTS
2.1 The holders of the Notes shall not be entitled to notice of any
stockholders' meetings or possess any right to vote upon the election of
directors or upon any other matter.
ARTICLE III
DEFAULT
3.1 Except as expressly provided herein, the Company waives protest,
demand for payment and notice of default for non-payment.
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<PAGE>
3.2. The holders of not less than 50% by amount of the Notes may
consent to change any terms covering the Notes except those terms relating to
interest rate, payment dates and maturity date which may be changed only by
unanimous consent of the Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes by notice in writing sent by registered mail to the Company
may declare the principal amount of all the Notes to be forthwith due and
payable, and upon any such declaration the same shall become immediately due and
payable, in the following events:
(a) If default shall be made in the payment of any installment of
interest on any of the Notes when and as the same shall become due and payable,
as herein provided, after allowance for a grace period of fifteen (15) days and
such default shall continue for a period of an additional fifteen (15) days
after written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the principal of any
of the Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall go into voluntary liquidation or be dissolved, or shall
admit in writing its inability to pay its debts generally as they mature, or
shall institute proceedings for reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy, insolvency or other
applicable law, or shall file an answer in any such proceedings against it
joining in seeking such relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for the
appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof; or
(e) If one or more judgments, decrees or orders for the payment of
money in excess of $100,000 U.S. in the aggregate shall be rendered against the
Company and/or its subsidiaries, and such judgments, decrees, or orders shall
continue unsatisfied and in effect for a period of 30 consecutive days without
being vacated, discharged, satisfied or stayed or bonded pending appeal.
ARTICLE IV
MISCELLANEOUS
4.1 Time for payment extended by law shall be included in computation
of interest.
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<PAGE>
4.2 The Notes shall be governed by and construed in accordance with
laws of the State of New York.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, the Notes, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 The Company is prohibited from declaring any cash dividends prior
to payment in full of the Notes.
4.5 Notwithstanding anything contained herein to the contrary, the
Notes may not be disposed of except in compliance with all applicable federal
and state securities laws. In this respect, before selling or otherwise
disposing of any Notes, the holder of such Notes shall give five business days
prior written notice to the Company of his intention to do so. The notice by the
holder shall specify the Notes proposed to be sold or otherwise disposed of and
describe in reasonable detail the amount of the proposed sale or other
disposition and shall be accompanied by an opinion (in form and substance
reasonably satisfactory to the Company's counsel) of the holder's securities
counsel addressed to the Company as to whether the proposed sale or other
disposition may be effected without the filing of a Registration Statement under
the Securities Act of 1933, as amended (the "Act"), covering the Notes proposed
to be sold or otherwise disposed of. If in the opinion of such counsel, and of
counsel for the Company, no such registration action is necessary, the holder
may sell or otherwise of dispose of such Notes in the manner described by him in
the notice given to the Company. (Copies of any documents which the holder or
his counsel files with the Securities and Exchange Commission regarding the sale
or other disposition will immediately be provided by him or his counsel to the
Company.) If, in the opinion of counsel for the Company registration of such
Notes under the Act is necessary, no such sale or other disposition may be
effected.
The holder of the Notes may not sell or otherwise transfer the Notes
without the transferee agreeing to be bound by the provisions of the
Subscription Agreement pursuant to which the holder of the Notes is bound. A
copy of such Subscription Agreement may be obtained from the Company at its
principal executive offices.
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By:_____________________________
Robert A. Eprile, President
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<PAGE>
EXHIBIT 4.3B
------------
Note No. 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY
STATE. THIS NOTE MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT OR
AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
9% SUBORDINATED CONVERTIBLE PROMISSORY NOTE DUE
JANUARY 31, 1999
$_________ U.S. April 18, 1997
UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a Delaware corporation
(the "Company"), for value received, promises to pay to the order of
_______________________________ at ____________________________ or at the
offices of the Company, the sum of $___________ U.S. on JANUARY 31, 1999 with
interest from the date hereof on the unpaid principal hereof until maturity
(whether as stated or by acceleration), according to the tenor hereof, at a rate
of 9% per annum (and after such maturity or demand at a rate per annum equal to
9%) until such principal is paid in full. Interest shall be payable annually in
arrears on JANUARY 31, 1998 and on JANUARY 31, 1999 or upon the earlier due date
of the note. Interest shall be calculated on the basis of a 360-day year for
actual days elapsed. This note is one of a series of 9% subordinated convertible
promissory notes that have been delivered to investors in a Private Placement by
the Company, all of which notes are hereinafter referred to as the "Notes". The
Notes are direct, unsecured obligations of the Company.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of the Notes, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, the Notes is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holders of the
Notes receive any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by the Notes;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the holders of
the Notes would be entitled except for the subordination provisions hereof shall
be paid and/or delivered by the
<PAGE>
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, as their respective interests may appear, for application
to the payment of amounts remaining unpaid on account of the Senior Indebtedness
held or represented by each to the extent necessary to make payment in full of
all Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution (or provision therefor) to the holders of such Senior
Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holders of the Notes before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holders of
the Notes shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the unpaid principal of, premium, if
any, and interest on the Notes shall be paid in full. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on account
of the Notes. The subordination provisions of the Notes are intended solely for
the purpose of defining the relative rights of the holder of the Notes, on the
one hand, and the holder of the Senior Indebtedness, on the other hand.
Nothing contained herein is intended to or shall impair, as between
the Company, its creditors other than the holders of Senior Indebtedness, and
the holder of the Notes, the obligation of the Company, which is unconditional
and absolute, to pay to the holder of the Notes the principal of (and premium,
if any) and interest on the Notes as and when the same shall become due and
payable in accordance with its terms, or to affect the relative rights of the
holders of the Notes and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the holders of
the Notes from exercising all remedies otherwise permitted by applicable law
upon default under the Notes, subject to the rights, if any, under the
subordination provisions of the Notes of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
-2-
<PAGE>
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of the Notes, the holders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holders of the
Notes for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of the Notes.
No payments on account of principal, premium, if any, or interest on
the Notes, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on the Notes, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on the Notes; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of the Notes, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during the continuance of any default specified in the immediately
preceding paragraph (not cured or waived), payments at any time of principal of,
and premium or interest on, the Notes.
The term "Senior Indebtedness" shall mean the principal of, and
premium (if any) on, and interest on all indebtedness of the Company (other than
the Notes), whether outstanding on the date of the Notes or hereafter created
for money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors or suppliers on open account for work, labor,
services and materials and excluding any indebtedness which by the terms of the
instrument creating or evidencing the same is stated to be not superior in right
of payment to the Notes. During the continuation of any default in the payment
of principal
-3-
<PAGE>
or interest on any Senior Indebtedness, no payment of principal or interest may
be made by the Company on the Notes. The Notes contain no limitation on the
amount of additional Senior Indebtedness or other indebtedness that may be
issued or incurred. However, the Company will not in the future until the Notes
have been repaid in full incur indebtedness that is senior to the Notes other
than Senior Indebtedness; provided, however, that nothing shall prohibit the
Company from incurring secured indebtedness.
The transferability of the Notes is restricted under federal and state
securities laws.
NO SALE, OFFER TO SELL OR TRANSFER OF THE NOTES SHALL BE MADE UNLESS A
REGISTRATION STATEMENT UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED,
WITH RESPECT TO SUCH SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE TO SUCH
TRANSFER.
THE NOTES ARE CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
-4-
<PAGE>
ARTICLE I
CONVERSION OF NOTES
1.1 Commencing eighteen months from April 18, 1997, the principal of
the Notes is convertible at a price of $1.00 per share. In the event that the
Notes become due and payable prior to October 18, 1998, as provided in 4.1 of
Article IV, then the Company will notify the holders of the Notes of their right
to convert the Notes at least thirty days prior to the due date of the Notes.
In the event that the Notes are converted, the holder shall be entitled to
receive accrued but unpaid interest through the conversion date of the Notes.
For the purpose of this Article, the term "Common Stock" shall mean
the capital stock of the Company of the class authorized and designated as
Common Stock at the date hereof or as such stock may, by change or
reclassification, be constituted from time to time.
1.2. The Company shall not be required to issue fractions of shares
of Common Stock upon conversions of the Notes. If more than one Note shall be
surrendered for conversion at one time by the same holder, the number of shares
of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Notes so
surrendered. If any fractional interest in a share of Common Stock would
otherwise be deliverable upon the conversion of any Note or Notes, the Company
shall make adjustment therefor by rounding to the nearest whole share.
1.3 The issue of Common Stock certificates on conversions of Notes
shall be made without charge to the holder for such certificates or any tax in
respect of the issue thereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in any name other than that of the holder
of the Notes being converted, and the Company shall not be required to issue or
deliver any such shares unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Company shall at all times reserve and keep available out of its
authorized but unissued stock for the purpose of effecting conversions of the
Notes such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect such exercises and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect such exercises at the exercise price then in effect the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
1.4. The conversion rate of the Notes as defined in 1.1 shall be
adjusted from time to time as follows: in the event that the Company shall, at
any time prior to the conversion of the Notes: (i) declare or pay to the holders
of the Common Stock a dividend payable in any kind of shares of stock of the
Company; or (ii) change or divide or otherwise reclassify its Common Stock
-5-
<PAGE>
into the same or a different number of shares with or without par value, or into
shares of any class or classes; or (iii) consolidate or merge with, or transfer
its property as an entirety or substantially as an entirety to, any other
corporation; or (iv) make any distribution of its assets to holders of its
Common Stock as a liquidation or partial liquidation dividend or by way of
return of capital; then, upon the subsequent conversion of the Notes, each
holder thereof shall receive for the conversion price, in addition to or in
substitution for the shares of Common Stock to which it would otherwise be
entitled upon such exercise, such additional shares of stock or scrip of the
Company, or such reclassified shares of stock of the Company, or such shares of
the securities or property of the Company resulting from such consolidation or
merger or transfer, or such assets of the Company, which it would have been
entitled to receive had it converted the Notes prior to the happening of any of
the foregoing events.
ARTICLE II
VOTING RIGHTS
2.1 The holders of the Notes shall not be entitled to notice of any
stockholders' meetings or possess any right to vote upon the election of
directors or upon any other matter.
ARTICLE III
DEFAULT
3.1 Except as expressly provided herein, the Company waives protest,
demand for payment and notice of default for non-payment.
3.2. The holders of not less than 50% by amount of the Notes may
consent to change any terms covering the Notes except those terms relating to
interest rate, payment dates, conversion and maturity date which may be changed
only by unanimous consent of the Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes by notice in writing sent by registered mail to the Company
may declare the principal amount of all the Notes to be forthwith due and
payable, and upon any such declaration the same shall become immediately due and
payable, in the following events:
(a) If default shall be made in the payment of any installment of
interest on any of the Notes when and as the same shall become due and payable,
as herein provided, after allowance for a grace period of fifteen (15) days and
such default shall continue for a period of an additional fifteen (15) days
after written notice is received by the Company from the Note holders; or
-6-
<PAGE>
(b) If default shall be made in the payment of the principal of any of
the Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall go into voluntary liquidation or be dissolved, or shall
admit in writing its inability to pay its debts generally as they mature, or
shall institute proceedings for reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy, insolvency or other
applicable law, or shall file an answer in any such proceedings against it
joining in seeking such relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for the
appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof; or
(e) If one or more judgments, decrees or orders for the payment of
money in excess of $100,000 U.S. in the aggregate shall be rendered against the
Company and/or its subsidiaries, and such judgments, decrees, or orders shall
continue unsatisfied and in effect for a period of 30 consecutive days without
being vacated, discharged, satisfied or stayed or bonded pending appeal.
ARTICLE IV
REDEMPTION
4.1 The Notes may not be redeemed by the Company prior to January
31, 1999 except as provided in 4.2 of Article IV.
4.2 Upon the completion by the Company of a private placement or
public offering wherein the Company receives gross proceeds of at least
$10,000,000 U.S. in any one transaction, the Company will promptly notify its
noteholders that it will redeem the Notes at 100% of the face amount of the
Notes plus accrued and unpaid interest. Such notice will provide for the
redemption of the Notes six months after the completion of such offering.
ARTICLE V
REGISTRATION RIGHTS
5.1 The Confidential Private Placement Memorandum dated December 26,
1996 contains the following registration rights that have been granted by the
Company.
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<PAGE>
"The Company, at its sole cost, may be required to register with the
SEC the shares underlying the Convertible Notes sold in this offering,
on one occasion only, commencing 12 months after the initial closing
of this offering and expiring four years thereafter, at the request of
the holders of at least 25% of the Convertible Notes or the shares
issued upon conversion of the Convertible Notes sold in the Offering.
Also, commencing 12 months after the initial closing of the offering
and expiring four years thereafter, the holders of the Convertible
Notes or the shares issued upon conversion of the Convertible Notes
sold will have the right to notice of any filing of a registration
statement by the Company and the right to have their shares underlying
the Convertible Notes included in any such registration statement at
the sole cost of the Company. However, in the event the Company makes
an initial public offering of securities, the underwriter of such
offering may request the right to defer the public sale of the shares
of Common Stock underlying the Convertible Notes for a period of at
least six months following the closing of the Company's initial public
offering if necessary to effectuate the Company's initial public
offering. The Company will have the right to grant the underwriter's
request if it is deemed necessary to effectuate the Company's initial
public offering. The Notes themselves will have no registration
rights."
ARTICLE VI
MISCELLANEOUS
6.1 Time for payment extended by law shall be included in
computation of interest.
6.2 The Notes shall be governed by and construed in accordance with
laws of the State of New York.
6.3 No recourse shall be had for the payment of the principal of, or
interest on, the Notes, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
6.4 UTTC is prohibited from declaring any cash dividends prior to
payment in full of the Notes.
6.5 Notwithstanding anything contained herein to the contrary, the
Notes may not be disposed of except in compliance with all applicable federal
and state securities laws. In this respect, before selling or otherwise
disposing of the Notes, the holder shall give five business days
-8-
<PAGE>
prior written notice to the Company of his intention to do so. The notice by the
holder shall specify the Notes proposed to be sold or otherwise disposed of and
describe in reasonable detail the amount of the proposed sale or other
disposition and shall be accompanied by an opinion (in form and substance
reasonably satisfactory to the Company's counsel) of the holder's securities
counsel addressed to the Company as to whether the proposed sale or other
disposition may be effected without the filing of a Registration Statement under
the Securities Act of 1933, as amended (the "Act"), covering the Notes proposed
to be sold or otherwise disposed of. If in the opinion of such counsel, and of
counsel for the Company, no such registration action is necessary, the holder,
may sell or otherwise dispose of such Notes in the manner described by him in
the notice given to the Company. (Copies of any documents which the holder or
his counsel files with the Securities and Exchange Commission regarding the sale
or other disposition will immediately be provided by him or his counsel to the
Company.) If, in the opinion of counsel for the Company registration of such
Notes under the Act is necessary, no such sale or other disposition may be
effected by him other than as contemplated by a Registration Statement filed
under the Act which has become effective under such Act.
The holder of the Notes may not sell or otherwise transfer the Notes
purchased hereunder without the transferee agreeing to be bound by the
provisions of the Subscription Agreement pursuant to which the holder of the
Notes is bound. A copy of such Subscription Agreement may be obtained from the
Company at its principal executive offices.
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By:_______________________________
Robert A. Eprile, President
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<PAGE>
EXHIBIT 10.37
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT made and entered into this 8th day of January, 1991, by
and between COMPUTER SCIENCE INNOVATIONS, INC., as (the "Company") and SUN BANK,
NATIONAL ASSOCIATION, a National Banking Association, with its principal banking
offices located in Orlando, Orange County, Florida (the "Bank").
WITNESSETH:
WHEREAS, the Company wishes to borrower from the Bank the sum of
$1,000,000.00 on a revolving line of credit as an operating line, hereinafter
referred to as Loan "A"; and the sum of $500,000.00 as a further revolving line
of credit to support the Company's Egyptian Contract, hereinafter referred to as
Loan "B"; and
WHEREAS, the Bank is willing to make such loans upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and conditions contained herein, the Company and Bank agree as
follows:
ARTICLE ONE
-----------
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
Section 1.01. Definitions. For the purposes of this Agreement, the
------------- -----------
following terms shall have the respective meanings specified in this Section
1.01 (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) "Agreement" shall mean this Loan Agreement.
(b) "Bank Office" shall mean any branch office of the Bank located in
Brevard County, Florida, which office is an office of the Bank and not a
separate and distinct entity from the Bank.
(c) "Current Assets" shall mean those assets which in the regular course of
business of the Company and its subsidiaries on a consolidated basis will be
readily and quickly realized or converted into cash, all in accordance with GAAP
within the applicable accounting or time period, together with such additional
assets as may readily be converted into cash without impairing the business of
the Company and its subsidiaries and shall include cash, temporary investments,
receivables, inventories and pre-payments, but shall exclude loans to
stockholders.
(d) "Current Liabilities" shall mean those liabilities of the Company and
its subsidiaries on a consolidated basis or any portion thereof. Current
liabilities shall be defined as current maturities of long term debt plus notes
payable less than one (1) year, plus accounts payable, plus taxes payable, plus
accrued expenses, and any other liabilities due or that shall become due
-1-
<PAGE>
within a twelve (12) month period.
(e) "Debt to Net Worth Ratio" shall mean the ratio of total liabilities to
Tangible Net Worth.
(f) "Due Date" shall mean the date any payment of principal or interest is
due and payable on the Loan or Note.
(g) "Event of Default" shall mean an event of default specified in Article
Seven of this Agreement.
(h) "GAAP" shall mean generally accepted accounting principles consistently
applied to the particular item.
(i) "Interest Coverage Ratio" shall mean earnings before interest expense
and taxes divided by interest expense.
(j) "Loan" shall mean the following credit facilities made to the Company
by the Bank pursuant to an in accordance with the terms of this Loan Agreement:
l) Revolving Line of Credit in the amount of $1,000,000.00 (Loan "A")
2) Revolving Line of Credit in the amount of $500,000.00 (Loan "B")
(k) "Loan Documents" shall mean this Agreement, the Notes, the Security
Agreement, UCC Financing Statements, Collateral Assignment of Contract Rights,
Landlord Lien Waivers, Loan Commitment and all of the other documents,
agreement, certificates, schedules, notes, statements and opinions, however
described, referenced herein or executed or delivered pursuant hereto or in
connection with or arising with the Loan or the transactions contemplated by
this Agreement.
(l) "Loans from Stockholders" shall mean all loans or other advances made
to the Company from one or more Stockholder from time to time.
(m) "Loan to Stockholders" shall mean all loans or other advances made by
the Company to one or more Stockholders from time to time.
(n) "Note" shall mean the Company's Promissory Note or Notes evidencing the
Loan substantially in the form of Exhibit "A" attached hereto.
(o) "Obligations" shall mean, individually and collectively, the payment
and performance of duties, obligations and liabilities of the Company to the
Bank as described in or required by the Loan Documents.
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<PAGE>
(p) "Person" shall mean any individual, joint venturer, partnership, firm,
corporation, trust, unincorporated organization or other organizational entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
(q) "Prime Rate" shall mean the "annual interest rate announced by Sun
Bank, Inc., from time to time as the Prime Rate (which interest rate is only a
benchmark, is purely discretionary and is not necessarily the best or lowest
rate charged borrowing customers of any subsidiary bank of Sun Banks Inc.). Any
such change in the Prime Rate will increase or decrease the periodic payments."
NOTE: Any change in the Prime Rate shall be effective at the beginning of the
business day on which such change is announced.
(r) "Principal Place of Business" shall mean the offices of the Company at
which its records are kept at 1280 Clearmont Street, N.E., Palm Bay, Florida
32905.
(s) "Total Liabilities" shall mean the aggregate amount of all liabilities
of the Company and its subsidiaries on a consolidated basis as determined by
GAAP.
(t) "Tangible Net Worth" shall mean the excess of (a) the tangible assets
of the Company on a consolidated basis which, in accordance with GAAP, are
tangible assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper, over (b) all liabilities, excluding
minority interest, provided, however, that (i) inventory shall be taken into
account on the basis of the cost or current market value, whichever is lower,
(ii) in no event shall there be included as such tangible assets patents,
trademarks, tradenames, copyrights, licenses, goodwill or treasury stock or any
securities or liabilities of the Company unless the same are readily marketable
in the United States of America, and are entitled to be used as a credit against
federal income tax liabilities, (iii) securities included as such tangible
assets shall be taken into account at their current market price or cost,
whichever is lower, and (iv) any write-up in the book value of any assets shall
not be taken into account.
(u) "Year" shall mean the calendar year from January through December 31,
inclusive.
(v) "Current Maturities of Long Term Debt" shall mean that portion of
installment or term debt that must be paid within twelve (12) months from the
balance sheet date. The obligation shall be shown separately from Bank notes
payable in accordance with GAAP.
(w) "Amortization" shall mean the process of charging off an intangible
over a period of years according to GAAP.
(x) "Commitment" shall mean the Bank's commitment letter dated August 6,
l990 and further amended August l0, l990, a copy of which is attached hereto as
Exhibit "B" and by reference made a part hereof.
Section l.02. Accounting Terms. All accounting terms used herein shall be
------------- ----------------
construed in accordance with GAAP consistently applied.
-3-
<PAGE>
ARTICLE TWO
-----------
AMOUNT AND TERMS OF THE LOAN
----------------------------
Section 2.0l. The Loan. The Bank agrees to lend or make available to the
------------- --------
Company, the following credit facilities:
(a) A Revolving Loan in the aggregate principal amount of $1,000,00.00
(Loan "A"). The purpose of this Loan is to make available to the Company an
operating line.
(b) A further Revolving Line of Credit in the aggregate principal
amount of $500,000.00 (Loan "B"). The purpose of Loan "B" is to make available
to the Company, the sum of $500,000.00 as working capital for the Company's
contract with the Egyptian Government. Prior to the funding of any monies under
this Revolving Line of Credit, the Bank shall receive for its review and
approval, a fully executed contract between the Company and the Egyptian
Government or the appropriate U.S. Agency acting on their behalf, which contract
shall provide a statement of work and shall be assignable as collateral as
provided for in Section 6.02 of this Agreement.
Section 2.02. Interest on The Note. The Loan shall be evidenced by the
------------- --------------------
Notes attached hereto as Exhibit "A" and shall be due and payable in accordance
with and as required by the terms and conditions contained therein and as
hereinafter provided in Section 2.07. The Company shall not be liable under the
Notes except with respect to funds actually advanced to the Company by the Bank
pursuant to the terms hereof. The Note interest on the Notes evidencing each of
the credit facilities shall be paid as follows:
(a) The note for Loan "A" in the amount of $1,000,000 shall bear
interest from the date thereof on the unpaid principal balance thereof from time
to time outstanding at a fluctuating interest rate per annum equal to the lesser
of (i) the interest: rate announced by Sun Bank, Inc., from time to time as the
Prime Rate (as herein defined) plus .75%, or (ii) the maximum rate of interest
permitted by law. Each change in the fluctuating interest rate on the Note due
to a change in the Prime Rate shall be effective as of the opening of business
for the Bank on the date of such change in the Prime Rate.
(b) The note for Loan "B" in the amount of $500,000.00 shall bear
interest from the date thereof on the unpaid principal balance thereof from time
to time outstanding at a fluctuating interest rate per annum equal to the lesser
of (i) the interest rate announced by Sun Bank, Inc., from time to time as the
Prime Rate (as herein defined) plus .75% or (ii) the maximum rate of interest
permitted by law. Each change in the fluctuating interest rate on the Note due
to a change in the Prime Rate shall be effective as of the opening of business
for the Bank on the date of such change in the Prime Rate.
-4-
<PAGE>
Section 2.03. Calculation of Interest. Interest due on the Loan shall be
------------- -----------------------
calculated on a 360 day year. The interest due on any date for payment of
interest hereunder shall be that interest to the extent accrued as of midnight
on the last calendar day immediately prior to that interest payment date.
Notwithstanding anything herein or in any Loan Document to the contrary, the sum
of all interest and all other amounts deemed interest under Florida or other
applicable law which may be collected by the Bank hereunder shall not exceed the
maximum lawful interest rate permitted by such law from time to time. The Bank
and the Company intend and agree that under no circumstance shall the Company be
required to pay interest on the Loans or on any other Obligations at a rate in
excess of the maximum interest rate permitted by applicable law in effect from
time to time, and in the event any such interest is received or charged by the
Bank in excess of the rate, the Company shall be entitled to an immediate refund
of any such excess interest by a credit to and payment toward the unpaid balance
of the Loan (such credit to be considered to have been made at the time of the
payment of the excess interest) with any excess interest not so credited to be
immediately paid to the Company by the Bank.
Section 2.04. Payment of Note. The Company shall pay the Notes as
------------- ---------------
heretofore described with interest at the rate set forth in Section 2.02 as
follows:
(a) Loan "A". Interest only shall be payable monthly on the principal
--------
balance due and owing from time to time. The principal balance shall be due and
payable upon demand and the Bank shall conduct an annual review on or before
June 30, 1991. The principal balance shall be paid in full for a period of at
least thirty (30) days during the first twelve months and for each twelve month
period thereafter during which the credit continues to be made available by the
Bank to the Company. In the event that the amount advanced by the Bank to the
Company from time to time, exceeds $750,000.00, the Company shall maintain a
borrowing formula wherein 70% of the current to 90 day account receivable shall
have a value equal to or greater than $750,000.00. In the event that the value
of the accounts receivable as heretofore determined, becomes less than the
amount advanced by the Bank to the Company in excess of $750,000.00, then in
such event, the Company shall immediately forthwith reduce the outstanding
balance of the line of credit to an amount equal to the value of the accounts
receivable according to the borrowing formula. The calculation of the accounts
receivable in accordance with the borrowing formula will be based on the last
month's report of receivables as provided for in Section 4.0l (ii).
(b) Loan "B". Interest only shall be payable monthly on the principal
--------
due and owing from time to time. The principal balance shall be due and
payable upon demand and the Bank shall conduct an annual review on or before
June 30, 1991.
Section 2.05. Method of Prepayment. The Company may at any time prepay
------------- --------------------
all or any part of the principal amount of the Loans Outstanding without premium
or penalty.
Section 2.06. Set-off. The Company hereby grants to the Bank a lien on,
------------- -------
and a security interest in, the deposit balances, accounts, items, certificates
of Deposit and monies of the Company in the possession of or on deposit with the
Bank of any Bank Office to secure and as collateral for the payment and
performance of the obligations created by the Loans. The Bank, upon giving
-5-
<PAGE>
written notice, shall immediately appropriate and set-off against and apply the
same to the Obligations when and as due and payable.
Section 2.07. Application of Payments. All payments made on the Note
------------- -----------------------
shall be applied first to interest accrued to the date of payment and next to
the unpaid principal balance provided, however, in the event an Event of Default
occurs, payment shall be applied first to any costs or expenses, including
reasonable attorneys fees, that the Bank may incur in exercising its rights
under the Loan Documents, as the Bank may determine.
ARTICLE THREE
-------------
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants to the Bank that:
Section 3.0l. Organization, Corporate Powers, etc. The Company (i) is a
------------ ------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida, (ii) has all requisite power and authority, corporate
and otherwise to own its properties and assets and to carry on its business as
now conducted and proposed to be conducted, (iii) is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
its properties or assets owned or the nature of their activities conducted makes
such qualification necessary including the State of Florida, and (iv) has the
corporate power and authority to execute and deliver, and to perform its
obligations under this Agreement, the Note, and the other Loan Documents.
Section 3.02. Authorization of Loan, etc. The execution, delivery and
------------ ---------------------------
performance of the Loan Documents by the Company, to the extent applicable, (a)
have been duly authorized by all requisite corporate action (no shareholder
action being required pursuant to applicable law) and (b) will not (i) violate
(A) any provision of law, any governmental rule or regulation, any order of any
court or other agency of government or the Articles of Incorporation or By-Laws
of the Company, to the extent applicable or (B) any provision of any indenture,
agreement or other instrument to which the Company, to the extent applicable, is
a party or by which it or any of its properties or assets are bound, (ii) be in
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or (iii) result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of the Company
other than as permitted by the terms hereof.
Section 3.03. Agreements.
------------- ----------
(a) The Company is not a party to any agreement, indenture, lease or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, rule or regulation materially and
adversely affecting its business, properties, assets, operations or condition
(financial or otherwise). There are no unrealized losses with respect to any
such agreement, indenture, lease or instrument.
-6-
<PAGE>
(b) The Company is not in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any material agreement or instrument to which it is a party.
(c) The Company enjoys peaceful and undisturbed possession in all
material respects under all leases as to which the Company is a lessee and all
such leases are valid and subsisting and in full force and effect.
Section 3.04. Tax Returns and Payments. All federal, state and local tax
------------- ------------------------
returns and reports of the Company required to be filed have been filed, and all
taxes, assessments, fees and other governmental charges upon the Company, or
upon any of its properties, assets, incomes or franchises, which are due and
payable in accordance with such returns and reports, have been paid, other than
those presently (a) payable without penalty or interest, or (b) contested in
good faith and by appropriate and lawful proceedings prosecuted diligently. The
aggregate amount of the taxes, assessments, charges and levies so contested is
not material to the condition (financial or otherwise) and operations of the
Company. The charges, accruals, and reserves on the books of the Company in
respect of federal, state and local taxes for all fiscal periods to date are
adequate and the Company knows of no other unpaid assessment for additional
federal, state or local taxes for any such fiscal period or of any basis
therefor. The Company has and will establish all necessary reserves and make all
payments required of it to be set aside or made in regard to all F.I.C.A.,
withholding, sales or excise, and all other similar federal, state and local
taxes.
Section 3.05. Financial Conditions.
------------- --------------------
(a) All balance sheets, statements of profit and loss, and other
financial data that have been given to the Bank with respect to the Company:
(i) are complete and correct in all material respects;
(ii) accurately present the financial condition of the Company
and the results of their operation as of the dates and for the periods for
which the same have been furnished;
(iii) have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods covered
thereby: and
(iv) disclose all known liabilities, direct or contingent, as of
their respective dates.
(b) There have been no adverse changes in the business, properties,
condition (financial or otherwise, of Company, or any other party obligated to
Bank under the Loan Documents) and there has been no change in the structure or
ownership of said parties. The financial statements submitted to Bank in
connection with the Loan were true and correct as the date of submission and
remain true and correct as of the date hereof.
-7-
<PAGE>
(c) There are no judgments, decrees, actions, suits or proceedings,
including without limitation, bankruptcy proceedings, pending or threatened
against or affecting the Company, or the property, before any Court, Arbitrator
or Governmental Department or agency which may result in any materially adverse
change in the financial condition of the Company, or any other party obligated
to the Bank under the Loan Documents or which would materially and adversely
affect the collateral or this loan transaction.
Section 3.06. Commitment Letter. The Company further warrants and
------------- -----------------
represents that it has complied with each of the terms of the Bank's Commitment
and that there exists no condition or outstanding requirement of the commitment
letter which has not been fulfilled in its entirety as an integral part of this
loan.
ARTICLE FOUR
------------
COVENANTS OF THE COMPANY
------------------------
Section 4.0l. Affirmative Covenants. The Company covenants, for so long
------------- ---------------------
as any of the principal amount of or interest on the Notes is outstanding and
unpaid or any duty or obligation of the Company hereunder or under any of the
other Obligations remains unpaid or unperformed, as follows:
(a) Accounting: Financial Statements; Etc. The Company will deliver to
-------------------------------------
the Bank copies of each of the following:
(i) The Company will submit year-end unqualified audited
financial statements prepared by a CPA acceptable to the Bank for the
Company, within ninety (90) days of the end of the Company's fiscal year
unless extended in writing by the Bank.
(ii) The Company shall submit to the Bank on or before the 15th
of each month, (except for the fiscal year end report which shall be
provided within twenty-five (25) days following the end of the fiscal year)
the prior month's balance sheet, income statement, report of accounts
receivable aging and accounts payable aging, contract status, proposal
status, backlog and orders secured, as well as other relevant information
concerning the business activity and financial condition of the Company. A
certificate will be furnished with each monthly report signed by the
President or the Executive Vice President of the Company certifying that
the foregoing information is true and correct and that all conditions of
this Loan Agreement are being complied with or if not, what the exceptions
are.
(iii) With reasonable promptness, such other data and information
as from time to time may be reasonably required by the Bank in regard to
the Company.
-8-
<PAGE>
All financial statements shall be in form and substance as reasonably
requested by the Bank.
(b) Inspection. The Company will permit the Bank to visit and inspect
----------
any of the properties and Places of Business of the Company, including its or
their respective books and records (and to make extracts therefrom), and to
discuss their respective affairs, finances and accounts with their respective
officers, all at such reasonable times and as often as may reasonably be
requested provided that the Bank shall not be permitted to inspect secured,
restricted or otherwise classified areas, without the express permission of the
Company. The Company shall keep all books and records in an unclassified or
unrestricted area of the Company's property, so that such books and records
shall, at all times, be available for inspection by the Bank as herein provided.
(c) Maintenance of Corporate Existence: Compliance With Laws. The
--------------------------------------------------------
Company shall at all times preserve and maintain in full force and effect is
corporate existence, powers, rights, licenses, permits and franchises in the
jurisdiction of its incorporation; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding fiscal
year of the Company; operate in full compliance with all applicable laws,
statutes, regulations, certificates of authority and orders in respect of the
conduct of its business; and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is necessary or
appropriate in view of its business and operations.
(d) Notice of Default. The Company shall immediately notify the Bank
-----------------
in writing upon the happening, occurrence or existence of any Event of Default,
or any event or condition which with the passage of time or giving of notice, or
both, would constitute an Event of Default, and shall provide the Bank with such
written notice, a detailed statement by a responsible officer of the Company of
all relevant facts and the action being taken or proposed to be taken by the
Company with respect thereto.
(e) Notice of Suit, Proceedings, Adverse Change. The Company shall
-------------------------------------------
promptly give the Bank notice in writing (a) of all known threatened or actual
actions or suits (at law or in equity) and of all threatened or actual
investigations or proceedings by or before any court, arbitrator or any
governmental department, commission, board, bureau, agency or other
instrumentality, state, federal or foreign, affecting the Company, the rights or
other properties of the Company, (i) which involves potential liability of the
Company in an amount in excess of $500,000.00 or (ii) which the President or
Executive Vice-President of the Company believe in good faith is likely to
materially and adversely affect the financial condition of the Company or to
impair the right or ability of the Company to carry on its businesses as now
conducted or to pay the Obligations or perform the duties under the Loan
Documents and which the Company has knowledge; (b) or any material adverse
change in the condition (financial or otherwise) of the Company; and (c) of any
seizure or levy upon any part of the properties of the Company under any process
or by a receiver.
-9-
<PAGE>
(f) Checking Accounts. The Company shall maintain all depository
-----------------
accounts with the Bank or at a Bank Office, or any other banking affiliate of
Sun Bank, N.A., except for those non-primary accounts maintained outside of the
State of Florida.
(g) Insurance. The Company shall procure and maintain and comply with
---------
such insurance and policies of insurance (including without limitation public
liability and product and manufacturer's liability insurance with minimum
coverage of $1,000,000.00) as may be required by law and such other insurance as
is customarily maintained by companies similarly situated, or as the Bank may
from time to time reasonably request and which are customarily required for
commercial enterprises of the kind and nature similar to that of the Company. In
particular, the following insurance policies will be obtained and maintained in
full force and effect throughout the term of this Agreement.
(i) As a requirement of the loan commitment and pursuant to the
terms and conditions of this Loan Agreement, the Company shall maintain in
full force and effect, during the term of this Loan, life insurance
policies on the lives of the following persons in the amounts as indicated:
indicated:
John A. Blohm $500,000.00
James C. Schaffer $500,000.00
The Company shall be designated as the irrevocable beneficiary thereof as
long as there remains an outstanding balance on the loans or an obligation
on the part of the Bank to fund the loans.
(ii) Appropriate hazard insurance and flood insurance, if
applicable, covering all real property, inventory, and equipment of the
Company in the face amount of not less than $1,000,000.00. The Company
shall furnish to the Bank certificates reflecting said insurance. The Bank
agrees that the Company may negotiate the settlement of any claims for
damages less than $100,000.00, provided that the proceeds realized from the
settlement of such claims are used to replace or refurbish equipment,
inventory or property damaged and which is the subject matter of the claim
of loss. In the event that the claim for damages exceeds $100,000.00, the
Bank, in its sole discretion, may elect to apply the insurance proceeds
towards the reduction of the principal and interest obligations of the
loans.
(iii) The Company shall designate as additional loss payee the
Bank as follows: Sun Bank, National Association, its successors and
assigns, Post Office Box 1630, Melbourne, Florida 32902-1630 Attention:
Commercial Loans.
(h) Debts, Taxes and Liabilities. The Company shall pay and discharge
----------------------------
(i) all of its indebtedness and obligations in accordance with their terms and
before they shall become in
-10-
<PAGE>
default, (ii) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income and profits or against its properties, prior to the
date on which penalties attach thereto, and (iii) all lawful claims which, if
unpaid, might become a lien or charge upon any of its properties; provided,
however, that the Company shall not be required to pay any such indebtedness,
obligation, tax, assessment, charge, levy or claim which is being contested in
good faith by appropriate and lawful proceedings diligently pursued and for
which adequate reserves have been set aside on its books. The Company shall also
set aside and/or pay as and when due all monies required to be set aside and/or
paid by any federal, state or local statute or agency in regard to F.I.C.A.,
withholding, sales or excise or other similar taxes.
(i) Notification of Change of Name or Business Location. The Company
---------------------------------------------------
shall notify the Bank of each change in the name of the Company and of each
change of the location of the Principal Place of Business and any Places of
Business provided, however, the Principal Place of Business may not be kept out
of or removed from Brevard County, Florida without the prior written consent of
the Bank.
(j) Minimum Financial Criteria. The Company shall maintain the
--------------------------
following minimum financial criteria:
(i) Current Ratio. For the Company, it shall maintain a minimum
-------------
current ratio of 1.50:1. Current ratio shall be defined as Current Assets
divided by Current Liabilities.
(ii) Minimum Working Capital. The minimum working capital shall
-----------------------
$700,000.00. Working Capital shall be defined as Current Assets minus
Current Liabilities.
(iii) Minimum Tangible Net Worth. Minimum Tangible Net Worth shall
--------------------------
be $1,250,000.00.
(iv) Minimum Interest Coverage Ratio. At all times that the
-------------------------------
average loan outstandings exceed $750,000.00, the minimum interest coverage
ratio shall be not less than 1.50:1. In the event the outstandings are less
than $750,000.00, the minimum interest coverage ratio shall be not less
than 2.00:1. This ratio shall be monitored on a year to date fiscal quarter
basis.
(k) Maximum Financial Criteria. The Company shall maintain the
--------------------------
following maximum financial criteria:
(i) Maximum Debt to Net Worth Ratio. At all such times as combined
-------------------------------
principal balance outstanding on Loan "A" and Loan "B" exceeds $750,000.00,
the maximum Debt to Net Worth Ratio shall be 1.70:1. In the event that the
combined outstanding principal balance of Loan "A" and Loan "B" is less
than $750,000.00, then the maximum Debt to Net Worth Ratio shall be
maintained at 1.45:1.
-11-
<PAGE>
Section 4.02. Negative Covenants. The Company covenants, for so long as any
------------- ------------------
of the principal amount of or interest on the Notes is outstanding and unpaid or
any Obligations remain unpaid or unperformed, as follows:
(a) Sale of Assets. The Company will not sell, lease, assign, transfer
--------------
or otherwise pledge or encumber or dispose of any assets, other than as worn
out, obsolete, traded in on new equipment, or in the normal course of business
without the express written consent of the Bank.
(b) Change in Ownership of Principal Stockholders. The Company shall
---------------------------------------------
make no change in the position of John Blohm as President and James C. Schaffer
as Executive Vice-President and officers of the Company or in the ownership of
stock by the foregoing officers without the prior written consent of the Bank.
In the event that the aforesaid President or Executive Vice-President resign
from the Company without the prior written consent of the Bank, such resignation
shall constitute a default under the terms and conditions of the Loan Documents.
(c) Merger or Consolidation. The Company will not consolidate with or
-----------------------
merge into any other corporation, or permit another corporation to merge into
it, or acquire in a transaction analogous in purpose or effect to a merger or
consolidation all or substantially all the properties or assets of any other
entity without the Bank's prior written consent which shall not be unreasonably
withheld.
(d) Additional Indebtedness. The Company shall not incur any new
-----------------------
obligations except for trade accounts payable in the ordinary course of
business, capital leases in excess of $20,000.00 (cumulative on an annual
basis), and taxes without the prior written consent of the Bank. In the event
stockholder loans to the Company are made, such indebtedness shall be
subordinated, in writing, to the Company's indebtedness to the Bank.
(e) Hypothecation. The Company will not, without the Bank's prior
-------------
written consent, voluntarily or involuntarily hypothecate, mortgage, pledge, or
subject to a lien, security interest or other encumbrance of any nature
whatsoever any of its real or personal property now owned or hereafter acquired.
(f) Other Agreements. The Company will not enter into any
----------------
arrangements, contractual or otherwise, which would materially and adversely
affect its or their duties or the rights of the Bank under the Loan Documents or
which is inconsistent with or limits or abrogates the Loan Documents.
(g) Fiscal Year. The Company will not change its fiscal year from a
-----------
year ending March 31 without reasonable notice to the Bank.
(h) Loans to Stockholders. The Company shall make no loans to the
---------------------
principal stockholders without the prior written consent of the Bank.
-12-
<PAGE>
ARTICLE FIVE
------------
CONDITIONS OF LENDING
---------------------
The obligations of the Bank to lend hereunder and advance any monies under
the Note and to make any Advance under Section 2.03 from time to time are
subject to the following conditions precedent:
Section 5.01. Representations and Warranties. The representations and
------------- ------------------------------
warranties set forth in the Loan Documents are true and correct on and as of the
date hereof, and on the date of each Advance hereunder.
Section 5.02. No Default. On the date hereof and on the date of each
------------- ----------
Advance, the Company shall be in compliance with all the terms and provisions
set forth in the Loan Documents on its or their part to be observed or
performed, and no Event of Default nor any event that, upon notice or lapse of
time or both would constitute such an Event of Default, shall have occurred and
be continuing at such time.
Section 5.03. Officer's Certificate. Substantially simultaneously with the
------------- ---------------------
execution hereof, and with the submission of each financial statement hereunder
and on such other dates as the Bank may request, the Company shall deliver to
the Bank a certificate, dated as of the date given, and signed by a responsible
officer of the Company, confirming compliance with all of the conditions of this
Agreement by the Company.
Section 5.04. Loan Documents. The Company shall have delivered or caused to
------------- --------------
be delivered to the Bank all the Loan Documents, in form and substance
satisfactory to the Bank, as the Bank may request and all of the Loan Documents
are in full force and effect.
Section 5.05. Supporting Documents. On or prior to the date hereof, the
------------- --------------------
Bank shall have received the following supporting documents, all of which shall
be satisfactory in form and substance to the Bank:
(a) A certificate or certificates, dated as of the date hereof, of (i)
the Secretary or any Assistant Secretary of the Company certifying (A) that
attached thereto is a true and correct copy of certain resolutions adopted by
the Board of Directors of the Company authorizing the execution, delivery and
performance of the Loan Documents and the performance of the Company's
obligations and the borrowings thereunder, which resolutions have not been
altered or amended in any respect, and remain in full force and effect at all
times since their adoption: (B) that attached thereto is a true and correct copy
of the Certificate of Incorporation of the Company, that such Certificate of
Incorporation has not been altered or amended, and no other charter documents
have been filed, since the date of the filing of the last amendment thereto or
other charter document as indicated on the certificate of the Secretary of State
of the State of Florida attached thereto; and (C) the incumbency and signatures
of the officers of the Company signing the Loan Documents and any report,
certificate, letter or other instrument or document furnished by the Company in
connection
-13-
<PAGE>
therewith, and (ii) another authorized officer of the Company certifying the
incumbency and signature of the Secretary or Assistant Secretary of the Company;
(b) A certificate of the Florida Secretary of State dated as of a
recent date, as to the good standing of the Company;
(c) A copy of the corporate By-Laws certified by the Secretary as a
true and correct copy;
(d) Such additional supporting or similar documents as the Bank may
reasonably request in regard to the Company.
ARTICLE SIX
-----------
COLLATERAL
----------
Section 6.01. Security Agreement. The Company has executed a Security
------------- ------------------
Agreement and UCC-1 Financing Statements for the purpose of pledging all of its
accounts, contract rights, inventory and equipment to secure the repayment of
the indebtedness represented by Notes "A" and "B". The company agrees to execute
any and all further documents necessary to properly perfect the Bank's security
interest therein.
Section 6.02. Collateral Assignment. The company has further executed a
------------- ---------------------
collateral assignment of contract rights and proceeds arising out of the
contract between the Company and the Egyptian Government. A Summary of which is
attached hereto as Exhibit "C".
Section 6.03. Cross Collateral. The collateral is also pledged as security
------------- ----------------
for all other liabilities (primary, secondary, direct, contingent, sole, joint
or several), due to become due or which may hereafter be contracted or acquired,
of the Company, to the Bank. Further, any other collateral, whether real or
personal, held by the Bank on any liability due or to become due, or which may
hereafter be contracted, or acquired with or from the Company shall also
constitute additional collateral to further secure the Note.
ARTICLE SEVEN
-------------
EVENTS OF DEFAULT
-----------------
Section 7.01. Events of Default. The following each and all are Events of
------------- -----------------
Default hereunder:
(a) Monetary Default. If the Company shall default in any payment of the
----------------
principal or interest on the Loan when and as the same shall become due and
payable, whether at maturity, by acceleration at the discretion of the Bank or
otherwise; or
-14-
<PAGE>
(b) Non-Monetary Default. If the Company shall default in the performance
--------------------
of or compliance with any term or covenant contained in the Loan Documents
(other than a term or covenant a default in the performance of which or non-
compliance with which is elsewhere specifically dealt with) which default or
non-compliance shall continue and not be cured within thirty (30) days of
written notice thereof to the Company by the Bank; or
(c) False Misrepresentation. If any representation or warranty made in
-----------------------
writing by or on behalf of the Company or in any other Loan Document shall prove
to have been knowingly false or incorrect in any material respect on the date as
of which made or reaffirmed; or
(d) Bankruptcy. If the Company shall make an assignment for the benefit of
----------
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodial receiver or trustee for any of them or a
substantial part of their assets, or shall commence any proceeding under any
bankruptcy reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against any of them, in which an
order for relief is entered or which remains undismissed for a period of thirty
days (30) days or more; or
(e) Litigation against the Company. Any suit shall be filed which could
------------------------------
reasonably be expected to substantially impair the ability of the Company to
perform the obligations under and by virtue of the loan documents.
Section 7.02. Failure to disprove default. Should Bank reasonably suspect
------------- ---------------------------
the occurrence of one or more of the aforesaid Events of Default and the
Company, upon request of the Bank, shall fail to provide evidence reasonably
satisfactory to Bank that such Event or Events of Default have not, in fact,
occurred, then such Event shall be deemed to have occurred.
Section 7.03. Cross Defaults. A default under any Loan Document, including
------------- --------------
a default under this Agreement, shall be and constitute a default under all
outstanding loans to the Company by the Bank, and further, a default under any
of the outstanding loans to the Company by the Bank shall be and constitute a
default under this Agreement and each and all of the Loan Documents, subject
however to the thirty (30) days notice and right to cure non-compliance with
respect to non-monetary defaults as delineated in Section 7.01(b), above.
ARTICLE EIGHT
-------------
RIGHTS UPON DEFAULT
-------------------
Upon the occurrence of any Event of Default, the Bank shall have and may
exercise any or all of the rights set forth herein provided, however, the Bank
shall be under no duty or obligation to do so:
Section 8.01. Acceleration. To declare the indebtedness evidenced by the
------------- ------------
Note and all other Obligations to be forthwith due and payable, whereupon the
Note and all other Obligations shall
-15-
<PAGE>
become forthwith due and payable, both as to principal and interest, without
presentment, demand, protest or any other notice or grace period of any kind,
all of which are hereby expressly waived, anything contained herein or in the
Notes or in such other Obligations to the contrary notwithstanding.
Section 8.02. Right of Setoff. To exercise its right of setoff as
------------- ---------------
permitted under Section 2.06.
Section 8.03. Application of Proceeds. Any and all proceeds resulting
------------- -----------------------
from the exercise of any and all of the foregoing remedies shall be applied (i)
first to the cost and expenses, including reasonable attorneys fees incurred by
the Bank in connection with the exercise of its remedies; (ii) second, to the
expenses of curing the default that has occurred, in the event that the Bank
elects, in its sole discretion (and without obligation to do so) to cure the
default that has occurred; (iii) third, to the satisfaction of the obligations
of the Company to the Bank, including without limitations, the payment of the
principal of, and interest on the indebtedness evidenced by the Notes, in any
order selected by Bank; and (iv) fourth, the remainder, if any, to the Company
or any other person lawfully entitled thereto.
ARTICLE NINE
------------
MISCELLANEOUS
-------------
Section 9.01. No Waiver, Cumulative Remedies. No failure or delay on the
------------- ------------------------------
part of the Bank in exercising any right, power or remedy hereunder, or under
the Note or the other Loan Documents shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder or thereunder. The remedies herein and therein provided are
cumulative and not exclusive of any remedies provided by law or in equity.
Section 9.02. Amendments, Etc. No amendment, modification, termination or
------------- ----------------
waiver of any provision of this Agreement, the Note or the other Loan Documents,
nor consent to any departure by the company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 9.03. Addresses for Notices, Etc. All notices, requests, demands
------------- ---------------------------
and other communications provided for hereunder shall be in writing (including
telex or telegraphic communications) and shall be deemed to have been given (i)
in the case of delivery, when addressed to the other party and delivered to the
address set forth below, (ii) in the case of mailing, three days after said
notice has been deposited, postage prepaid, in the United States Mails by
certified or registered mail, return receipt requested, and (iii) in all other
cases when received by the party. The address to which matters may be sent or
delivered to each party are as follows:
-16-
<PAGE>
If to the Company: Computer Science Innovations, Inc
1280 Clearmont Street, N.E.
Palm Bay, FL 32905
Attn: John Blohm
If the Bank: Sun Bank, National Association
Post Office Box 1630
Melbourne, Florida 32901
Attn: Commercial Loan Department Manager
With a Copy to: Bruce Mitchell, Esq.
Reinman, Harrell, Graham, et al.
1825 S. Riverside Drive
Melbourne, FL 32901
Each party may change the address to which matters are to be sent or
delivered as set forth above by giving written notice of such change in the
manner set forth above.
Section 9.04. Applicable Law. This Agreement, and each of the Loan
------------- --------------
Documents and transactions contemplated herein (unless specifically stipulated
to the contrary in such document) shall be governed by and interpreted in
accordance with the laws of the State of Florida.
Section 9.05. Survival of Representations and Warranties. All
------------- ------------------------------------------
representations, warranties, covenants and agreements contained herein or made
in writing by the Company in connection herewith shall survive the execution and
delivery of this Agreement, the Note and the other Loan Documents and be true
and correct during the term of the Loan.
Section 9.06. Time of the Essence. Time is of the essence of this
------------- -------------------
Agreement, the Note and the other Loan Documents.
Section 9.07. Headings. The headings in this Agreement are intended to be
------------- --------
for convenience of reference only, and shall not define or limit the scope,
extent or intent or otherwise affect the meaning of any portion hereof.
Section 9.08. Severability. In case any one or more of the provisions
------------- ------------
contained in this Agreement, the Note or the other Loan Documents shall for any
reason be held to be invalid, illegal or unenforceable in any respect, the same
shall not affect any other provision of this Agreement, the Note or the other
Loan Documents, but this Agreement, the Note and the other Loan Documents shall
be construed as if such invalid or illegal or unenforceable provision had never
been contained therein.
Section 9.09. Counterparts. This Agreement may be executed in any number
------------- ------------
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
-17-
<PAGE>
Section 9.10. Conflict. In the event any conflict arises between the
------------- --------
terms of this Agreement and the terms of any other Loan Document including the
Note, the Bank shall have the option of selecting which conditions shall govern
the loan relationship evidenced by this Agreement and, if the Bank does not so
indicate, the terms of this Agreement shall govern in all instances of such
conflict.
Section 9.11. Term. The term of this Agreement shall be for such period
------------- ----
of time until the Loan and Note have been repaid in full, the Company has no
further right to request any Advance on the Loan and all Obligations have been
paid to the Bank in full.
Section 9.12. No Third Party Beneficiary. This Agreement is solely
------------- --------------------------
between the parties hereto and no person not a party to this Agreement shall
have any rights or privileges hereunder either as a third party beneficiary or
otherwise.
Section 9.13. No Partnership or Joint Venture. Nothing herein or the acts
------------- -------------------------------
of the parties hereto shall be construed to create a partnership or joint
venture between the Company and the Bank, nor to create any obligation on the
part of the Bank as to the Company.
Section 9.14. Successors and Assigns Included in Partner. Whenever in
------------- ------------------------------------------
this Agreement one of the parties hereto is named or referred to, the legal
representative, successors, successors in title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by and on behalf of the company or by and on behalf of the Bank shall bind and
inure to the benefit of their respective legal representatives, successors,
successors in title, and assigns, whether so expressed or not.
Section 9.15. Assignment. The Notes, this Agreement and the other Loan
------------- ----------
Documents may be endorsed, assigned and/or transferred in whole or in part by
the Bank and any such holder and assignee of same shall succeed to and be
possessed of the rights of the Bank under all of the same to the extent
transferred and assigned. Bank may grant participation in all or a portion of
its interest in the loan. Company shall not assign any of their rights nor
delegate any of their duties hereunder or under any of the other Loan Documents
without the prior express written consent of the Bank.
Section 9.16. Costs and Attorney Fees. If an Event of Default occurs
------------- -----------------------
under Agreement or a default occurs under other Loan Document, then, in that
event, the Company agrees to promptly pay to the Bank, upon demand therefore,
all costs, expenses and attorneys fees incurred or paid by the Bank in enforcing
its rights under this Agreement or any Loan Document. As used herein, costs,
expenses and attorneys fees include costs, expenses and attorney's fees incurred
or paid by the Bank in regard to any appellate proceedings.
Section 9.17. Entire Assignment. Except as otherwise expressly provided
------------- -----------------
herein, this Agreement and the other Loan Documents embody the entire agreement
and understanding between
-18-
<PAGE>
the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed, sealed and delivered, as applicable, by their duly authorized
officers on the day and year first above written.
Signed, sealed and delivered in the SUN BANK, NATIONAL ASSOCIATION
presence of:
____________________________________ By: ____________________________
____________________________________ Attest:_________________________
(As to Bank)
COMPUTER SCIENCE INNOVATIONS,
INC., a Florida Corporation
By: /s/ John Blohm
-----------------------------
____________________________________ John A. Blohm, President
____________________________________
(As to Company) By: /s/ James Schaffer
----------------------------
James C. Schaffer
Executive Vice President
-19-
<PAGE>
Sun Bank [logo]
PROMISSORY NOTE
$1,000,000.00 January 1991
- --------------- ---------------
The undersigned (whether one or more hereinafter called "Maker"), jointly
and severally, promise(s) to pay to the order of Sun Bank, National Association
------------------------------
(herein called "Bank") at its offices located at Melbourne Florida, ONE MILLION
-----------
and 00/100 DOLLARS ($1,000,000.00), together with interest from the date hereof
- ----------
at the rate hereinafter provided, and applicable fees in the following manner:
REPAYMENT SCHEDULE:
<TABLE>
<S> <C>
[_] Single Payment Principal Due in Full On:_______________________________________________________
Interest Payable:_______________________________________________________________
[_] Instalment Payment (Including interest): In ___________ _____________________________
(No.) (Period)
Installments of $___________ commencing on ___________, 19__, and on the same
day of each successive ___________ thereafter, together with FINAL PAYMENT of
$___________, due and payable on ______________, 19__.
[_] Instalment Payment (plus interest): ___________ ________________________________
(No.) (Period)
Principal Installments of $___________, plus interest, commencing on ___________,
19__, and on the same day of each successive ___________ thereafter, together with
FINAL PAYMENT of $___________, plus accrued interest due and payable on
______________, 19__.
[_] Multiple Payment: Principal and interest are payable as follows:__________________________________
________________________________________________________________________________
________________________________________________________________________________
[_] ON DEMAND Principal payable ON DEMAND with interest payable monthly commencing on February 1,
------- ----------
1991 and each month thereafter.
---- -----
</TABLE>
THE INTEREST RATE IS AS FOLLOWS: [_] If checked here, the interest rate provided
herein shall be computed on the basis of a 360 day year and shall be calculated
for the actual number of days elapsed.
VARIABLE INTEREST RATE:
[_] Not Applicable
[X] Applicable, provided however that the interest rate charged hereunder
shall never exceed the maximum rate allowed, from time to time, by
law.
If applicable, the interest rate stated herein shall, from time to time,
automatically increase or decrease so that at all times it shall be equivalent
to (check appropriate box and complete):
[X] .75% over the annual interest rate announced by Sun Banks, Inc., from time
to time, as the prime rate (which interest rate is only a bench mark, is
purely discretionary and is not necessarily the best or lowest rate charged
borrowing customers of any subsidiary bank of Sun Banks, Inc.). Any such
change in prime rate will increase or decrease your periodic interest
payments. Any change in prime rate shall be effective at the beginning of
the business day on which such change is announced; or,
[_] _____% over the ___________________________________________________________
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
FIXED RATE [_] Applicable at _____% per annum, simple interest. [_] Not Applicable.
LATE CHARGE FEE [_] If checked here, if a payment is late, you will be charged 5% of the payment.
SERVICE FEE A service fee of the lesser of $50.00 or 2 percent of the principal amount of this loan,
which will not be refunded in the event of prepayment.
</TABLE>
In the event any Instalment of principal or interest or any part thereof is
not paid when it becomes due, or in the event of any default thereunder, the
principal sum remaining unpaid hereunder, together with all accrued and past due
interest thereon, shall immediately and without notice become due and payable at
the election of the holder at any time thereafter.
-20-
<PAGE>
Notwithstanding any rate of interest provided herein, the interest rate on
any payment or payments of principal or interest, or any part thereof, which is
not made when due shall, thereafter, be at the maximum rate allowed, from time
to time, by law. Minimum interest of $10.00 on any single payment loan or $15.00
on any installment loan will be charged on loans not exceeding $50,000.
This note is [_] SECURED [_] UNSECURED (Notwithstanding the fact that this
note is marked 'unsecured',
Maker understands and agrees that any other security interest the Bank now holds
or may hereafter acquire from the Maker may secure this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: all accounts, contract rights, inventory and equipment of Borrower
------------------------------------------------------------------
(including all cash, stock and other dividends and all rights to subscribe for
securities incident to, declared, or granted in connection with such property
and including any returned or unearned premiums from any insurance financed
hereunder), which property, together with all additions and substitutions
hereafter pledged or deposited with Bank is called the Collateral. The
Collateral is also pledged as security for all other liabilities (primary,
secondary, direct, contingent, sole, joint, or several), due or to become due or
which may be hereafter contracted or acquired, of each Maker (including each
Maker and any other person) to Bank. The surrender of this note, upon payment
or otherwise, shall not affect the right of Bank to retain the Collateral for
such other liabilities.
Maker understands and agrees that the additional agreements and provisions
on the reverse side hereof, hereby incorporated by reference, constitute
agreements of the Maker and a part of this note. Maker acknowledges receipt of
a completed copy of this note.
- --------------------------------------------------------------------------------
NOTICE TO COSIGNER: You are being asked to guarantee this debt. Think
carefully before you do. If the Borrower doesn't pay the debt, you will have
to. Be sure you can afford to pay if you have to, and that you want to accept
this responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you
that can be used against the borrower, such as suing you, garnishing your wages,
etc. If this debt is ever in default, that fact may become a part of your
credit record.
This notice is not the contract that makes you liable for the debt.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
COMPUTER SCIENCE INNOVATIONS, INC., a
Florida Corporation
Address: 1280 Clearmont St., N.E. By: /s/ John Blohm (Seal) 8 January 1991
--------------------------------------- --------------
Palm Bay, FL 32905 John A. Blohm, President Date
By: /s/ James C. Schaffer (Seal)
---------------------------------------
James C. Schaffer Exec. Vice-President 8 January 1991
--------------
Date
</TABLE>
================================================================================
-21-
<PAGE>
Sun Bank [logo]
PROMISSORY NOTE
$1,000,000.00 January 8, 1991
- ------------- ---------------
The undersigned (whether one or more hereinafter called "Maker"), jointly
and severally, promise(s) to pay to the order of Sun Bank, National Association
------------------------------
(herein called "Bank") at its offices located at Melbourne Florida, ONE MILLION
-----------
and 00/100 DOLLARS ($1,000,000.00), together with interest from the date hereof
- ----------
at the rate hereinafter provided, and applicable fees in the following manner:
REPAYMENT SCHEDULE:
<TABLE>
<S> <C>
[_] Single Payment Principal Due in Full On:_______________________________________________________
Interest Payable:_______________________________________________________________
[_] Instalment Payment (Including interest): In ___________ ____________________________________
(No.) (Period)
Installments of $___________ commencing on ___________, 19__, and on the same day
of each successive ___________ thereafter, together with FINAL PAYMENT of
$___________, due and payable on ______________, 19__.
[_] Instalment Payment (plus interest): ___________ ________________________________
(No.) (Period)
Principal installments of $___________, plus interest, commencing on ___________,
19__, and on the same day of each successive ___________ thereafter, together with
a FINAL PAYMENT of $___________, plus accrued interest due and payable on
______________, 19__.
[_] Multiple Payment Principal and interest are payable as follows:__________________________________
________________________________________________________________________________
________________________________________________________________________________
[_] ON DEMAND Principal payable ON DEMAND with interest payable monthly commencing on February 1,
------- ----------
1991 and each month thereafter.
---- -----
</TABLE>
THE INTEREST RATE IS AS FOLLOWS: [_] If checked here, the interest rate
provided herein shall be computed on the basis of a 360 day year and shall be
calculated for the actual number of days elapsed.
VARIABLE INTEREST RATE:
[_] Not Applicable
[X] Applicable, provided however that the interest rate charged hereunder
shall never exceed the maximum rate allowed, from time to time, by
law.
If applicable, the interest rate stated herein shall, from time to time,
automatically increase or decrease so that at all times it shall be equivalent
to (check appropriate box and complete):
[X] .75% over the annual interest rate announced by Sun Banks, Inc., from time
to time, as the prime rate (which interest rate is only a bench mark, is
purely discretionary and is not necessarily the best or lowest rate charged
borrowing customers of any subsidiary ban of Sun Banks, Inc.). Any such
change in prime rate will increase or decrease your periodic interest.
payments. Any change in prime rate shall be effective at the beginning of
the business day on which such change is announced; or,
[_] _____% over the ___________________________________________________________
________________________________________________________________________________
<TABLE>
<S> <C>
FIXED RATE [_] Applicable at _____% per annum, simple interest. [_] Not Applicable.
LATE CHARGE FEE [_] If checked here, if a payment is late, you will be charged 5% of the payment.
SERVICE FEE A service fee of the lesser of $50.00 or 2 percent of the principal amount of this
loan, which will not be refunded in the event of prepayment.
</TABLE>
In the event any installment of principal or interest or any part thereof
is not paid when it becomes due, or in the event of any default thereunder, the
principal sum remaining unpaid hereunder, together with all accrued and past due
interest thereon, shall immediately and without notice become due and payable at
the election of the holder at any time thereafter.
-22-
<PAGE>
Notwithstanding any rate of interest provided herein, the interest rate on
any payment or payments of principal or interest, or any part thereof, which is
not made when due shall, thereafter, be at the maximum rate allowed, from time
to time, by law. Minimum interest of $10.00 on any single payment loan or $15.00
on any instalment loan will be charged on loans not exceeding $50,000.
This note is [_] SECURED [_] UNSECURED (Notwithstanding the fact that this
note is marked 'unsecured', Maker understands and agrees that any other security
interest the Bank now holds or may hereafter acquire from the Maker may secure
this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: all accounts, inventory and equipment of Borrower
-------------------------------------------------
(including all cash, stock and other dividends and all rights to subscribe for
securities incident to, declared, or granted in connection with such property
and including any returned or unearned premiums from any insurance financed
hereunder), which property, together with all additions and substitutions
hereafter pledged or deposited with Bank is called the Collateral. The
Collateral is also pledged as security for all other liabilities (primary,
secondary, direct, contingent, sole, joint, or several), due or to become due or
which may be hereafter contracted or acquired, of each Maker (including each
Maker and any other person) to Bank. The surrender of this note, upon payment
or otherwise, shall not affect the right of Bank to retain the Collateral for
such other liabilities.
Maker understands and agrees that the additional agreements and provisions
on the reverse side hereof, hereby incorporated by reference, constitute
agreements of the Maker and a part of this note. Maker acknowledges receipt of
a completed copy of this note.
- --------------------------------------------------------------------------------
Notice to Cosigner: You are being asked to guarantee this debt. Think
carefully before you do. If the Borrower doesn't pay the debt, you will have
to. Be sure you can afford to pay if you have to, and that you want to accept
responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you
that can be used against the borrower, such as suing you, garnishing your wages,
etc. If this debt is ever in default, that fact may become a part of your
credit record.
This notice is not the contract that makes you liable for the debt.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
COMPUTER SCIENCE INNOVATIONS, INC., a
Florida Corporation.By:
Address: 1280 Clearmont St., N.E. By: /s/ John Blohm (Seal) 8 January 1991
--------------------------------------- --------------
Palm Bay, FL 32905 John A. Blohm, President Date
By: /s/ James C. Schaffer (Seal) 8 January 1991
--------------------------------------- --------------
James C. Schaffer, Exec. Vice-President Date
</TABLE>
================================================================================
-23-
<PAGE>
If the variable interest rate is not applicable and if this note is payable
on demand, Bank reserves, and is hereby granted the right, to adjust the
interest rate from time to time by furnishing Maker with written notice of such
adjusted rate, provided, however, that no such adjusted rate shall exceed the
maximum rate allowed, from time to time, by law.
Additions to, reductions or exchanges of, or substitutions for the
Collateral, payments on account of this note or increases of the same, or other
loans made partially or wholly upon the Collateral, may from time to time, be
made without affecting the provisions of this note.
If Bank deems itself insecure, or upon the happening of any of the
following events, each of which shall constitute a default hereunder, all
liabilities of each Maker to Bank shall thereupon or thereafter, at the option
of the Bank, without notice or demand, become due and payable: (a) failure of
any Obligor (which term shall mean and include each Maker, endorser, surety and
guarantor of this note) to perform any agreement hereunder, to pay interest
hereon when due or requested or demanded or to pay any other liability
whatsoever to Bank when due; (b) the death of any Obligor; (c) the filing of any
petition under the Bankruptcy Code or any similar federal or state statute, by
or against any Obligor; (d) an application for the appointment of a receiver or
the making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) the entry of a judgment against any Obligor; (f)
the issuing of any writ of attachment or writ of garnishment, or the filing of
any lien, against the property of any Obligor; (g) the taking of possession of
any substantial part of the property of any Obligor at the instance of any
governmental authority; (h) the dissolution, merger, consolidation, or
reorganization of any Obligor; (i) the assignment by any Maker of any equity in
any of the Collateral without the written consent of Bank.
Bank is hereby given a lien upon and a security interest in all property of
each Maker now or at any time hereafter in the possession of Bank in any
capacity whatsoever, including but not limited to any balance or share of any
deposit, trust, or agent account as security for the payment of this note, and a
similar lien upon and security interest in all such property of each Maker as
security for the payment of all other liabilities of each Maker to Bank
(including liabilities of each Maker and any other person); and Bank shall have
the same rights as to such property as it has with respect to the Collateral.
If Bank deems itself insecure or upon the occurrence of any default
hereunder Bank shall have the remedies of a secured party under the Uniform
Commercial Code and, without limiting the generality of the foregoing, Bank
shall have the right, immediately and without further action by it, to set off
against this note all money owed by Bank in any capacity to each or any Obligor,
whether or not due, and also to set off against all other liabilities of each
Maker to Bank all money owed by Bank in any capacity to each or any Maker; and
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
even though such a charge is made or entered on the books of Bank subsequent
thereto. Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, the Bank will
give Maker reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or any other intended disposition
thereof is to be made. The requirement of reasonable notice shall be met if
such notice is mailed, postage prepaid, to any Maker at the address given below
or at any other address shown on the records of the Bank, at least five days
before the time of the sale or disposition. Upon disposition of any Collateral
after the occurrence of any default hereunder, Maker shall be and remain liable
for any deficiency; and Bank shall account to Maker for any surplus, but Bank
shall have the right to apply all or any part of such surplus (or to hold the
same as a reserve against) any and all other liability of each or any Maker to
bank. The Obligors, jointly and severally, promise and agree to pay all costs
and expenses of collection and reasonable attorneys' fee, including costs,
expenses and reasonable attorneys' fees on appeal, if collected by legal
proceedings or through an attorney at law. Maker hereby waives any right to a
trial by jury in any civil action arising out of, or based upon, this note or
the Collateral.
Bank shall exercise reasonable care in the custody and preservation of the
Collateral to the extent required by applicable statute and shall be deemed to
have exercised reasonable care if it takes such action for that purpose as Maker
shall reasonably request in writing, but no omission to do any act not requested
by Maker shall be deemed a failure to exercise reasonable care, and no omission
to comply with any request of Maker shall of itself be deemed a failure to
exercise reasonable care. Bank shall not be bound to take any steps necessary
to preserve any rights in the Collateral against prior parties and Maker shall
take all necessary steps for such purposes. Bank or its nominee need not
collect interest on or principal of any Collateral or give any notice with
respect to it.
If the Collateral shall at any time become unsatisfactory to Bank, Maker
shall within one day after demand pledge and deposit with Bank as part of the
Collateral additional property which is satisfactory to Bank.
Bank shall have the right, which may be exercised at any time whether or
not this note is due, to notify the Obligors on any collateral to make payment
to Bank on any amounts due or to become due thereon. In the event of any
default hereunder, Bank shall thereafter have, but shall not be limited to, the
following rights: (i) to pledge or transfer this note and the Collateral and
Bank shall thereupon be relieved of all duties and responsibilities hereunder
and relieved from any and all liability with respect to any Collateral so
pledged or transferred, and any pledgee or transferee shall for all purposes
stand in the place of Bank hereunder and have all the rights of Bank hereunder;
(ii) to transfer the whole or any part of the Collateral into the name of itself
or its nominee; (iii) to vote the Collateral; (iv) to demand, sue for, collect,
or make any compromise or settlement it deems desirable with reference to the
Collateral; and (v) to take control of any proceeds of Collateral.
-24-
<PAGE>
No delay or omission on the part of Bank in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this note.
Presentment, demand, protest, notice of dishonor, and extension of time without
notice are hereby waived by each and every Obligor. Any notice to Maker shall
be sufficiently served for all purposes if placed in the mail, postage prepaid,
addressed to or left upon the premises at, the address shown below or any other
address shown on the Bank's records.
- --------------------------------------------------------------------------------
GUARANTY
In addition to the liability as endorsers, which the undersigned hereby
assume, for value received and intending to be legally bound, the undersigned
(and if more than one, each of them jointly and severally) (a) hereby become
surety to the payee of the within note, its successors, endorsees and assigns,
for the payment of the within note, and hereby unconditionally guarantee the
payment of the within note and all extensions or renewals thereof and all sums
payable under or by virtue thereof including, without limitation, all amounts of
principal and interest and all expenses (including attorney's fees) incurred in
the collection thereof, the enforcement of rights thereunder or with respect to
any security therefor and the enforcement thereof, and waive presentment,
demand, notice of dishonor, protest and all other notices whatsoever; and (b)
consent and agree (i) that all or any of the Collateral may be exchanged,
released, surrendered or sold from time to time, (ii) that the payment of the
note, or any of the liabilities of the Maker thereof, may be extended or said
note renewed any number of times and for any period (whether or not longer than
the original period of said note), (iii) that the holder of said note may grant
any releases, compromises or indulgences with respect to said note or any
extensions or renewals thereof or any security therefor or to any party liable
thereunder or hereunder (including but not limited to failure or refusal to
exercise one or more of the rights or remedies provided by said note), and (iv)
that any of the provisions of said note may be modified; all without notice to
or consent of and without affecting the liability of the undersigned as
endorsers and sureties, and further consent and agree that any of the
undersigned may be sued by the holder hereof with or without joining any of the
other endorsers or makers of said note and without first or contemporaneously
suing any such other persons, or otherwise seeking or proceeding to collect from
them or any of them, and without first or contemporaneously undertaking to
enforce any rights with respect to any security.
- --------------------------------------------------------------------------------
The undersigned acknowledges having received and read the NOTICE TO CO-
SIGNER appearing on the reverse side hereof.
- --------------------------------------------------------------------------------
____________________________(DATE) ____________________________(SEAL)
____________________________(DATE) ____________________________(SEAL)
____________________________(DATE) ____________________________(SEAL)
FLORIDA DOCUMENTARY STAMP TAX REQUIRED BY LAW IN THE AMOUNT OF $____________ HAS
BEEN PAID OR WILL BE PAID DIRECTLY TO THE DEPARTMENT OF REVENUE. CERTIFICATE OF
REGISTRATION # _____.
-25-
<PAGE>
Sun Bank [logo]
CORPORATE BORROWING RESOLUTION
SUN BANK, NATIONAL ASSOCIATION
------------------------------
(Name of Bank)
I, the undersigned, hereby certify to said Bank that I am the duly elected
Secretary of COMPUTER SCIENCE INNOVATIONS, INC., A Florida Corporation Located
at Palm Bay City; Florida State, a corporation duly organized and existing under
------------- -------
the laws of the State of Florida; that the following is a true and correct copy
-------
of resolutions adopted by the board of directors of said corporation at a
meeting duly held on the 6th day of August, 1990; that said meeting was called
--- ------ --
and held pursuant to law at which a quorum was present; and that said
resolutions are in full force and effect and have not been rescinded or
modified.
RESOLVED, that the following officers (insert titles only) President and
-------------
Executive Vice-President of this corporation, or any (insert number required to
- ------------------------
sign) 2 of them are hereby authorized; from time to time; to borrow money on
-
behalf of this corporation from said Bank in such amounts, for such lengths of
time and at such rates of interest and upon such terms and conditions as said
officer or officers may deem expedient, provided that the aggregate amount of
such borrowing, pursuant to this resolution, shall not at any one time exceed
the sum of ONE MILLION and 00/100 Dollars ($1,000,000.00), in addition to such
---------------------- ------------
amounts as may be otherwise authorized; to execute and deliver to said Bank, in
the name of and on behalf of this corporation, negotiable or non-negotiable
notes or demands, letters of credit and other like obligations of this
corporation, indemnity agreements, guaranty agreements and other agreements,
assignments, endorsements, hypothecations and warehouse and other type receipts,
and any and all other instruments or documents considered by said Bank to be
necessary or proper in connection with any transaction, or transactions, between
or through said Bank and this corporation; to sell, re-register, pledge,
hypothecate, assign, transfer or set over, as security or otherwise for any
notes or obligations of this corporation, any and all properties, securities or
other assets now or hereafter belonging to this corporation, and to discount to
said Bank any and all such notes and other obligations issued to or owned by
this corporation, and to endorse same for such purpose, and that the said Bank
shall not be responsible for or required to see to the application of any of the
funds of this corporation deposited with or checked out, or borrowed from it, or
secured by the discount of notes and obligations to it as hereinbefore provided,
and all such transactions shall be conclusively presumed to be legally binding
upon this corporation; and
FURTHER RESOLVED, that the foregoing officers are hereby authorized, from
time to time, to enter in and sign on behalf of this corporation, an agreement
or agreements, as they may be amended or supplemented from time to time, and
such further documents as may be contemplated thereby, for the lease of
equipment from Lender, for such equipment, for such length of time, for such
rental and upon such terms and conditions as said officer or officers may deem
expedient from time to time, provided that the aggregate amount of rent payable
under all such leases of equipment shall not exceed $ N/A ; and
---
FURTHER RESOLVED, that the Secretary (or any other officer of this
corporation) shall certify to said Bank the names of the presently duly elected
and qualified officers of this corporation and shall from time to time hereafter
as changes in the personnel of said officers are made, immediately certify such
changes to the Bank, and said Bank shall be fully protected in relying on such
certifications and shall be indemnified and saved harmless from any claims,
demands, expenses, loss, or damage resulting from, or growing out of, honoring
the signature of any officer so certified, or refusing to honor any signature
not so certified; and
FURTHER RESOLVED, that the foregoing resolutions shall remain in full force
and effect until express written notice of their prospective amendment of
rescission shall have been furnished to and received by said Bank, and that
receipt of such notice shall not affect any action taken by the Bank prior
thereto; and
FURTHER RESOLVED, that the Secretary be, and he hereby is authorized and
directed to certify to said Bank the foregoing resolutions and to certify that
the provisions thereof are in conformity with the Charter and By-laws of this
corporation and that said resolutions are in full force and effect and have not
been rescinded or modified.
I further certify that there is no provision in the Charter or By-laws of
said corporation limiting the power of the Board of Directors to pass the
foregoing resolutions; that the same are in conformity with the provisions of
said Charter and By-laws; and that I am the custodian of the minutes of said
Board of Directors.
I further certify that the following are the names and official signatures
of the duly elected, qualified and acting officers of said corporation: and that
the corporate seal impressed hereon is the true corporate seal of said
corporation.
-26-
<PAGE>
NAME OFFICIAL SIGNATURE
President John A. Blohm /s/ John Blohm
---------------------------- ------------------------------
Exec. Vice President James C. Schaffer /s/ James C. Schaffer
----------------- ------------------------------
Vice-President ______________________________
Secretary ____________________________ ______________________________
Assistant Secretary __________________ ______________________________
Treasurer ____________________________ ______________________________
Assistant Treasurer __________________ ______________________________
IN WITNESS WHEREOF, I have hereunto subscribed my name as Secretary and
affixed the seal of said corporation, pursuant to due and lawful corporate
authority this the 8th day of January, 1991.
--- ------- --
(Corporate Seal) /s/ James C. Schaffer
------------------------------
Secretary James C. Schaffer
-27-
<PAGE>
___________________________
Contract No.
SECURITY AGREEMENT
(INVENTORY AND ACCOUNTS)
THIS ASSIGNMENT AND AGREEMENT made January
---------------------------,
1991, by and between SUN BANK, NATIONAL ASSOCIATION
-- ---------------------------------------------------
(Name of Secured Party)
herein called "Bank", and
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation
-----------------------------------------------------------------------------
(Name(s) of Borrower(s))
of 1280 Clearmont Street, N.E., Palm Bay Brevard County, Florida
---------------------------------------------------------------------------
(Name and Street) (City) (County) (State)
herein called "Borrower",
In consideration of loans or advances made or to be made by Bank to
Borrower, and for other value received by Borrower, the parties hereto,
intending to be legally bound, agree as follows:
1. As used herein: (a) "Account" means an immediate right to payment for
goods sold and for goods leased and for services rendered, or any of them, and
includes a right to payment under a contract whether or not it has been earned
by performance. "Qualified Account" means an Account which has been due less
than ninety (90) days; (b) "Inventory" means goods held for sale or lease or
-----------
being processed for sale or lease in Borrower's business, as now or hereafter
conducted, including all materials, goods and work in process, finished goods,
and other tangible property now owned or hereafter acquired and held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Borrower's business; (c) "Goods" means all articles of tangible
personal property, sold, supplied, or otherwise disposed of, represented by an
Account; (d) "Purchaser" includes the buyer of goods from Borrower, the customer
for which services have been rendered or materials furnished by Borrower, or the
party with whom Borrower has contracted; (e) "Borrower" includes all
corporations and all individuals executing this agreement as parties hereto and
all members of a partnership when Borrower is a partnership, each of whom shall
be jointly and severally liable individually and as partners hereunder; (f)
"security interest" means an interest in property which secures payment or
performance of an obligation; (g) "liability" or "liabilities" includes all
liabilities (primary, secondary, direct, contingent, sole, joint or several) due
or to become due or that may be hereafter contracted or acquired, of Borrower
(including any Borrower and any other person) to Bank.
2. Bank will from time to time hereafter lend Borrower, on the security
of Accounts and Inventory, or any of them, acceptable to Bank, such amounts as
Bank may determine from time to time, at such rates of interest and payable and
on such terms as Bank may from time to time specify or require, and Bank may
require that such loans, or any of them, be evidenced by one or more promissory
notes of the Borrower in form satisfactory to Bank. For the convenience of the
Borrower, the Bank may make loans and advances to the Borrower under any
promissory note the principal face amount of which is in excess of the actual
unpaid principal balance at such time.
3. As security for the payment of all loans and advances now or in the
future made hereunder and for all Borrower's liabilities, including any
extensions, renewals, or changes in form of any thereof, Borrower hereby assigns
to Bank and grants to Bank a security interest in: (a) all Accounts and
Inventory owned by Borrower at the date of this agreement; (b) all Accounts and
Inventory at any time hereafter acquired by Borrower; and (c) all proceeds of
all such Accounts and Inventory.
4. So long as any liability to Bank is outstanding, Borrower will not
without the prior written consent of Bank borrow from anyone except Bank on the
security of, or pledge or grant any security interest in, any Account or any of
Borrower's Inventory to anyone except Bank, or permit any lien or encumbrance to
attach to any of the foregoing, or any levy to be made thereon, or any financing
statement (except Bank's financing statement) to be on file with respect
thereto.
5. Borrower represents and warrants that the location where it keeps the
bulk of its Inventory is at the address specified in the preamble to this
agreement, unless a different address has been specified in the following space:
Same
---------------------------------------------------------------------------
(No. and Street) (City) (County) (State)
-28-
<PAGE>
and that the office where it keeps its records concerning all of its Accounts is
at the address specified in the preamble to this agreement, unless a different
address has been specified in the following space:
Same
---------------------------------------------------------------------------
(No. and Street) (City) (County) (State)
Borrower will immediately notify Bank in writing of any change in the location
of the place of business where the bulk of its Inventory is located or any
change in the location of the place of business where the records concerning its
Accounts are kept.
6. Borrower will (a) maintain Accounts and Inventory in such quantities
that at all times 70 % of the face amount of its Qualified Accounts, less
----
allowable discount, plus 0 % of the cost or wholesale market value, whichever
---
is lower, of its Inventory, plus 100% of the balance in the Cash Collateral
Account hereinafter referred to, or such other percentages thereof as may from
time to time be fixed by Bank upon notice to Borrower, shall be at least equal
to Borrower's liabilities to Bank; and Borrower will pay to Bank, in reduction
of its liabilities, such sums as may be necessary from time to time to maintain
such ratio; (b) collect its Accounts and sell its Inventory only in the ordinary
course of business; (c) furnish Bank at the time of each borrowing, and at such
other intervals as Bank may prescribe, with a Borrower's Certificate (in such
form as Bank may from time to time specify or require) showing the aggregate
face amount of its Qualified Accounts and the aggregate cost and wholesale
market value of its Inventory; (d) keep accurate and complete records of its
Accounts and Inventory; (e) pay and discharge when due all taxes, levies and
other charges on its Inventory; (f) keep its Inventory insured in amounts not
less than the full insurable value thereof, for the benefit of Bank (to whom
loss shall be payable by New York Standard or Union Standard endorsements), in
such companies and against such risks as may be satisfactory to or required by
Bank; pay the cost of all such insurance; and deliver certificates evidencing
such insurance to Bank; and Borrower assigns to Bank all right to receive
proceeds of such insurance.
7. Unless Bank notifies Borrower in writing that it dispenses with any
one or more of the following requirements, Borrower will (a) give Bank
assignments, in form acceptable to Bank, of specific Accounts or groups of
Accounts, and of moneys due and to become due under specific contracts; (b)
furnish to Bank a copy of the invoice applicable to each Account assigned to
Bank or arising out of a contract, bearing a statement that such Account has
been assigned to Bank and such additional statements as Bank may require; (c)
furnish Bank at the time of each borrowing, and at such other intervals as Bank
may prescribe or require, with a schedule (in such form as Bank may from time to
time specify or require) of Borrower's Inventory and Qualified Accounts which
describe the same, or such thereof as Bank may require, together with such other
information relating thereto as the Bank may specify or require; (d) make no
change in any assigned Accounts or in any Account arising out of a contract
assigned to Bank, and make no material change in the terms of any such contract;
(e) furnish to Bank all information received by Borrower affecting the financial
standing of any Purchaser whose Account has been assigned to Bank; (f) receive
as the sole property of Bank and hold as trustees for Bank all moneys, checks,
notes, drafts, and other property (herein called "items of payment")
representing the proceeds of any Account or Inventory in which Bank has a
security interest, which comes into the possession of Borrower; and deposit all
such items of payment immediately in the exact form received in a special
account of Borrower in Bank entitled "Cash Collateral Account" in which account
Bank shall have a security interest to secure all Borrower's liabilities and
with respect to which account Bank alone shall have power of withdrawal; (g) pay
Bank the amount loaned against any Account assigned to Bank where the goods are
returned by the Purchaser, or where the contract is canceled or terminated; (h)
immediately notify Bank if any of its contracts arise out of contracts with the
United States or any department, agency, or instrumentality thereof, and execute
any instruments and take any steps required by Bank in order that all moneys due
and to become due under any such contract shall be assigned to Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act; (i)
deliver to Bank with appropriate endorsement or assignment, as Bank may require,
any instrument or chattel paper representing an Account. Any permission granted
to Borrower by Bank to omit any of the requirements of this paragraph 7 may be
revoked by Bank at any time.
8. Borrower will promptly, if requested by Bank, (a) mark its records
evidencing its Accounts in a manner satisfactory to Bank so as to show the same
have been assigned to Bank; (b) pay Bank the unpaid portion of any assigned
Account if Bank shall at any time reject the Account as unsatisfactory, which
right Bank shall have and may exercise at any time and for any reason
whatsoever, and until such payment is made by Borrower, Bank may retain any such
Account as security and may charge any deposit account of Borrower with any such
amounts; (c) join with Bank in executing a financing statement, notice
affidavit, or similar instrument in form satisfactory to Bank, and such other
instruments as Bank may from time to time request; and pay the cost of filing
the same in any public office deemed advisable by Bank; and (d) give Bank such
financial statements, reports, certificates, lists of Purchasers (showing names,
addresses, and amounts owing), and other data concerning its Accounts,
contracts, collections, inventory and other matters as Bank may from time to
time specify; and permit Bank or its nominee to examine all of Borrower's
records relating thereto at any time, and to make extracts therefrom, and to
inspect and check Borrower's Inventory.
9. Borrower warrants (a) in connection with each Account covered by the
agreement: (i) it constitutes a Qualified Account as defined herein is not
evidenced by a judgment, an instrument or chattel paper (except such judgment as
has been assigned to Bank, and except such instrument or chattel paper as has
been endorsed and delivered to Bank), and represents a bona fide transaction and
Borrower has possession of (and will promptly deliver to Bank upon Bank's
request) or has delivered to Bank shipping or delivery receipts evidencing
shipment or delivery of the goods and, if representing services, the services
have been fully performed; (ii) the amount shown on Borrower's books and on any
invoice or statement delivered to Bank is owing to Borrower; (iii) the title
-29-
<PAGE>
of Borrower to the Account and, except as against the Purchaser, to any goods is
absolute; (iv) the Account has not been transferred to any other person, and no
person, except Borrower, has any claim thereto, or, with the sole exception of
Purchaser, to the goods; (v) no partial payment has been made by anyone; and
(vi) no set-off or counterclaim to such Account exists and no agreement has been
made with any person under which any deduction or discount may be claimed,
except regular discounts allowed by Borrower for prompt payments; (vii) it
arises under an existing binding written contract between Borrower and
Purchaser; and (b) in connection with its Inventory: that Borrower is and will
be the absolute owner thereof, free and clear of all encumbrances and security
interests other than the Bank's security interest.
10. Borrower shall pay Bank such interest as may be specified in any note
evidencing a loan or advance made hereunder and such service charges as may be
agreed upon and shall pay to Bank all costs and expenses, including attorneys'
fees, incurred by it in the preservation or collection of collateral. Changes
in interest rate and service charges may be made by Bank from time to time,
notwithstanding the interest rate specified in any note evidencing a loan or
advance hereunder, upon notice to Borrower and shall become effective on the
date therein specified.
11. Bank shall have the right at any time and from time to time, without
notice, to (a) apply any part or all the moneys in the Cash Collateral Account
representing collected items against any liability of borrower to Bank, and Bank
shall upon demand by Borrower make such application against such liability or
liabilities as Bank may itself select; (b) release to Borrower such part of the
moneys in the Cash Collateral Account as Bank may elect; (c) charge to
Borrower's deposit account any item of payment credited to the Cash Collateral
Account which is dishonored by the drawee or maker thereof; (d) endorse all
items of payment which may come into its hands payable to Borrower; (e) notify
Purchasers that Accounts have been assigned to Bank, forward invoices to
Purchasers, directing them to make payments to Bank, collect all Accounts in its
or Borrower's name, and take control of any cash or non-cash proceeds of
Accounts and of any Inventory; (f) compromise, extend, or renew any Account or
deal with the same as it may deem advisable; (g) make exchanges, substitutions
or surrenders of collateral; (h) insure inventory to its satisfaction if
Borrower fails to do so and pay for the same, and pay, for the account of
Borrower, any taxes, levies, or other charges affecting Borrower's inventory or
upon or on account of the Security Agreement or any liability or any writing
evidencing any liability, which Borrower fails to pay, and any such payment
shall constitute a liability of Borrower.
12. Until default, Borrower may use its inventory in any lawful manner not
inconsistent with this agreement and with the terms of insurance thereon; may
sell its inventory in the ordinary course of business; and may use and consume
any raw materials or supplies, the use and consumption of which is necessary in
order to carry on Borrower's business.
13. If at any time any warranty, representation, certificate or statement
of Borrower is not true, or if any liability or any part or instalment thereof
or interest thereon is not paid when due, or if any event of default as defined
in any note or other evidence of liability held by Bank should occur, or if
Borrower should fail to observe or perform any agreement or term hereof, or if
Bank at any time feels insecure for any reason whatsoever, Bank may, at its
option, thereupon or thereafter declare all liabilities of Borrower to Bank, or
any of them selected by Bank (notwithstanding any provisions thereof),
immediately due and payable without demand or notice of any kind and the same
thereupon shall immediately become and be due and payable without demand or
notice (but with such adjustments, if any, with respect to interest or other
charges as may be provided for in the promissory note or other writing
evidencing such liability), and Bank may, in addition to any other rights and
remedies which it may have, immediately and without demand, exercise any and all
the rights and remedies granted to a secured party upon default under the
Florida Uniform Commercial Code; and upon request or demand of Bank, Borrower
shall, at its expense, assemble Borrower's Inventory and make it available to
Bank at a convenient place acceptable to Bank; and Borrower shall promptly pay
to Bank any and all costs and expenses, including legal expenses and reasonable
attorney's fees incurred or paid by Bank in protecting and enforcing liabilities
and the rights of Bank hereunder, including Bank's right to take possession of
Borrower's Inventory and the proceeds of Accounts and Inventory, and to hold,
prepare for sale, sell and dispose of such Inventory. Any notice of sale,
disposition or other intended action by Bank, sent to Borrower at the address
specified in the preamble to this agreement, or such other address of Borrower
as may from time to time be shown on Bank's records, at least five days prior to
such action, shall constitute reasonable notice to Borrower. Upon disposition
by Bank of any property in which Bank has a security interest hereunder, or upon
collection by Bank of the proceeds of Accounts, Borrower shall be and remain
liable for any deficiency; and Bank shall account to Borrower for any surplus,
but Bank shall have the right to apply all or any part of such surplus (or to
hold the same as a reserve against) all or any liabilities of Borrower to Bank,
whether or not they, or any of them, be then due, without marshalling of assets
and in such order of application as Bank may from time to time elect.
14. Borrower waives protest of all commercial paper at any time held by
Bank on which borrower is in any way liable, notice of non-payment at maturity
of any and all Accounts, and except where required hereby or by law, notice of
action taken by Bank; and hereby ratifies and confirms whatever Bank may do.
15. No waiver by Bank of any default shall operate as a waiver of any
other default or of the same default on a future occasion. No delay or omission
on the part of Bank in exercising any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by Bank of any right or remedy shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. Time is of the essence of this agreement. The provisions of
this agreement are cumulative and in addition to the provisions of any liability
and any note or other writing evidencing any liability secured by this
agreement, and Bank shall have all
-30-
<PAGE>
the benefits, rights and remedies of and under any liability and any note or
other writing evidencing any liability secured hereby. If more than one party
shall execute this agreement, the term "Borrower" shall mean all parties signing
this agreement and each of them, and all such parties shall be jointly and
severally obligated and liable hereunder. The singular pronoun, when used
herein, shall include the plural, and the neuter shall include the masculine and
feminine. All rights of Bank hereunder shall inure to the benefit of its
successors and assigns; and all obligations of Borrower shall bind the heirs,
executors, administrators, successors and assigns of each Borrower.
16. Borrower releases Bank from all claims for loss or damage caused by
any failure to collect any account or enforce any contract or by any act or
omission on the part of Bank, its officers, agents and employees, except willful
misconduct.
17. This agreement may be terminated by either party giving the other
written notice of intention to terminate on a date named in said notice, mailed
to the last known address of the party to whom such notice is addressed; but no
such termination shall in any way affect the rights and liabilities of the
parties hereunder relating to loans or advances made, Accounts, Inventory or
other property pledged prior to the date named in such notice.
18. This agreement has been delivered in the State of Florida and shall be
construed in accordance with the laws of Florida. Wherever possible, each
provision of this agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
agreement.
IN WITNESS WHEREOF, this agreement has been duly executed as of the date
hereinabove first written.
Signed, sealed and delivered in COMPUTER SCIENCE INNOVATIONS, INC.,
the presence of a Florida Corporation
By: /s/ John Blohm (SEAL)
________________________________ ---------------------------
John A. Blohm, President
By: /s/ James C. Schaffer (SEAL)
________________________________ ----------------------------
James C. Schaffer, Executive
Vice-President
(CORPORATE SEAL)
ATTEST: Sun Bank, National Association
(Name of Bank)
________________________________ By:_____________________________(SEAL)
As its Cashier As its President
BANK
-31-
<PAGE>
SUN
BANK [LOGO]
___________________
Contract No.
SECURITY AGREEMENT
(EQUIPMENT AND CONSUMER GOODS)
COMPUTER SCIENCE INNOVATIONS, INC., a Florida Corporation
----------------------------------------------------------------------------
(Name(s) of Borrower(s))
(and if more than one, each of them jointly and severally), hereinafter called
"Borrower", of 1280 Clearmont Street, N.E.,Palm Bay Brevard County,
-------------------------------------------------------------
(No. and Street) (City) (County)
Florida ,for value received and intending to be legally
- -----------------
(State)
bound, hereby grants to SUN BANK, NATIONAL ASSOCIATION
-------------------------------------------------------,
(Name of Secured Party)
Florida, hereinafter called "Secured Party", a security interest in the
following property: All equipment of Borrower
----------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturer or Model Number Manufacturer's
New or Used Year/Model Make (Trade Name) Description of Collateral or Series Serial No.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
together with all increases, parts, fittings, accessories, equipment, and
special tools now or hereafter affixed to any or any part thereof or used in
connection with any thereof, and all replacements of all or any part thereof
plus any returned or unearned premiums from any insurance financed by the
Secured Party in conjunction with this transaction (all of which is hereinafter
called "Collateral"), to secure the payment of a promissory note or notes
executed by Borrower in the amount of ONE MILLION and 00/100
---------------------------------------
Dollars ($1,000,000.00), of even date herewith, and any and all extensions,
------------
modifications or renewals thereof, and also to secure the performance by
Borrower of the agreements hereinafter set forth, and all other liabilities or
obligations (primary, secondary, direct, contingent, sole, joint or several)
due, or to become due or which may be hereafter contracted or acquired of each
Borrower to Secured Party (the foregoing hereinafter being called the
"liabilities").
Borrower hereby agrees that:
<PAGE>
1. (a) Borrower is the owner of the Collateral clear of all liens and
security interests except the security interest granted hereby; (b) Borrower has
the right and power to make this Agreement; and (c) the Collateral is used or
acquired for use primarily for the purpose checked: [_] personal, family or
household purposes; [_] farm purposes; or [_] business purposes; and (d) if the
Collateral consists of "household goods" as defined in 12 C.F.R. 227.12(d) or if
otherwise checked here [_] then the Collateral is being acquired with the
proceeds of the loan provided for in or secured by this Agreement, and the
proceeds will be used for no other purpose, and Borrower hereby authorizes
Secured Party to disburse the proceeds or any part thereof directly to the
seller of the Collateral or to the insurance agent or broker, or both, as shown
on Secured Party's records.
2. (a) The Collateral will be kept at 1280 Clearmont Street, N.E.,
----------------------------
(No. and Street)
Palm Bay, Brevard County, FL or if left blank, at the address shown at the
- ----------------------------------
(City) (County) (State)
beginning of this agreement; Borrower will promptly notify Secured Party of any
change in the location of the Collateral within said state; and Borrower will
not remove the Collateral from said state without the written consent of Secured
Party. (b) if the Collateral is used or acquired for use primarily for personal,
family or household purposes, or for farm purposes, Borrower's residence in
Florida is that shown at the beginning of this agreement and Borrower will
immediately notify Secured Party of any change in the location of said
residence.
3. (a) If the Collateral is acquired or used primarily for business use
and is of a type normally used in more than one state, whether or not so used,
and Borrower has a place of business in more than one state, the chief place of
business of Borrower is: 1280 Clearmont Street, N.E., Palm Bay, Brevard
----------------------------------------------
(No. and Street)
County, Florida
- -----------------
(City) (County) (State)
or, if left blank, is that shown at the beginning of this agreement, and
Borrower will immediately notify Secured Party in writing of any change in
Borrower's chief place of business; and (b) if certificates of title are issued
or outstanding with respect to any of the Collateral, Borrower will promptly
cause the interest of Secured Party to be properly noted thereon and deliver
such certificates of title to Secured Party.
4. Borrower will defend the Collateral against the claims and demands of
all persons, other than Secured Party, at any time claiming the same or a ______
5. No Financing Statement covering any Collateral or any proceeds thereof
is on file in any public office; Borrower authorizes Secured Party to file, in
______ this authorization will be given effect, a Financing Statement signed
only by the Secured Party describing the Collateral in the same manner as it is
described ______ from time to time at the request of Secured Party, execute one
or more Financing Statements and such other documents (and pay the cost of
filing or recon______ public offices deemed necessary or desirable by the
Secured Party) and do such other acts and things, all as the Secured Party may
request to establish______ enforceable first priority security interest in the
Collateral (free of all other liens and claims whatsoever) to secure the payment
of the liabilities.
6. Borrower will not (a) permit any liens or security interest other than
Secured Party's security interest, to attach to any of the Collateral; (b)
permit a______ to be levied upon under legal process; (c) sell, transfer, lease,
or otherwise dispose of any of the Collateral or any interest therein, or offer
so to do, without the p______ of Secured Party; (d) permit anything to be done
that may impair the value of any of the Collateral or the security intended to
be afforded by this agreement ______ Collateral to be or become a fixture (and
it is expressly covenanted, warranted and agreed, that the Collateral, and every
part thereof, whether affixed to any re______ and remain personal property), or
to become an accession to other goods or property.
7. Borrower will (a) at all times keep the Collateral insured in amounts
not less than the full insurable value thereof, against loss, damage, theft, and
______ Secured Party may require in such companies, under such policies, in such
form and for such periods, as shall be satisfactory to Secured Party, and each
______provide, by New York Standard or Union Standard endorsement, that loss
thereunder and proceeds payable thereunder shall be payable to Secured Party
______ appear (and Secured Party may apply any proceeds of such insurance which
may be received by Secured Party toward payment of the liabilities, whether due
______ order of application as Secured Party may determine) and each such policy
shall provide for a minimum of 10 days written cancellation notice to Secured
Party ______ policy shall, if Secured Party so requests, be deposited with
Secured Party; and Secured Party may act as attorney for Borrower in obtaining,
adjusting, settling ______ such insurance and endorsing any drafts; (b) at all
times keep the Collateral free from any adverse lien, security interest, or
encumbrance and in good order and ______ waste or destroy the Collateral or any
part thereof.
8. (a) Borrower will not use the Collateral or permit the same to be used
in violation of any statute, law or ordinance; and Secured Party may examine
______ Collateral at any time, wherever located. (b) Borrower will pay promptly
when due all taxes
-33-
<PAGE>
and assessments upon the Collateral or for its use of operation or upon ______or
upon any note or notes or other writing evidencing the liabilities, or any of
them.
9. At its option, Secured Party may discharge taxes, liens or security
interests or other encumbrances at any time levied or placed on the Collateral
______ insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral. Borrower agrees to reimburse Secured Party on
demand for an______ or any expense incurred, by Secured Party, pursuant to the
foregoing authorization, together with interest thereon at the highest lawful
rate and each such pay______ thereon shall be secured by this Security
Agreement. Until default, Borrower may have possession of Collateral and use it
in any lawful manner not inco______ agreement and not inconsistent with any
policy of insurance thereon.
10. Borrower shall be in default under this agreement upon the happening
of any of the following events or conditions: (a) failure or omission to pay
when______ (or any instalment thereof or interest thereon), or default in the
payment or performance of any obligation, covenant, agreement, or liability
contained or referred______ any warranty, representation, or statement made or
furnished to Secured Party by or on behalf of any Borrower proves to have been
false in any material respects ______furnished; (c) loss, theft substantial
damage, destruction, sale, or encumbrance to or of any of the Collateral, or the
making of any levy, seizure, or attachment th______ (d) any Obligor (which term
as used herein, shall mean each Borrower and each other party primarily or
secondarily or contingently liable on any of the lia______ insolvent or unable
to pay debts as they mature or makes an assignment for the benefit of creditors,
or any proceeding (including any proceeding in bankruptcy) ______ against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature; (e) entry of any judgment against any Obligor; (f) death of any ______
natural person, or of any partner of any Obligor which is a partnership; (g)
dissolution, merger or consolidation, or transfer of a substantial part of the
property of a______ is a corporation or a partnership; (h) appointment of a
receiver for the Collateral or any part thereof or for any property in which any
Borrower has an interest; (i) ______ used by anyone to transport or store goods
the possession, transportation or use of which is illegal.
11. Upon the occurrence of any such default or at any time thereafter, or
whenever the Secured Party feels insecure for any reason whatsoever, Secured
______ option, declare all liabilities secured hereby, or any of them
(notwithstanding any provisions thereof), immediately due and payable without
demand or notice of a______ same thereupon shall immediately become and be due
and payable without demand or notice (but with such adjustments, if any, with
respect to interest or other ______ be provided for in the promissory note or
other writing evidencing such liability), and Secured Party shall have and may
exercise from time to time any and all right ______ of a Secured Party under the
Uniform Commercial Code and any and all rights and remedies available to it
under any other applicable law; and upon request or demand ______ Party,
Borrower shall, at its expense, assemble the Collateral and make it available to
the Secured Party at a convenient place acceptable to Secured Party; and ______
promptly pay all costs of Secured Party of collection of any and all
liabilities, and enforcement of any rights hereunder, including reasonable
attorneys' fees and ______ and expenses of any repairs to any of the Collateral
and expenses of any repairs to any realty or other property to which any of the
Collateral may be affixed. Any ______ disposition or other intended action by
Secured Party, sent to Borrower at the address of Borrower specified above or at
any other address shown on the records of ______ at least five days prior to
such action, shall constitute reasonable notice to Borrower. In the event of
repossession, Borrower authorizes Secured Party to take in______ personal
property found in or on the Collateral and to hold the same until claimed by
Borrower at the principal place of business of Secured Party, and in the event
______ property is not claimed within a reasonable time by Borrower, Secured
Party is authorized to dispose of same. Expenses of retaking, holding,
preparing for sale, selling______ shall include Secured Party's reasonable
attorneys' fees and legal expenses. Any excess or surplus of proceeds of any
disposition of any of the Collateral may ______ Secured Party toward payment of
such of the liabilities, without marshalling of assets and in such order of
application, as Secured Party may from time to time ______.
12. No waiver by Secured Party of any default shall operate as a waiver of
any other default or of the same default on a future occasion. No delay or
omission______ Secured Party in exercising any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by Secured Party of any
right or remedy shall prec______ or further exercise thereof or the exercise of
any other right or remedy. Time is of the essence of this agreement. The
provisions of this agreement are cumulative an______ the provisions of any note
secured by this agreement, and Secured Party shall have all the benefits, rights
and remedies of and under any note secured hereby. If ______ party shall
execute this agreement, the term "Borrower" shall mean all parties signing this
agreement and each of them, and all such parties shall be jointly ______
obligated hereunder provided, however, if one of the parties signing this
agreement has not executed the promissory note or notes referred to herein, said
party ______ personal liability under, or in conjunction with, said promissory
note or notes. The singular pronoun, when used herein, shall include the plural
and the neuter ______ masculine and feminine. If this agreement is not dated
when executed by the Borrower, the Secured Party is authorized without notice to
the borrower, to date thi______ This agreement shall become effective as of the
date of this agreement. All rights
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<PAGE>
of Secured Party hereunder shall inure to the benefit of its successors and as
______ liabilities of Borrower shall bind the heirs, executors, administrators,
successors and assigns of each Borrower.
13. This agreement has been delivered in the State of Florida and shall be
construed in accordance with the laws of Florida. Wherever possible, each
pro______ agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this agreement shall be
prohibited by or ______ applicable law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining ______ this agreement.
-35-
<PAGE>
IN WITNESS WHEREOF, this agreement has been duly executed as of the ________ day
of ___, 1991
Signed, sealed and delivered COMPUTER SCIENCE INNOVATIONS, INC.,
in the presence of: a Florida Corporation
-----------------------------------------
By: /s/ John Blohm
________________________________ ------------------------------------
John A. Blohm, President
By: /s/ James C. Schaffer
________________________________ ------------------------------------
James C. Schaffer, Exec. Vice-President
-36-
<PAGE>
STATE OF FLORIDA FINANCING STATEMENT UNIFORM COMMERCIAL CODE Form UCC-1, Rev.
1981
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DEBTOR (Last Name First If a Person) THIS SPACE FOR USE OF FILING OFFICER
NAME COMPUTER SCIENCE INNOVATIONS, INC., a Date, Time, Number, and Filing Office
Florida Corporation
1A
MAILING ADDRESS
1280 Clearmont Street, N.E.
CITY Palm Bay STATE FL 32905
- ------------------------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- ------------------------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
CITY STATE
- ------------------------------------------------------------------
SECURED PARTY (Last Name First if a Person)
NAME SUN BANK, NATIONAL
2A
ASSOCIATION
MAILING ADDRESS
100 Rialto Place
CITY Melbourne STATE FL 32901
- ------------------------------------------------------------------------------------------------------------------------------------
MULTIPLE SECURED PARTY (if Any) AUDIT UPDATE
(Last Name First if a Person)
NAME
2B
MAILING ADDRESS
CITY STATE
- ------------------------------------------------------------------------------------------------------------------------------------
ASSIGNEE OF SECURED PARTY (if Any) VALIDATION INFORMATION
(Last Name First if a Person)
NAME
3
MAILING ADDRESS
CITY STATE
- ------------------------------------------------------------------------------------------------------------------------------------
4 This FINANCING DOCUMENT coversthe following types or items property (include description Name and Address
of real property on which located and owner of record when required). If more space is required, of Preparer
attach additional sheets 8 1/2" x 11".
All accounts, inventory and equipment of Borrower.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
7 No. of additional Sheets presented:
5 Proceeds of collateral are covered as provided in Sections 679.203 0
and 679.206, F.S.
- ----------------------------------------------------------------------------------------------------------
6 Filed with: Secretary of State
---------------------------
8 (Check 0) O All documentary stamp taxes due and payable or to become due and payable pursuant
to Section 201.22, F.S.
O Florida Documentary Stamp Tax is not required.
- ------------------------------------------------------------------------------------------------------------------------------------
10 (Check O if so)
9 This statement is filed without the debtor's signature to perfect a security interest in collateral.
(Check O if so.) O Debtor is a
O already subject to a security interest in another jurisdiction when it was brought into this transmitting
state or debtor's location changed to this state. utility
O which is proceeds of the original collateral described above in which a security interest was O Products of
perfected. collateral are
O as to which the filing has lapsed. covered.
O acquired after a change of name, identity, or corporate structure of the
O debtor, or O secured party
- ------------------------------------------------------------------------------------------------------------------------------------
11 SIGNATURE(S) OF DEBTOR(S)
13 Return copy to: COMPUTER SCIENCE INNOVATIONS, INC., a Florida
NAME: Hubert C. Normile, Jr., Esq. corporation
ADDRESS: Krasny, Normile, Dettmer, et al.
780 South Apollo Boulevard By: /s/ John Blohm
CITY: Melbourne --------------
STATE: FL ZIP CODE 32901
By: /s/ James C. Schaffer
---------------------
----------------------------------------------------------------
12 SIGNATURE(S) OF SECURED PARTY(IES)
SUN BANK, NATIONAL ASSOCIATION
By: /s/
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE>
STATE OF FLORIDA FINANCING STATEMENT -- UNIFORM COMMERCIAL CODE -- Form UCC-1,
Rev. 1981
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DEBTOR (Last Name First if a Person) THIS SPACE FOR USE OF FILING OFFICER
Date, Time, Number, and Filing Office
NAME COMPUTER SCIENCE INNOVATIONS, INC., a
Florida Corporation
1A
MAILING ADDRESS
1280 Clearmont Street, N.E.
CITY Palm Bay STATE FL 32905
- ---------------------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1B
MAILING ADDRESS
CITY STATE
- ---------------------------------------------------------------
MULTIPLE DEBTOR (if Any) (Last Name First if a Person)
NAME
1C
MAILING ADDRESS
CITY STATE
- ---------------------------------------------------------------
SECURED PARTY (Last Name First if a Person)
NAME SUN BANK, NATIONAL ASSOCIATION
2A
MAILING ADDRESS
100 Rialto Place
CITY Melbourne STATE FL 32901
- ------------------------------------------------------------------------------------------------------------------------------------
MULTIPLE SECURED PARTY (if Any) AUDIT UPDATE
(Last Name First if a Person)
NAME
2B
MAILING ADDRESS
CITY STATE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSIGNEE OF SECURED PARTY (if Any) VALIDATION INFORMATION
(Last Name First if a Person)
NAME
3
MAILING ADDRESS
CITY STATE
- ----------------------------------------------------------------------------------------------------------------------------------
4 This FINANCING DOCUMENT covers the following types or items of property (include description Name and Address
of real property on which located and owner of record when required). If more space is required, of Preparer
attach additional sheets 8 1/2" x 11".
All accounts, inventory and equipment of Borrower
- ----------------------------------------------------------------------------------------------------------------------------------
7 No. of additional Sheets presented:
5 Proceeds of collateral are covered as provided in Sections 679.203 0
and 679.206, F.S.
- -----------------------------------------------------------------------------------------------------
6 Filed with: Clerk, Circuit Court
------------------------------
8 (Check 0) O All documentary stamp taxes due and payable or to become due and payable pursuant
to Section 201.22, F.S.
O Florida Documentary Stamp Tax is not required.
- ------------------------------------------------------------------------------------------------------------------------------------
10 (Check O if so)
9 This statement is filed without the debtor's signature to perfect a security interest in collateral.
(Check O if so.)
O already subject to a security interest in another jurisdiction when it was brought into O Debtor is a
this state or debtor's location changed to this state. transmitting
O which is proceeds of the original collateral described above in which a security utility.
interest was perfected. O Products of
O as to which the filing has lapsed. collateral are
covered.
O acquired after a change of name, identity, or corporate structure of the
O debtor, or O secured party
- ----------------------------------------------------------------------------------------------------------------------------------
11 SIGNATURE(S) OF DEBTOR(S)
13 Return copy to: COMPUTER SCIENCE INNOVATIONS, INC., a Florida
NAME: Hubert C. Normile, Jr., Esq. corporation
ADDRESS: Krasny, Normile, Dettmer, et al.
780 South Apollo Boulevard By: /s/ John Blohm
CITY: Melbourne --------------
STATE: FL ZIP CODE 32901
By: /s/ James C. Schaffer
---------------------
----------------------------------------------------------
12 SIGNATURE(S) OF SECURED PARTY(IES)
SUN BANK, NATIONAL ASSOCIATION
By: /s/
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE>
[SUN TRUST LETTERHEAD]
August 28, 1996
George Milligan
Computer Science Innovation, Inc.
1235 Evans Road
Melbourne, FL 32904
Dear Mr. Milligan:
It is my pleasure to present this commitment letter and introduce myself as your
company's new primary account officer. I will be working closely with Robert
Jensen who will remain as secondary account officer to familiarize myself with
your banking relationship.
SunTrust Bank, Central Florida, National Association ("Bank") is pleased to
advise you that it has approved the renewal and increase of your revolving line
of credit in the amount of $500,000 subject to the following conditions:
BORROWER: Computer Science Innovations, Inc.
AMOUNT: $500,000
PURPOSE: To fund short term working capital needs.
TERMS: Interest payable monthly, principal due on demand.
COLLATERAL: First security interest in the company's accounts
receivable, inventory, and equipment. The borrower may offer
direct assignments on specific government contracts, at its
option.
BORROWING BASE: Advances on the line of credit will be governed by a
borrowing base to include 80% of accounts receivable less
than 90 days excluding bonded and non-assigned/acknowledged
government receivables. The borrowing base will include 90%
of direct assigned and acknowledged U.S. Government
Contracts.
A BORROWING BASE CERTIFICATE (SEE ATTACHED) SHOULD BE
COMPLETED EACH MONTH BY THE BORROWER AND ATTACHED TO THE
ACCOUNT RECEIVABLE AGING REPORT.
GUARANTOR(S): None
-41-
<PAGE>
REVIEW DATE: June 30, 1997
INTEREST RATE: Fully floating at SunTrust Bank, Inc.'s Prime Rate.
SunTrust Bank's Prime Rate is currently 8.25%.
Prime Rate is defined as the annual interest rate announced by
SunTrust Bank, Inc. from time to time, as the prime rate (which
interest rate is only a bench mark, is purely discretionary and is
not necessarily the best or lower rate charged borrowing customers of
any subsidiary bank of SunTrust Banks Inc.) Any such change in prime
rate shall be effective at the beginning business day on which such
change is announced; provided however, that the interest rate charged
hereunder shall never exceed the maximum rate allowed, from time to
time, by law.
FEE: $500.00
FINANCIAL COVENANTS: The financial loan covenants are as follows:
. Minimum Current Ratio 1.25:1.00
. Minimum Working Capital $250,000
. Minimum Interest Coverage 1.50:1.00
. Minimum Tangible Net Worth $900,000
. Maximum Debt/Net Worth 1.0:1.0
THE LOAN COVENANTS WILL BE TESTED ON A MONTHLY BASIS.
SPECIAL CONDITIONS: 1) The line of credit must be rested for thirty (30)
consecutive days.
2) The company will not be restricted from
distributions, dividends, intercompany loans,
other capital withdrawals, and management fees
to Ashton Technology Group, Inc. as long as
there is not an outstanding balance on the
line of credit.
In the event that there is an outstanding
balance, the company will be restricted from
distributions, dividends, intercompany loans,
other capital withdrawals, and management fees
to Ashton Technology Group, Inc. without the
bank's written consent, which will not be
unreasonably withheld.
The actual language detailing the parameters
of this
-42-
<PAGE>
covenant will be drafted by the legal counsel
identified above, and will become a
modification of the existing loan agreement. A
draft of the language will be made available
to you.
3) The Borrower is to maintain primary deposit
relationship with SunTrust Bank, Central
Florida, National Association.
REPORTING REQUIREMENTS: The borrower agrees to provide the Bank with the
following information:
1) Annual Basis:
-----------------
. Audited CPA financial statements with attached
within 90 days of year end, or consolidated
financial statements whose supplemental
information includes CSI, Inc. as a
separate entity.
1) Monthly Basis: (within 30 days of month end)
------------------------------------------------
. Compiled Financial Statements
. Accounts Receivable Aging Report
. Accounts Payable Aging Report
. Backlog Report
. Contract Status
LEGAL: Any and all closing costs including attorney's fees
will be borne by the Borrower.
LENDER'S COUNSEL: Curtis R. Mosley
Address: 1221 East New Haven Ave.
Melbourne, FL 32901
Telephone: (407) 984-3842
EVENT OF DEFAULT: A default under this commitment shall constitute a
default under the loan documents and shall
immediately relieve SunTrust from any obligations it
may have to the commitment or the loan documents, and
shall entitle the Bank, at its discretion, and upon
giving notice of default to Borrower, to charge an
interest rate equivalent to the maximum allowed by
law.
INTENT OF PARTIES: It is the mutual intent of all parties to this
transaction that the terms and conditions of this
commitment letter shall survive the loan closing.
FUNDING ON THE LINE: The bank has no obligation to fund the line if there
is a covenant violation or required reports are not
received.
-43-
<PAGE>
If the above terms and conditions are acceptable to you please sign as indicated
and return the original to my attention.
Please be advised that the Bank's commitment will expire September 12, 1996 and
you should sign, date, and return the original to my attention prior to that
date for it to be effective. The loan should close within ten (10) business
days of acceptance of this commitment.
As your new account officer I plan to provide you with the highest level of
service. I appreciate this opportunity to provide financing and look forward to
working with you and your company. Please do not hesitate to call me at 676-1107
with any questions or requests in regard to your banking relationship.
Sincerely,
/s/ Phillip Hayes
- -----------------------------
Phillip Hayes
Business Banking Officer
BORROWERS:
Computer Science Innovations, Inc.
/s/ George M. Milligan Date: 5 Sept. 96
- ----------------------------- ----------
George M. Milligan, President
/s/ Susanne L. Cavadeas 9/5/96
- ----------------------------- ---------
-44-
<PAGE>
BORROWING BASE CERTIFICATE
Computer Science Innovations, Inc.
Accounts Receivable Month Ended _______
<TABLE>
<CAPTION>
"A" "B"
=====================================================================================================================
<S> <C> <C>
Total Account Receivable less than or equal to 90 days _____
excluding direct assignments:
Total Direct Assigned and Acknowledged Account _____
Receivable less than or equal to 90 days:
Less: Bonded Account Receivable _____ _____
Non-assigned Government Receivable _____ _____
Total Eligible Accounts Receivable: _____
Total Eligible Direct Assigned Receivable: _____
Borrowing Limit Percentage: 80% 90%
----- -----
Borrowing Base (A or B Cannot Exceed $500,000) _____ _____
Less Current Balance of Line: _____ _____
Amount Available: _____ _____
Total Amount Available (A + B): _____
</TABLE>
/s/ George Milligan
- -------------------------------------------
George Milligan, President Date
-45-
<PAGE>
LOAN AGREEMENT MODIFICATION
THIS AGREEMENT, MADE AND ENTERED INTO THIS 5TH DAY OF SEPTEMBER, L996, BY
AND BETWEEN COMPUTER SCIENCE INNOVATIONS, INC., HEREINAFTER REFERRED TO AS
"COMPANY", AND SUNTRUST BANK, CENTRAL FLORIDA, NA FORMERLY KNOWN AS SUN BANK,
NATIONAL ASSOCIATION, HEREINAFTER REFERRED TO AS "BANK".
W I T N E S S E T H:
-------------------
WHEREAS, on January 8, 1991, COMPANY and BANK entered into a loan agreement
which provided for the COMPANY to borrow from the BANK the sum of ONE MILLION
AND 00/100 ($1,000,000.00) DOLLARS in a revolving line of credit as an operating
line; and
WHEREAS, this revolving line of credit has been modified on several
occasions by the parties; and
WHEREAS, the current revolving line of credit is ONE HUNDRED FIFTY FIVE
THOUSAND AND 00/100 ($155,000.00) DOLLARS and COMPANY has requested BANK to
increase the line of credit from ONE HUNDRED FIFTY FIVE THOUSAND AND 00/100
($155,000.00) DOLLARS to FIVE HUNDRED THOUSAND AND 00/100 ($500,000.00) DOLLARS
and BANK has agreed to such increase upon the terms and conditions set forth
below.
NOW THEREFORE, in consideration of the mutual covenants and promises of the
parties and other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, it is hereby agreed as follows:
1. The foregoing recitals are true and incorporated herein by reference.
2. The revolving line of credit referred to as Loan "A" as described in
the loan agreement of January 8, 1991, as modified, is hereby
increased from ONE HUNDRED FIFTY FIVE THOUSAND AND 00/100
($155,000.00) DOLLARS to FIVE HUNDRED THOUSAND AND 00/100
($500,000.00) DOLLARS. The interest rate shall be SunTrust Bank,
Inc's, prime rate, fully floating. SunTrust Bank, Inc's, prime rate is
currently 8.25%. Prime rate is defined as the annual interest rate
announced by SunTrust Bank, Inc, from time to time as the prime rate
(which interest rate is only a benchmark, is purely discretional and
is not necessarily the best or lower rate charged borrowing customers
of any subsidiary bank of SunTrust Bank, Inc). Any such change in
prime rate shall be effective at the beginning of the business day in
which such change is announced; provided however, that the interest
rate charged hereunder shall never exceed the maximum rate allowed,
from time to time, by law. Monthly payments of interest only shall be
due and payable to BANK by COMPANY. The principal balance and accrued
interest of the line of credit shall be due on demand.
-46-
<PAGE>
3. The outstanding principal balance of the line of credit shall be
reduced to ZERO ($0.00) for a period of thirty (30) consecutive days
each year.
4. Advances on the line of credit will be governed by a borrowing base to
include eighty (80%) percent of accounts receivable less than ninety
(90) days, excluding bonded and non assigned/acknowledged government
receivables. The borrowing base will include ninety (90%) percent of
direct assigned/acknowledged U.S. Government contracts.
5. The financial loan covenants are as follows:
a. Minimum Current Ratio 1.25:1.00
b. Minimum Working Capital $250,000.00
c. -Minimum Interest Coverage 1.50:1.00
d. Minimum Tangible Net Worth $900,000.00
e. Maximum Debt/Net Worth 1.0:1.0
The loan covenants will be tested on a monthly basis.
6. COMPANY acknowledges and agrees that BANK has no obligation to make any
disbursements on the line of credit if any covenant violations exist or
required reports are not received by BANK as set forth in the loan
agreement, as modified.
7. So long as this line of credit is not in default and there is not an
outstanding balance on this line of credit, then COMPANY will not be
restricted from making distributions, paying dividends, making
intercompany loans, making other capital withdrawals, and paying
management fees to Ashton Technology Group, Inc. In the event that this
loan is in default or there is an outstanding balance on the line of
credit, then COMPANY covenants and agrees that it will not pay to
Ashton Technology Group, Inc., any distributions, dividends or
management fees and it will not make any intercompany loans or other
capital withdrawals to Ashton Technology Group, Inc., without BANK's
prior written consent which consent shall not be unreasonably withheld.
8. COMPANY shall maintain its primary deposit relationship with SunTrust
Bank, Central Florida, NA.
9. COMPANY covenants and agrees to provide BANK with the following
financial information:
a. COMPANY will submit year end unqualified audited financial
statements prepared by a CPA acceptable to the BANK for the
COMPANY, within
-47-
<PAGE>
ninety (90) days of the end of the COMPANY'S fiscal year or
consolidated financial statements whose supplemental information
includes CSI, Inc. as a separate entity.
b. COMPANY shall submit to the BANK on a monthly basis within thirty
(30) days of the end of each month compiled financial statements,
accounts receivable aging report, accounts payable aging report,
back-log report and contract status report.
All financial statements shall be in form and substance as reasonably
requested by the BANK.
10. SunTrust Bank, Central Florida, NA is substituted for Sun Bank,
National Association, in the loan agreement of January 8, 1991, and
any reference in the loan agreement, as modified, to Sun Bank,
National Association, shall be deleted in its entirety and SunTrust
Bank, Central Florida, NA shall be substituted therefore.
11. For the purpose of giving notice as provided in the loan agreement, as
modified, the addresses COMPANY and BANK are hereby changed as
follows:COMPUTER SCIENCE INNOVATIONS, INC.,1235 Evans Road, Melbourne,
FL 32904; and SUNTRUST BANK, CENTRAL FLORIDA, NA, 100 Rialto Place,
Melbourne, FL 32901-3085.
12. COMPANY shall designate as additional loss payee on appropriate hazard
insurance and flood insurance, if applicable, the BANK as follows:
SUNTRUST BANK, CENTRAL l FLORIDA, NA, its successors and/or assigns,
100 Rialto Place, Melbourne, FL 32901-3085 Attn: Commercial Loans.
13. All other terms, provisions and conditions of the loan agreement of
January 8, 1991, as modified, shall remain in full force and effect
and unchanged by this agreement, except as set forth herein, and the
parties hereto covenant and agree to comply therewith.
14. By the execution of this agreement, COMPANY hereby covenants and
agrees that the loan agreement of January 8, 1991, as modified, is a
valid binding agreement that is in full force and effect and that
COMPANY hereby waives any defenses, counter-claims or set-offs of
whatever nature, to the enforcement of the loan agreement of January
8, 1991, as modified.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals this 5th day of September, 1996.
-48-
<PAGE>
Signed, Sealed & Delivered
In the Presence of:
COMPUTER SCIENCE INNOVATIONS,
INC.,
/s/ Phil Hayes
- ------------------------------
By: /s/ George Milligan
Print Name: /s/ Phil Hayes -------------------
------------------
/s/ GEORGE H. MILLIGAN, President
- ------------------------------
Print Name:
___________________
SUNTRUST BANK, CENTRAL FLORIDA,
NA f/k/a SUN BANK, NATIONAL
ASSOCIATION
/s/ George Milligan
Print Name: George Milligan By: /s/ Phil Hayes
--------------
/s/
- ------------------------------
Print Name:
___________________
-49-
<PAGE>
SUNTRUST REVOLVING LINE OF CREDIT
Renewal
Promissory Note
$500,000.00 September 5, 1996
---------- -----------------
The undersigned (whether one or more hereinafter called "Maker"), jointly
and severally, promise(s) to pay to the order of SunTrust Bank, Central Florida,
National Association/Fka Sun Bank, National Association (herein called "Bank")
at its offices located at Cocoa Florida, Five Hundred Thousand Dollars and
No/100 Dollars ($500,000.00), together with interest from the date hereof at the
rate hereinafter provided, and applicable fees in the following manner.
<TABLE>
<S> <C>
Repayment Schedule:
[_] Single Payment Principal Due in Full On:_____________________________________________________________________
Interest Payable:_____________________________________________________________________________
[_] Installment Payment (including interest): In ______________ ________________________________
(No.) (Period)
Installments of $_________________, commencing on _____________, 19____, and on
the same day of each successive _____________ thereafter, together with a FINAL PAYMENT of
$______________ due and payable on _________________________, 19_____.
[_] Installment Payment (plus interest): __________________
(No.)
Principal installments of $___________, plus interest, commencing on ___________, 19__, and on the
same day of each successive ___________ thereafter, together with a FINAL PAYMENT of
$___________,plus accrued interest due and payable on ______________, 19__.
[_] Multiple Payment Principal and interest are payable as follows:________________________________________________
______________________________________________________________________________________________
______________________________________________________________________________________________
[X] ON DEMAND Principal payable ON DEMAND with interest payable Monthly commencing on October 5, 1996 and each Month
thereafter.
[_] Prepayment Right Bank shall have the absolute and unconditional right, at its sole discretion, to require Maker to pay
the entire loan balance, along with accrued unpaid interest at any time after the sixty-first (61st)
month from the note date. If the bank elects to exercise such right of payment, Bank will provide
Maker ninety (90) days prior written notice of its intention to demand payment. If Bank does not
exercise such right of payment, the loan balance outstanding, along with accrued unpaid interest is
due and payable on the one hundred twentieth (120th) installment.
</TABLE>
THE INTEREST RATE IS AS FOLLOWS: [_] If checked here, the interest rate provided
herein shall be computed on the basis of a 365 day year and shall be calculated
for the actual number of days elapsed. If not checked, the interest rate shall
be computed on the basis of a 360 day year and shall be calculated for the
actual number of days elapsed.
Variable Interest Rate
[_] Not Applicable
[X] Applicable, provided however that the interest rate charged hereunder shall
never exceed the maximum rate allowed, from time to time, by law. If this loan
is for a consumer purpose and is secured by a dwelling, the maximum interest
rate charged will never exceed 18% per annum or the state usury ceiling,
whichever is less.
If applicable, the interest rate stated herein shall, from time to time,
automatically increase or decrease so that at all times it shall be equivalent
to (check appropriate box and complete):
[X] 0.00% over the annual interest rate announced by SunTrust Banks of Florida,
Inc., from time to time, as the prime rate (which interest rate is only a bench
mark, is purely discretionary and is not necessarily the best of lowest rate
charged borrowing customers of any subsidiary bank of Sun Banks, Inc.). Any
such change in prime rate will increase or decrease your periodic interest
payments. Any change in prime rate shall be effective at the beginning of the
business day on which such change is announced; or,
[_] ____% over the ____________________________________________________________
_______________________________________________________________________________
<PAGE>
<TABLE>
<S> <C>
FIXED RATE [_] Applicable at _____% per annum, simple interest. [_] Not Applicable.
LATE CHARGE FEE If a payment is late, you may charge 5% of such payment as a late charge. A payment which is not
received on the due date shall be deemed late.
SERVICE FEE A service fee of the lesser of $50.00 or 2 percent of the principal amount of this loan will be
charged. The service fee charge will not be refunded in the event of prepayment.
ADDITIONAL FEES The Bank may charge various additional fees for servicing or processing the loan. The name of
the fee shall describe the work performed.
</TABLE>
In the event any installment of principal or interest or any part thereof
is not paid when it becomes due, or in the event of any default thereunder, the
principal sum remaining unpaid hereunder, together with all accrued and past due
interest thereon, shall immediately and without notice become due and payable at
the election of the holder at any time thereafter.
Notwithstanding any rate of interest provided herein, the interest rate on
any payment or payments of principal or interest, or any part thereof, which is
not made when due shall, thereafter, be at the maximum rate allowed, from time
to time, by law. Minimum of $10.00 on any single payment loan or $15.00 on any
installment loan will be charged.
This note is [_] SECURED [X] UNSECURED (Notwithstanding the fact that this
note is marked 'unsecured',
Maker understands and agrees that any other security Interest the Bank now holds
or may hereafter acquire from the Maker may secure this note).
As security for the payment of this note Maker has pledged or deposited
with Bank and hereby grants to Bank a security interest in the following
property: 1st lien on all accounts receivable, inventory and equipment now
----------------------------------------------------------------
owned and hereafter acquired as further described in Security Agreements dated
- ------------------------------------------------------------------------------
9-5-96 and various Government Contracts as further described in Exhibit "B"
- ---------------------------------------------------------------------------
attached. (Including all cash, stock and other dividends and all rights to
- ----------
subscribe for securities incident to, declared, or granted in connection with
such property and including any returned or unearned premiums from any insurance
financed hereunder), which property, together with all additions and
substitutions hereafter pledged or deposited with Bank is called the Collateral.
The Collateral is also pledged as security for all other liabilities (primary,
secondary, direct, contingent, sole, joint, or several), due or to become due or
which may be hereafter contracted or acquired, of each Maker (including each
Maker and any other person) to Bank and for renewals, extensions or
modifications of this note. The surrender of this note, upon payment or
otherwise, shall not affect the right of Bank to retain the Collateral for such
other liabilities.
Lender may request periodically as it deems necessary, complete and current
financial statements, balance sheets, profit and loss statements, and cash flow
information for Maker and Cosigner.
Maker understands and agrees that the jury waiver, the additional
agreements and provisions on the reverse side hereof, hereby incorporated by
reference, constitute agreements of the Maker and a part of this note. Maker
acknowledges receipt of a completed copy of this note.
- --------------------------------------------------------------------------------
Notice to Cosigner: You are being asked to guarantee this debt. Think
carefully before you do. If the Borrower doesn't pay the debt, you will have
to. Be sure you can afford to pay if you have to, and that you want to accept
responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
this amount.
The Bank can collect this debt from you without first trying to collect
from the borrower, The Bank can use the same collection methods against you
that can be used against the borrower, such as suing you, garnishing your wages,
etc. If this debt is ever in default, that fact may become a part of your
----
credit record.
This notice is not the contract that makes you liable for the debt.
- --------------------------------------------------------------------------------
Address: 1235 Evans Road COMPUTER SCIENCE INNOVATIONS, Inc.
Melbourne, FL 32904-2314 By: /s/ George E. Milligan (Seal) 9-5-96
----------------------- ------
George E. Milligan, Date
President
By: /s/ Susanne L. Cavadeas (Seal) 9-5-96
----------------------- ------
Date
================================================================================
This space for Bank records only
<TABLE>
<S> <C> <C> <C>
Renewal $500,000.00
_____________________ -------------------------- _______________________ ------------------------
Proceeds Document Stamps Other Charges Note Amount
481 26 1800455903
----------------------- --------------------------- ------------------------- ________________________
Officer Initials# Note Number Account Number Service Fee
</TABLE>
-51-
<PAGE>
If the variable interest rate is not applicable and if this note is payable
on demand, Bank reserves, and is hereby granted the right, to adjust the
interest rate from time to time by furnishing Maker with any written notice of
such adjusted rate, provided however, that no such adjusted rate shall exceed
the maximum rate allowed, from time to time, by law.
Additions to, reductions or exchanges of, or substitutions for the
Collateral, payments on account of this note or increases of the same or other
loans made partially or wholly upon the Collateral, may from time to time, be
made without affecting the provisions of this note.
If the Bank deems itself insecure, or upon the happening of any of the
following events, each of which shall constitute a default hereunder, all
liabilities of each Maker to Bank shall thereupon or thereafter, at the option
of the Bank, without notice or demand, become due and payable: (a) failure of
any Obligor (which term shall mean and include each Maker, endorser, surety and
guarantor of this note) to perform any agreement hereunder to pay interest
hereon when due or requested or demanded or to pay any other liability
whatsoever to Bank when due; (b) the death of any Obligor; (c) the filing of any
petition under the Bankruptcy Code, or any similar federal state statute, by or
against any Obligor; (d) an application for the appointment of a receiver or the
making of a general assignment for the benefit of creditors by, or the
insolvency of any Obligor; (e) the entry of a judgment against any Obligor; (f)
the issuing of any writ of attachment or writ of garnishment, or the filing of
any lien, against the property of any Obligor; (g) the taking of possession of
any substantial part of the property of any Obligor at the instance of any
governmental authority; (h) the dissolution, merger, consolidation, or
reorganization of any Obligor; (i) the assignment of any Maker of any equity in
any of the Collateral without the written consent of Bank.
Bank is hereby given a lien upon and a security interest in all property of
each Maker now or at any time hereafter in the possession of bank in any
capacity whatsoever, including but not limited to any balance or share of any
deposit, trust, or agent account as security for the payment of this note, and a
similar lien upon the security interest in all such property of each maker as
security for the payment of all other liabilities of each Maker to Bank
including liabilities of each Maker and any other person); and Bank shall have
the same rights as to such property as it has with respect to the Collateral.
If Bank deems itself insecure or upon the occurrence of any default
hereunder Bank shall have the remedies of a secured party under the Uniform
Commercial Code and, without limiting the generality of the foregoing, Bank
shall have the right, immediately and without further action by it, to set off
against this note all money owed by Bank in any capacity to each or any Obligor,
whether or not due, and also to set off against all other liabilities of each
maker to bank all money owed by Bank in any capacity to each or any Maker; and
Bank shall be deemed to have exercised such right of set-off and to have made a
charge against any such money immediately upon the occurrence of such default
even though such a charge is made or entered on the books of the bank subsequent
thereto. Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, the Bank will
give Maker reasonable notice of the time and place of any public sale thereof or
of the time after which any private sale or any other intended disposition
thereof is to made. The requirement of reasonable notice shall be met if such
notice is mailed, postage prepaid, to any Maker at the address given below or at
any other address shown on the records of the Bank, at least five days before
the time of the sale or disposition. Sale at a wholesale dealers' auction is a
commercially reasonable disposition. Upon disposition of any Collateral after
the occurrence of any default hereunder, Maker shall be and remain liable for
any deficiency; and Bank shall account to Maker for any surplus, but Bank shall
have the right to apply all or any part of such surplus (or to hold the same as
a reason against) any and all other liability of each or any Maker to Bank. The
obligors, jointly and severally, promise and agree to pay all costs and expenses
of collection and reasonable attorney's fee, including costs expenses and
reasonable attorneys' fees on appeal, if collected by legal proceedings or
through an attorney at law, Maker hereby waives any right to a trial by jury in
any civil action arising out of, or based upon, this note or the Collateral.
Bank shall exercise reasonable care in the custody and preservation of the
Collateral to the extent required by applicable statute, and shall be deemed to
have exercised reasonable care if it takes such action for that purpose as Maker
shall reasonably request in writing, but no omission to do any act not requested
by maker shall be deemed a failure to exercise reasonable care, and no omission
to comply with any request of Maker shall of itself be deemed a failure to
exercise reasonable care. Bank shall not be bound to take any steps necessary
to preserve any rights in the Collateral against prior parties and maker shall
take all necessary steps for such purposes. Bank or its nominee need not
collect interest on or principal of any Collateral or give any notice with
respect to it.
If the Collateral shall at any time become unsatisfactory to Bank, Maker
shall within one day after demand pledge and deposit with Bank as part of the
Collateral additional property which is satisfactory to Bank.
Bank shall have the right, which may be exercised at any time whether or
not this note is due, to notify the Obligors on any Collateral to make payment
to bank on any amounts due to become due thereon. In the event of any default
hereunder, Bank shall thereafter have, but not be limited to, the following
rights; (i) to pledge or transfer this note and the Collateral and bank shall
thereupon be relieved of all duties and responsibilities hereunder and relieved
from any and all liability with respect to any Collateral so pledged or
transferred, and any pledgee or transferee shall for all purposes stand in the
place of the Bank hereunder and have all the rights of the bank hereunder, (ii)
transfer the whole or any part of the Collateral into the name of itself or its
nominee, (iii) to vote the Collateral; (iv) to demand, sue for, collect, or make
any compromise or settlement it deems desirable with reference to the
Collateral; and (v) to take control of any proceeds of Collateral.
I HEREBY CONSENT TO THE ATTACHMENT OR GARNISHMENT OF MY EARNINGS..
-52-
<PAGE>
No delay or omission on the part of Bank in exercising any right hereunder
shall operate as a waiver of such right or any other right under this note,
Presentment, demand, protest, notice of dishonor, and extension of time without
notice are hereby waived by each and every Obligor. Any notice to Maker shall
be sufficiently served for all purposes if placed in the mail, postage prepaid,
addressed to or left upon the premises at, the address shown below or any other
address shown on the Bank's records.
I waive any and all privilege and rights which I may have under Chapter 47,
Florida Statutes, relating to venue, as it now exists or may hereafter be
amended: I agree that any action shall be brought in the County in which the
Bank's business office is located as designated above or at which the loan was
closed.
JURY WAIVER: MAKER AND BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
-----------
AND IRREVOCABLY WAIVE THE RIGHT OF EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY,
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND
ANY OTHER DOCUMENT OR INSTRUMENTS CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PART HERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR BANK ENTERING INTO THIS AGREEMENT. FURTHER, MAKER HEREBY
CERTIFIES THAT NOR REPRESENTATIVE OR AGENT OF BANK NOR THE BANK'S COUNSEL HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN ANY EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO
REPRESENTATIVE OR AGENT OF THE BAN NOR BANK'S COUNSEL HAS THE AUTHORITY TO
WAIVE, CONDITION, OR MODIFY THIS PROVISION.
- --------------------------------------------------------------------------------
GUARANTY
In addition to the liability as endorsers, which the undersigned hereby
assumes, for value received and intending to be legally bound, the undersigned
(and if more than one, each of them jointly and severally) (a) hereby become
surety to the payee of the within note, it successors, endorsees and assigns,
for the payment of the within note and hereby unconditionally guarantee the
payment of the within note and all extensions or renewals thereof and all sums
payable under or by virtue thereof including, without limitation, all amounts of
principal and interest and all expenses (including attorney's fees) incurred in
the collection thereof, the enforcement of rights thereunder or with respect to
any security therefor and the enforcement hereof, and waive presentment, demand,
notice of dishonor, protest and all other notices whatsoever; and (b) consent
and agree (i) that all or any of the Collateral may be exchanged, released,
surrendered or sold from time to time, (ii) that the payment of the note, or any
of the liabilities of the Maker thereof may be extended or said notice renewed
any number of times and for any period (whether or not longer than the original
period of said note), (iii) that the holder of said note may grant any releases,
compromises or indulgences with respect to said note or any extensions or
renewals thereof or any security therefor or to any party liable thereunder or
hereunder (including but not limited to failure or refusal to exercise one or
more of the rights or remedies provided by said note), and (iv) that any of the
provisions of said note may be modified; all without notice to or consent of and
without affecting the liability of the undersigned as endorsers and sureties,
and further consent and agree that any of the undersigned may be sued by the
holder hereof with or without joining any of the other endorsers or makers of
said note and without first or contemporaneously suing any such other persons,
or otherwise seeking or proceeding to collect from them or any of them, and
without first or contemporaneously undertaking to enforce any rights with
respect to any security.
- --------------------------------------------------------------------------------
The undersigned acknowledges received and read the NOTICE TO CO-SIGNOR appearing
on the reverse side hereof.
- --------------------------------------------------------------------------------
_________________________________(Date) _______________________________(Seal)
_________________________________(Date) _______________________________(Seal)
_________________________________(Date) _______________________________(Seal)
Florida Documentary Stamp Tax Required by law in the amount of
$________________________________________________
Has Been Paid or Will be Paid Directly to The Department of Revenue. Certificate
of Registration #______________________
- --------------------------------------------------------------------------------
-53-
<PAGE>
SUPPLEMENT TO COMMERCIAL NOTE
That certain Commercial Note(s) dated September 5, 1996, in the amount of
$500,000.00 herewith is supplemented by adding the following:
The actual principal balance due the bank at any given date will be
determined not by the face amount of the note or notes referred to herein, but
by the amount actually advanced by the Bank to Borrower, plus interest thereon,
less any sums collected by Bank in payment of interest and in reduction of
principal of the loan or loans presented by such note or notes.
The Borrower will promptly pay the full amount of all taxes of every nature
and kind, including, but without limitation, documentary stamp taxes and
intangible personal property taxes, that may be levied, assessed or payable
upon, because of, or in respect of this agreement, the promissory note or notes
executed or to be executed in connection herewith, and shall indemnify the Bank
and save and keep Bank free and harmless from the payment of the same and all
costs and penalties connected therewith; provided, however, that the terms of
this paragraph shall not be construed as imposing upon the Borrower any
obligation to pay any income tax payable by Bank on account of any taxable
income received by it on account of this agreement.
DATED THIS 5TH DAY OF SEPTEMBER, 1996.
Signed, sealed and delivered in the presence of:
WITNESS: Computer Science Innovations, Inc.
By: /s/ Phil Hayes By: /s/ George Milligan
---------------------------- ------------------------------
George E. Milligan, President
By: /s/ Susanne L. Cavadeas
------------------------------
WITNESSES: SunTrust Bank, Central Florida,
National Association, fka Sun
Bank National Association
By:_____________________________ By: /s/ Phil Hayes
------------------------------
Phil Hayes
Business Banking Officer
-54-
<PAGE>
SUNTRUST SECURITY AGREEMENT
(EQUIPMENT AND CONSUMER GOODS)
___________________________
Contract No.
Computer Science Innovations, Inc. (and if
- ------------------------------------------------------------------------
(Name(s) of Borrower(s))
more than one, each of them jointly and severally, hereinafter called
"Borrower", of 125 Evans Road Melbourne Brevard
-----------------------------------------------------------------
(No. and Street (City) (County)
Florida, for value received and intending to be legally bound, hereby grants to
- -------
SunTrust Bank, Central Florida, National Association fka
- --------------------------------------------------------
(Name of Secured Party)
Sun Bank, National Association, Cocoa, Florida, hereinafter called "Secured
- ----------------------------------------------
Party", a security interest in the following property
_________________________________________________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
New or Used Year Manufacturer or Make Model Number or Manufacturer's Serial
Model (Trade Name) Description of Collateral Series No.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________
</TABLE>
1st lien on all accounts receivable, inventory, and equipment: now owned
and hereafter acquired as further described in Exhibit "A" attached, and
various Government Contracts as further described in Exhibit "B" attached.
together with all increases, parts, fittings, accessories, equipment, and
special tools now or hereafter affixed to any or any part thereof or sued in
connection with any thereof, and all replacements of all or any part thereof
plus any returned or unearned premiums from any insurance financed by the
Secured Party in conjunction with this transaction (all of which is hereinafter
called "Collateral"), to secure the payment of a promissory note or notes
executed by Borrower in the amount of:
Five Hundred Thousand Dollars and No/100 - - - - - - - - - - - - - Dollars
- ------------------------------------------------------------------
($500,000.00), of even date herewith, and any and all extensions, modifications
- ------------
or renewals thereof, and also to secure the performance by Borrower of the
agreements hereinafter set forth, and all other liabilities or obligations
(primary, secondary, direct, contingent, sole, joint or several) due, or to
become due or which may be hereafter contracted or acquired of each Borrower to
Secured Party (the foregoing hereinafter being called the "Liabilities").
Borrower hereby warrants and agrees that
1. (A) Borrower is the owner of he Collateral clear of all liens and
security interests except the security interest granted hereby; (b) Borrower has
the right and power to make this Agreement; and (c) The Collateral is used or
acquired for use primarily for the purpose checked: [_] personal, family or
household purposes; [_] farm purposes; or [X] business purposes; and (d) if the
Collateral consists of "household goods" as defined in 12 C.F.R. 227.12(d) or if
otherwise checked here [_] then the Collateral
-55-
<PAGE>
is being acquired with the proceeds of the loan provided for in or secured by
this Agreement, and the proceeds will be used for no other purpose, ad Borrower
hereby authorizes Secured Party to disburse the proceeds or any part thereof
directly to the seller of the Collateral or to the insurance agent or broker, or
both, as shown on Secured Party's records.
2. (a) The Collateral will be kept at
(No. and Street) (City) (County) (State)
or if left blank, at the address shown at the beginning of this Agreement;
Borrower will promptly notify Secured Party of any change in the location of the
Collateral within said state; and Borrower will not remove the Collateral from
said state without the written consent of Secured Party. (b) If the Collateral
is used or acquired for use primarily for personal, family or household
purposes, or for farm purposes, Borrower's residence in Florida is that shown at
the beginning of this Agreement and Borrower will immediately notify Secured
Party of any change in the location of said residence.
3. (a) If the Collateral is acquired or used primarily for business use
and is of a type normally used in more than one state, whether or not so used,
and Borrower has a place of business in more than one state, the chief place of
business of Borrower is__________________________________
(No. and Street)
_______________________________________________or, if left blank, is that
(City) (County) (State)
shown at the beginning of this Agreement; and Borrower will immediately notify
Secured Party in writing of any change in Borrower's chief place of business;
and (b) If certificates of title are issued or outstanding with respect to any
of the Collateral, Borrower will promptly cause the interest of Secured Party to
be properly noted thereon and deliver such certificates of title to Secured
Party.
4. Borrower will defend the Collateral against the claims and demands of
all persons, other than Secured Party, at any time claiming the same or any
interest therein.
5. No financing Statement covering any Collateral or any proceeds thereof
is on file in any public office; Borrower authorizes Secured Party to file, in
jurisdictions where this authorization will be given effect, a Financing
Statement signed only by the Secured Party describing the Collateral in the same
manner as it is described herein; Borrower will from time to time at the request
of Secured Party, execute one or more Financing Statements and such other
documents (and pay the cost of filing or recording the same in all public
offices deemed necessary or desirable by the Secured Party) and do such other
acts and things, all as the Secured Party may request to establish and maintain
an enforceable first priority security interest in the Collateral (free of all
other liens and claims whatsoever) to secure the payment of the Liabilities.
6. Borrower will not (a) permit any liens or security interest other than
Secured Party's security interest, to attach to any of the Collateral; (b)
permit any of the Collateral to be levied ________ under legal process; (c)
sell, transfer, lease, dismantle, alter, modify, or otherwise dispose of any of
the Collateral or any interest therein, or offer so to do, without the prior
written consent of Secured Party; (d) permit anything to be done that may impair
the value of any of the Collateral or the security intended to be afforded by
this Agreement; (e) permit the Collateral to be or become a fixture (and it is
expressly covenanted, warranted and agreed, that the Collateral, and every part
thereof, whether affixed to any realty or not, shall be and remain personal
property), or to become an accession to other goods or property, or (f) locate
Collateral on any property not owned or controlled by Borrower, without the
prior written consent of the Secured Party.
7. Borrower will (a) at all times keep the Collateral insured in amounts
not less than the full insurable value thereof, against loss, damage, theft, and
such other risks as Secured Party may require in such companies, under such
policies, in such form and for such periods, as shall be satisfactory to Secured
Party, and each such policy shall provide, by New York Standard or Union
Standard endorsement, that loss thereunder and proceeds payable thereunder shall
be payable to Secured Party as its interest may appear (and Secured Party may
determine) and each such policy shall provide for a minimum of 10 days written
cancellation notice to Secured Party; and each such policy shall, if Secured
Party so requests, be deposited with Secured Party and Secured Party may act as
attorney for Borrower in obtaining, adjusting, settling, and canceling such
insurance and endorsing any drafts; (b) at all times keep the Collateral free
from any adverse lien, security interest, or encumbrance and in good order and
repair and will not waste or destroy the Collateral or any part thereof, (c)
Borrower shall be obligated to pay for the placement of any Vendor Single
Interest Insurance ("VSI"), or any other similar type of insurance, should the
Borrower fail to adequately protect the Collateral. Should VSI or any other
insurance be placed by the Secured Party, then any Earned and/or Unearned
Insurance Premium Refund will be credited to Borrower by the Secured Party.
Should the Secured Party receive any compensation for Administrative or
Experience Rated Refunds due to the placement and termination of such insurance,
such compensation and/or refund shall be paid to Secured Party. Any interest
earned during the period of placement of such insurance may be retained by
Secured Party.
8. (a) Borrower will not use the Collateral or permit the same to be used
in violation of any statute, law or ordinance;
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and Secured Party may examine and inspect the Collateral at any time, wherever
located, (b) Borrower will pay promptly when due all taxes and assessments on
the Collateral or for its use of operation or upon this Agreement or upon any
note or notes or other writing evidencing the Liabilities, or any of them.
9. At its options, Secured Party may discharge taxes, liens or security
interest or other encumbrances at any time levied or placed on the Collateral,
may pay for insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral. Borrower agrees to reimburse Secured Party on
demand for any payment made, or any expense incurred, by Secured Party, pursuant
to the foregoing authorization, together with interest thereon at the highest
lawful rate and each such payment and interest thereon shall be secured by this
Security Agreement. Until default, Borrower may have possession of Collateral
and use it in any lawful manner not inconsistent with this Agreement and not
inconsistent with any policy of insurance thereon.
10. Borrower shall be in default under this Agreement upon the happening
of any of the following events or conditions: (a) failure or omission to pay
when due any Liability (or any installment thereof or interest thereon), or
default in the payment or performance of any obligation, covenant, agreement, or
Liability contained or referred to therein; (b) any warranty, representation, or
statement made or furnished to Secured Party by or on behalf of any Borrower
proves to have been false in any material respect when made or furnished; (c)
loss, theft, substantial damage, destruction, sale, or encumbrance to or of any
of the Collateral, or the making of any levy, seizure, or attachment thereof or
thereon; (d) any Obligor (which term as used herein, shall mean each Borrower
and each other Party primarily or secondarily or contingently liable on any of
the Liabilities) becomes insolvent or unable to pay debts as they mature or
makes an assignment for the benefit of creditors, or any proceeding (including
any proceeding in bankruptcy) is instituted by or against any Obligor alleging
that such Obligor is insolvent or unable to pay debts as they mature; (e) entry
of any judgment against any Obligor; (f) death of an Obligor who is a natural
person, or of any partner of any Obligor which is a partnership; (g)
dissolution, merger or consolidation, or transfer of a substantial part of the
property of any Obligor which is a corporation or partnership; (h) appointment
of a receiver for the Collateral or any part thereof or for any property in
which any Borrower has an interest; (i) the Collateral is used by anyone to
transport or store goods the possession, transportation or use of which is
illegal.
11. Upon the occurrence of any such default or at any time thereafter, or
whenever the Secured Party feels insecure for any reason whatsoever, Secured
Party may, at its option, declare all Liabilities secured hereby, or any of them
(notwithstanding any provisions thereof), immediately due and payable without
demand or notice of any kind and the same thereupon shall immediately become and
be due and payable without demand or notice (but with such adjustments, if any,
with respect to interest or other charges as may be provided for in the
promissory note or other writing evidencing such Liability), and Secured Party
shall have and may exercise from time to time any and all rights and remedies of
a Secured Party under the Uniform Commercial Code and any and all rights and
remedies available to it under any other applicable law; and upon request or
demand of Secured Party, Borrower shall, at its expense, assemble the Collateral
and make it available to the Secured Party at a convenient place acceptable to
Secured Party; and Borrower shall promptly pay all costs of Secured Party of
collection of any and all liabilities, and enforcement of any rights hereunder,
including reasonable attorneys' fees and legal expenses. Any excess or surplus
of proceeds of any disposition of any of the Collateral may be applied by
Secured Party toward payment of such of the Liabilities, without marshaling of
assets and in such order of application, as Secured Party may from time to time
elect.
12. No waiver by Secured Party of any default shall operate as a waiver of
any other default or of the same default on a future occasion. No delay or
omission on the part of Secured Party in exercising any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Secured Party
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. Time is of the essence of this
Agreement. The provisions of this Agreement are cumulative and in addition to
the provisions of any note secured by this Agreement, and Secured Party shall
have all the benefits, rights and remedies of and under any note secured hereby.
If more than one party shall execute this Agreement, the term "Borrower" shall
mean all parties signing this Agreement and each of them, and all such parties
shall be jointly and severally obligated hereunder provided, however, if one of
the parties signing this Agreement has not executed the promissory note or notes
referred to herein, said party shall have no personal liability under, or in
conjunction with, said promissory note or notes. The singular pronoun, when used
herein, shall include the plural and the neuter shall include masculine and
feminine. If this Agreement is not dated when executed by the Borrower, the
Secured Party is authorized without notice to the Borrower, to date this
Agreement. All rights of Secured Party hereunder shall inure to the benefit of
its successors and assigns; and all Liabilities of Borrower shall bind the
heirs, executors, administrators, successors and assigns of each Borrower.
13. This Agreement has been delivered in the State of Florida and shall be
construed in accordance with laws of Florida. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
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ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
14. BORROWER AND SECURED PARTY HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR SECURED PARTY ENTERING INTO THIS AGREEMENT. FURTHER,
BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SECURED PARTY, NOR
THE SECURED PARTY'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SECURED PARTY WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO REPRESENTATIVE OR AGENT OF THE
SECURED PARTY, NOR SECURED PARTY'S COUNSEL HAS THE AUTHORITY TO WAIVE,
CONDITION, OR MODIFY THIS PROVISION.
In Witness Whereof, this Agreement has been duly executed as of the 5th day
of September, 1996.
Computer Science Innovations, Inc.
Signed, sealed and delivered
in the presence of By: /s/ George Milligan (Seal)
---------------------------------
George R. Milligan, President
/s/ Phil Hayes
- -------------------------------
By: /s/ Susanne L. Cavadeas (Seal)
---------------------------------
Borrower
(Seal)
By: _________________________________
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___________________________
Contract No.
SECURITY AGREEMENT
(INVENTORY AND ACCOUNTS)
THIS ASSIGNMENT AND AGREEMENT made September 5, 1996, by and between
SunTrust Bank, Central Florida, National Association fka Sun Bank, National
---------------------------------------------------------------------------
Association
-----------
(Name of Secured Party)
herein called "Bank", and
Computer Science Innovations, Inc.
-----------------------------------------------------------------
(Name(s) of Borrower(s))
of 125 Evans Road Melbourne Brevard Florida
---------------------------------------------------------------------------
(Name and Street) (City) (County) (State)
herein called "Borrower".
In consideration of loans or advances made or to be made by Bank to
Borrower, and for other value received by Borrower, the parties hereto,
intending to be legally bound, agree as follows:
1. As used herein: (a) "Account" means an immediate right to payment for
goods sold and for goods leased and for services rendered, or any of them, and
includes a right to payment under a contract whether or not it has been earned
by performance. "Qualified Account" means an Account which has been due less
than ________________________ days; (b) "Inventory" means goods held for sale or
lease or being processed for sale or lease in Borrower's business, as now or
hereafter conducted, including all materials, goods and work in process,
finished goods, and other tangible property now owned or hereafter acquired and
held for sale or lease or furnished or to be furnished under contracts of
service or used or consumed in Borrower's business; (c) "Goods" means all
articles of tangible personal property, sold, supplied, or otherwise disposed
of, represented by an Account; (d) "Purchaser" includes the buyer of goods from
Borrower, the customer for which services have been rendered or materials
furnished by Borrower, or the party with whom Borrower has contracted; (e)
"Borrower" includes all corporations and all individuals executing this
agreement as parties hereto, and all members of a partnership when Borrower is a
partnership, each of whom shall be jointly and severally liable individually and
as partners hereunder; (f) "security interest" means an interest in property
which secures payment or performance of an obligation; (g) "liability" or
"liabilities" includes all liabilities (primary, secondary, direct, contingent,
sole, joint or several) due or to become due or that may be hereafter contracted
or acquired, of Borrower (including any Borrower and any other person) to Bank.
2. Bank will from time to time hereafter lend Borrower, on the security
of Accounts and Inventory, or any of them, acceptable to Bank, such amounts as
Bank may determine from time to time, at such rates of interest and payable and
on such terms as Bank may from time to time specify or require, and Bank may
require that such loans, or any of them, be evidenced by one or more promissory
notes of the Borrower in form satisfactory to Bank. For the convenience of the
Borrower, the Bank may make loans and advances to the Borrower under any
promissory note the principal face amount of which is in excess of the actual
unpaid principal balance at such time.
3. As security for the payment of all loans and advances now or in the
future made hereunder and for all Borrower's liabilities, including any
extensions, renewals, or changes in form of any thereof, Borrower hereby assigns
to Bank and grants to Bank a security interest in: (a) all Accounts and
Inventory owned by Borrower at the date of this agreement; (b) all Accounts and
Inventory at any time hereafter acquired by Borrower; and (c) all proceeds of
all such Accounts and inventory.
4. So long as any liability to Bank is outstanding, Borrower will not
without the prior written consent of Bank borrower form anyone except Bank on
the security of, or pledge or grant any security interest in, any Account or any
of Borrower's inventory to anyone except Bank, or permit any lien or encumbrance
to attach to any of the foregoing, or any levy to be made thereon, or any
financing statement (except Bank's financing statement) to be on file with
respect thereto.
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5. Borrower represents and warrants that the location where it keeps the
bulk of its inventory is at the address specified in the preamble to this
agreement, unless a different address has been specified in the following space:
________________________________________________________________________________
(No. and Street) (City) (County) (State)
and that the office where it keeps its records concerning all of its Accounts is
at the address specified in the preamble to this agreement, unless a different
address has been specified in the following space:
________________________________________________________________________________
(No. and Street) (City) (County) (State)
Borrower will immediately notify Bank in writing of any change in the location
of the place of business where the bulk of its inventory is located or any
change in the location of the place of business where the records concerning its
Accounts are kept.
6. Borrower will (a) maintain Accounts and Inventory in such quantities
that at all times ____________% of the face amount of its Qualified Accounts,
less allowable discount, plus ________________% of the cost or wholesale market
value, whichever is lower, of its Inventory, plus 100% of the balance in the
Cash Collateral Account hereinafter referred to, or such other percentages
thereof as may from time to time be fixed by Bank upon notice to Borrower, shall
be at least equal to Borrower's liabilities to Bank; and Borrower will pay to
Bank, in reduction of its liabilities, such sums as may be necessary from time
to time to maintain such ratio; (b) collect its Accounts and sell its Inventory
only in the ordinary course of business; (c) furnish Bank at the time of each
borrowing, and at such other intervals as Bank may prescribe, with a Borrower's
Certificate (in such form as Bank may from time to time specify or require)
showing the aggregate face amount of its Qualified Accounts and the aggregate
cost and wholesale market value of its Inventory; (d) keep accurate and compete
records of its Accounts and Inventory; (e) pay and discharge when due all taxes,
levies and other charges on its Inventory; (f) keep its Inventory insured in
amounts not less than the full insurable value thereof, for the benefit of Bank
(to whom loss shall be payable by New York Standard or Union Standard
endorsements), in such companies and against such risks as may be satisfactory
to or required by Bank; pay the cost of all such insurance; and deliver
certificates evidencing such insurance to Bank; and Borrower assigns to Bank all
right to receive proceeds of such insurance.
7. Unless Bank notifies Borrower in writing that it dispenses with any
one or more of the following requirements, Borrower will (a) give Bank
assignments in form acceptable to Bank, of specific Accounts or groups of
Accounts, and of moneys due and to become due under specific contracts; (b)
furnish to Bank a copy of the invoice applicable to each Account assigned to
Bank or arising out of a contract, bearing a statement that such Account has
been assigned to Bank and such additional statements as Bank may require; (c)
furnish Bank at the time of each borrowing, and at such other intervals as Bank
may prescribe or require, with a schedule (in such form as Bank may from time to
time specify or require) of Borrower's Inventory and Qualified Accounts which
describe the same, or such thereof as Bank may require, together with such other
information relating thereto as the Bank may specify or require; (d) make no
change in any assigned Accounts or in any Account arising out of a contract
assigned to Bank, information relating thereto as the Bank may specify or
require; (d) make no change in any assigned Accounts or in any Account arising
out of a contract assigned to Bank, and make no material change in the terms of
any such contract; (e) furnish to Bank all information received by Borrower
affecting the financial standing of any Purchaser whose Account has been
assigned to Bank; (f) receive as the sole property of Bank and hold as trustees
for Bank all moneys, checks, notes, drafts, and other property (herein called
"items of payment") representing the proceeds of any Account or Inventory in
which Bank has a security interest, which comes into the possession of Borrower;
and deposit all such items of payment immediately in the exact form received in
a special account of Borrower in Bank entitled "Cash Collateral Account" in
which account Bank shall have a security interest to secure all Borrower's
liabilities and with respect to which account Bank alone shall have power of
withdrawal; (g) pay Bank the amount loaned against any Account assigned to Bank
where the goods are returned by the Purchaser, or where the contract is
cancelled or terminated; (h) immediately notify Bank if any of its contracts
arise out of contracts with the United States or any department, agency, or
instrumentality thereof, and execute any instruments and take any steps required
by Bank in order that all moneys due and to become due under any such contract
shall be assigned to Bank and notice thereof given to the Government under the
Federal Assignment of Claims Act; (i) deliver to Bank with appropriate
endorsement or assignment, as Bank may require, any instrument or chattel paper
representing an Account. Any permission granted to Borrower by Bank to omit any
of the requirements of this paragraph 7 may be revoked by Bank at any time.
8. Borrower will promptly, if requested by Bank: (a) mark its records
evidencing its Accounts in a manner satisfactory to Bank so as to show the same
have been assigned to Bank; (b) pay Bank the unpaid portion of any assigned
Account if Bank shall at any time reject the Account as unsatisfactory, which
right Bank shall have and may exercise at any time and for any reason
whatsoever, and until such payment is made by Borrower, Bank may retain any such
Account as security and may charge any deposit account of Borrower with any such
amounts; (c) join with Bank in executing a financing statement, notice,
affidavit, or similar
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instrument in form satisfactory to Bank, and such other instruments as Bank may
from time to time request; and pay the cost of filing the same in any public
office deemed advisable by Bank; and (d) give Bank such financial statements,
reports, certificates, lists of Purchasers (showing names, addresses, and
amounts owing), and other date concerning its Accounts, contracts, collections,
inventory and other matters as Bank may from time to time specify; and permit
Bank or its nominee to examine all of Borrower's records relating thereto at any
time, and to make extracts therefrom, and to inspect and check Borrowers
Inventory.
9. Borrower warrants (a) in connection with each Account covered by this
agreement: (i) it constitutes a Qualified Account as defined herein is not
evidenced by a judgment, an instrument or chattel paper (except such judgment as
has been assigned to Bank, and except such instrument or chattel paper as has
been indorsed and delivered to Bank), and represents a bona fide transaction and
Borrower has possession of (and will promptly deliver to Bank upon Bank's
request) or has delivered to Bank shipping or delivery receipts evidencing
shipment or delivery of the goods and, if representing services, the services,
have been fully performed; (ii) the amount shown on Borrower's books and on any
invoice or statement delivered to Bank is owing to Borrower; (iii) the title of
Borrower to the Account and, except as against the Purchaser, to any goods is
absolute; (iv) the Account has not been transferred to any other person, and no
person, except Borrower, has any claim thereto, or, with the sole exception of
Purchaser, to the goods; (v) no partial payment has been made by anyone; and
(vi) no set-off or counterclaim to such Account exists and no agreement has been
made with any person under which any deduction or discount may be claimed,
except regular discounts allowed by Borrower for prompt payments; (vii) it
arises under an existing binding written contract between Borrower and
Purchaser; and (b) in connection with its inventory; that Borrower is and will
be the absolute owner thereof, free and clear of all encumbrances and security
interests other than the Bank's security interest.
10. Borrower shall pay Bank such interest as may be specified in any note
evidencing a loan or advance made hereunder and such service charges as may be
agreed upon and shall pay to Bank all costs and expenses, including attorneys'
fees, incurred by it in the preservation or collection of collateral. Changes in
interest rate and service charges may be made by Bank from time to time,
notwithstanding the interest rate specified in any note evidencing a loan or
advance hereunder, upon notice to Borrower and shall become effective on the
date therein specified.
11. Bank shall have the right at any time and from time to time, without
notice, to: (a) apply any part or all of the moneys in the Cash Collateral
Account representing collected items against any liability of borrower to Bank,
and Bank shall upon demand by Borrower make such application against such
liability or liabilities as Bank may itself select; (b) release to Borrower such
part of the moneys in the Cash Collateral Account as Bank may elect; (c) charge
to Borrower's deposit account any item of payment credited to the Cash
Collateral Account which is dishonored by the drawee or maker thereof; (d)
indorse all items of payment which may come into its hands payable to Borrower;
(e) notify Purchasers that Accounts have been assigned to Bank, forward invoices
to Purchasers, directing them to make payments to Bank, collect all Accounts in
its or Borrower's name, and take control of any cash or non-cash proceeds of
Accounts and of any inventory; (f) compromise, extend, or renew any Account or
deal with the same as it may deem advisable; (g) make exchanges, substitutions
or surrenders of collateral; (h) insure inventory to its satisfaction if
Borrower fails to do so and pay for the same, and pay, for the account of
Borrower, any taxes, levies, or other charges affecting Borrower's Inventory or
upon or on account of this Security Agreement or any liability or any writing
evidencing any liability, which Borrower fails to pay, and any such payment
shall constitute a liability of Borrower.
12. Until default, Borrower may use its Inventory in any lawful manner not
inconsistent with this agreement and with the terms of insurance thereon; may
sell its Inventory in the ordinary course of business; and may use and consume
any raw materials or supplies, the use and consumption of which is necessary in
order to carry on Borrower's business.
13. If at any time any warranty, representation, certificate or statement
of Borrower is not true, or if any liability or any part or installment thereof
or interest thereon is not paid when due, or if any event of default as defined
in any note or other evidence of liability held by Bank should occur, or if
Borrower should fail to observe or perform any agreement or term hereof, or if
Bank at any time feels insecure for any reason whatsoever, Bank may, at its
option, thereupon or thereafter declare all liabilities of Borrower to Bank, or
any of them selected by Bank (notwithstanding any provisions thereof),
immediately due and payable without demand or notice of any kind and the same
thereupon shall immediately become and be due and payable without demand or
notice (but with such adjustments, if any, with respect to interest or other
charges as may be provided for n the promissory note or other writing evidencing
such liability), and Bank may, in addition to any other rights and remedies
which it may have, immediately and without demand, exercise any and all rights
and remedies granted to a secured party upon default under the Florida Uniform
Commercial Code; and upon request or demand of Bank, Borrower shall at its
expense, assemble Borrower's Inventory and make it available to Bank at a
convenient place acceptable to Bank; and Borrower shall promptly pay to Bank any
and all costs and expenses, including legal expenses and reasonable attorney's
fees incurred or paid by Bank in protecting and enforcing liabilities and
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rights of Bank hereunder, including Bank's right to take possession of
Borrower's inventory and the proceeds of Accounts and Inventory, and to hold,
prepare for sale, sell and dispose of such Inventory. Any notice of sale,
disposition or other intended action by Bank, sent to Borrower at the address
specified in the preamble to this agreement, or such other address of Borrower
as may from time to time be shown on Bank's records, at least five days prior to
such action, shall constitute reasonable notice to Borrower. Upon disposition by
Bank or any property in which Bank has a security interest hereunder, or upon
collection by Bank of the proceeds of Accounts, Borrower shall be and remain
liable for and deficiency; and Bank shall account to Borrower for any surplus,
but Bank shall have the right to apply all or any part of such surplus (or to
hold the same as a reserve against) all or any liabilities of Borrower to Bank,
whether or not they, or any of them, be then due, without marshaling of assets
and in such order of application as Bank may from time to time elect.
14. Borrower waives protest of all commercial paper at any time held by
Bank on which Borrower is in any way liable, notice of non-payment at maturity
of any and all Accounts, and except where required hereby or by law, notice of
action taken by Bank; and hereby ratifies and confirms whatever Bank may do.
15. No waiver by Bank of any default shall operate as a waiver of any
other default or of the same default on a future occasion. No delay or omission
on the part of Bank in exercising any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by Bank of any right or remedy shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. Time is of the essence of this agreement. The provisions of
this agreement are cumulative and in addition to the provisions of any liability
and any note or other writing evidencing any liability secured by this
agreement, and Bank shall have all the benefits, rights and remedies of and
under any liability and any note or other writing evidencing any liability
secured hereby. If more than one party shall execute this agreement, the term
"Borrower" shall mean all parties signing this agreement and each of them, and
all such parties shall be jointly and severally obligated and liable hereunder.
The singular pronoun, when used herein, shall include the plural, and the neuter
shall include the masculine and feminine. All rights of Bank hereunder shall
inure to the benefit of its successors and assigns; and all obligations of
Borrower shall bind the heirs, executors, administrators, successors and assigns
of each Borrower.
16. Borrower releases Bank from all claims for loss or damage caused by
any failure to collect any account or enforce any contract or by any act or
omission on the part of the Bank, its officers, agents and employees, except
willful misconduct.
17. This agreement may be terminated by either party giving the other
written notice of intention to terminate on a date named in said notice, mailed
to the last known address of the party to whom such notice is addressed: but no
such termination shall in any way affect the rights and liabilities of the
parties hereunder relating to loans or advances made, Accounts, Inventory or
other property pledged prior to the date named in such notice.
18. This agreement has been delivered in the State of Florida and shall be
construed in accordance with the laws of Florida. Wherever possible, each
provision of this agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
agreement.
IN WITNESS WHEREOF, this agreement has been duly executed as of the date
hereinabove first written.
Computer Science Innovation, Inc.
Signed, sealed and delivered
in the presence of By: /s/ George Milligan (SEAL)
---------------------------------
George E. Milligan, President
_______________________________ By: /s/ Susanne L. Cavadeas (SEAL)
---------------------------------
(SEAL)
_______________________________ _________________________________
(CORPORATE SEAL) BORROWER
SunTrust Bank, Central Florida, National
Association fka Sun Bank, National
Association
ATTEST: _____________________________________
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(NAME OF BANK)
_______________________________ By: /s/ Phil Hayes
------------------------------------
Phil Hayes, Business Banking Officer
As its Cashier As its President
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EXHIBIT "A"
This Exhibit describes the property to be included in Collateral or Security"
referred to in a Note, Security Agreement and in any Financing statement
delivered by Computer Science Innovations, Inc.
All accounts, contract rights, chattel paper and all other obligations
evidencing any obligation to borrower for payment for goods sold or leased or
services rendered and all guaranties and other property securing the payment of
or performance under any accounts, contract rights or any such chattel paper or
instruments and any insurance proceeds or other cash receivable, whether now
existing or hereafter arising.
All equipment of every description, now owned or hereafter existing or acquired;
all accessories, attachments, parts and equipment now or hereafter affixed
thereto or used in connection therewith, all renewals, substitutions or
replacements thereof, insurance proceeds due to loss or damage thereof, and cash
or non-cash proceeds and products of any of the foregoing. Borrower's right to
dispose of the collateral is restricted by agreement with the lender.
All inventory, including goods in process and raw materials and other tangible
personal property arising or acquired and held for sale or lease or furnished or
to be furnished under contracts of service including any products thereof, and
in contract rights with respect thereto and proceeds of both whether existing
now or arising hereafter, all additions, accessions thereto, and any proceeds
from insurance coverage due to loss or damage, all renewals, substitutions,
attachments, replacements thereof and any cash or non-cash proceeds and products
of the foregoing.
September 5, 1996
Computer Science Innovations, Inc.
By: /s/ George E. Milligan
---------------------------------
George E. Milligan, President
By: /s/ Susanne L. Cavadeas
---------------------------------
BANK: SunTrust Bank, Central Florida,
National Association, fka Sun
Bank, National Association
By: /s/ Phil Hayes
---------------------------------
Phil Hayes, Business Banking Officer
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EXHIBIT "B"
ADDITIONAL COLLATERAL:
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Wordage II), contract number MDA904-92-G-0147/5004 not to
exceed $212,570.00
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Pearlware III), contract number MDA90492-G-0147/5005 in the
amount of $149,300.00
Assignment of Contract between Computer Science Innovations and Maryland
Procurement Office (Titian), contract number MDA904-94-C-7138 in the amount of
$400,093.00
Assignment of contract between Computer Science Innovations and Intergraph
Corporation, contract number FSNO133 in the amount of $113,738.90
Assignment of Contract between computer Science Innovations and U.S. Army
Information System command (Sims), contract number DAEA08-91-C-0003
The above described collateral is in addition to that listed in the attached
Promissory Note and Security Agreement dated September 5, 1996, the terms and
conditions of which are hereby incorporated by reference.
Computer Science Innovations, Inc.
By: /s/ George E. Milligan 9/5/96
--------------------------------
George E. Milligan, President
By: /s/ Susanne L. Cavadeas
--------------------------------
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<PAGE>
[SUNTRUST LOGO] Corporate Resolution and Certificate
of Incumbency(Borrowing)
I, the undersigned, hereby certify that I am the President and custodian of the
---------
records of Computer Science Innovations, Inc. (registered name of corporation),
----------------------------------
a corporation duly organized and existing under the laws of Florida (hereinafter
-------
"Corporation"); that the following is a true and correct copy of certain
resolutions duly adopted by the Board of Directors of said Corporation at a
meeting duly held on the 5th day of September, 1996, at which a quorum was
--- --------- --
present; and that the following resolutions are in conformity with the charter
and by-laws of said Corporation and have not since been rescinded or modified.
RESOLVED, that any 2 (number required) of the following corporate
----
officers:
Name George E. Milligan Title President
----------------------- ---------------------------
Name James C. Schaffer Title Executive Vice President
----------------------- ---------------------------
Name Susanne Cavadeas Title Comptroller
----------------------- ---------------------------
Name Title
----------------------- ---------------------------
Name Title
----------------------- ---------------------------
Name Title
----------------------- ---------------------------
Name Title
----------------------- ---------------------------
Name Title
----------------------- ---------------------------
be and are hereby authorized on behalf of the Corporation from time to time to
borrow money, obtain credit and procure loans from Bank without limit as to
amount; to sell or discount any notes, bills or accounts, acceptances or any
other instruments to Bank; to assign, pledge, convey, transfer, mortgage or
otherwise create a lien upon any real and/or personal property of this
Corporation as security for the payment of any and all other indebtedness,
liabilities and obligations of the Corporation to said Bank, whether in the
usual course of business or otherwise; and, in furtherance of and in connection
with the foregoing, to make, execute and deliver in the name of and on behalf of
this Corporation, under its corporate seal or otherwise, such agreements,
documents or instruments deemed reasonable or necessary.
RESOLVED FURTHER, that all actions heretofore taken by the officer or officers
named herein in obtaining loans or credits on behalf of this Corporation and in
the exercise of the authority and powers herein granted are hereby ratified,
adopted and confirmed; and that Bank is hereby authorized and directed to pay
the proceeds of any such loans or credits as directed by said officers, whether
for payment or credit to the account of this Corporation with Bank or with
another financial institution, or to such officers, or any third person, or
otherwise; and
RESOLVED FURTHER, that the undersigned is authorized and directed to furnish
said Bank a
-66-
<PAGE>
certified copy of these resolutions, which resolutions shall continue in full
force and effect until written notice of the recision or modification of the
same has been received by Bank, and to furnish said Bank the names and specimen
signatures of the officer(s) named herein, and such persons from time to time
holding the above positions, herewith and/or on Bank's usual form of signature
card.
I hereby certify that the following are the names and specimen signatures of the
officer(s) listed in the foregoing resolutions and that each presently holds the
title indicated and has full authority for all acts unless noted herein.
<TABLE>
<S> <C> <C> <C>
Name George E. Milligan Title President Signature/s/ George Milligan
------------------- ---------------------- ------------------------
Name James C. Schaffer Title Executive Vice President Signature/s/ James C. Schaffer
------------------- ------------------------ ------------------------
Name Susanne Cavadeas Title Comptroller Signature/s/ Susanne Cavadeas
------------------- ------------------------ ------------------------
Name Title Signature
------------------- ------------------------ ------------------------
Name Title Signature
-------------------- ------------------------ ------------------------
Name Title Signature
-------------------- ------------------------ ------------------------
Name Title Signature
-------------------- ------------------------ ------------------------
Name Title Signature
--------------------- ------------------------ ------------------------
Special Instructions:
</TABLE>
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said Corporation this 5th day of September, 1996.
---- --
Corporate Seal By: /s/ George Milligan
--------------------
Title President
-----------------
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<PAGE>
[SUNTRUST BANK LETTERHEAD]
July 2, 1997
Mr. George Milligan
President
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Subject: Notification of Extension of Loan Maturity (9/26/97)
Dear Mr. Milligan:
SunTrust Bank, Central Florida, National Association hereby advises you that the
maturity date of June 30, 1997 for your loan #1800455903-00026 in the name of
Computer Science Innovations, Inc., (Borrower) is hereby extended 88 days. Other
than the maturity date as changed above, all other terms and conditions remain
unchanged. This Extension is contingent upon the Borrower making payments during
the Extension period in the amount and at the interval specified in the payment
schedule of the note.
Sincerely,
/s/
- -----------------------------
First Vice President
SunTrust Bank Central Florida, National Association
-68-
<PAGE>
EXHIBIT 10.38
SHORT-TERM LOAN AND SECURITY AGREEMENT
--------------------------------------
THIS SHORT-TERM LOAN AND SECURITY AGREEMENT ("Agreement") is made as of
this 18th day of February, 1997, by and between THE ASHTON TECHNOLOGY GROUP,
INC., a Delaware corporation ("Borrower"), and COMPUTER SCIENCE INNOVATIONS,
INC., a Florida corporation having its principal office at 1235 Evans Road,
Melbourne, Florida 32904 ("Lender"), hereinafter collectively referred to as the
"Parties." Additionally, Fredric W. Rittereiser, Chief Executive Officer of
Borrower, joins this Agreement for the sole purpose of Article 6(D) herein.
1. THE SHORT-TERM LOAN.
-------------------
(A) Terms.
-----
Upon the execution of this Agreement and the satisfaction of the
conditions precedent set forth in Article 4 herein, the Lender agrees to lend
the Borrower the sum of Five Hundred Thousand Dollars ($500,000.00) to be
secured by a promissory note (hereinafter, the "Note"), repayable with interest,
substantially in the form of Exhibit "A" attached and incorporated herein by
reference, and the execution on even date herewith by the Borrower of that
certain stock pledge agreement (hereinafter "Stock Pledge Agreement") in which
Borrower pledges all of its rights, title and interest in a percentage of the
common stock of Computer Science Innovations, Inc. that Borrower now owns. The
Stock Pledge Agreement is attached and incorporated herein by reference as
Exhibit "B."'
The loan is for a fixed term of nine (9) months. Interest on the loan
shall accrue at the rate of Eight and One-Quarter Percent (8.25%). The Note is
payable in full with accrued interest on or before November 18, 1997.
(B) Payment and Additional Terms.
----------------------------
All payments of principal and interest on the Note payable by Borrower
to Lender under this Agreement shall be made in lawful money of the United
States of America, in immediately available funds. Payment shall be credited
first to interest on the unpaid principal balance and then to principal on the
loan and all other amounts payable by Borrower to the Lender under this
Agreement. The interest on the Note shall be calculated on the basis of actual
days elapsed in a year of 360 days. If any payment of principal or interest on
the Note falls due on a Saturday, Sunday or bank holiday, then such due date
shall be extended to the next succeeding full business day of Lender and
interest shall be payable during such extension. The Borrower shall have the
right of prepayment of the Note at any time without penalty.
2. GRANT OF SECURITY INTEREST.
--------------------------
(A) Grant of Security Interest.
--------------------------
-1-
<PAGE>
To secure the Borrower's prompt, punctual, and faithful performance of
all of the Borrower's liabilities herein, the Borrower hereby grants to the
Lender a continuing security interest in and to, and pledges to the Lender,
pursuant to the Stock Pledge Agreement, the following (hereinafter the
"Collateral"):
All rights, title and interest in Six Hundred Ninety-Seven
Thousand Eight Hundred Seventy-One (697,871) Class A Shares and
One Million Twenty-One Thousand Three Hundred Eighty-One
(1,021,381) Class B Shares of the common stock of Computer
Science Innovations, Inc. currently owned by and in the
possession of Borrower.
The Collateral shall be held in escrow, pursuant to the terms and
conditions of an Escrow Agreement, attached and incorporated herein by reference
as Exhibit "C."
(B) Duration of Security Interest.
-----------------------------
The grant of a security interest shall continue in full force and
effect applicable to all liabilities herein until all liabilities of the Note
are paid and the security interest granted herein is specifically terminated in
writing by a duly authorized officer of the Lender.
3. BORROWER'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Borrower represents and warrants that:
(A) Incorporation and General Authority.
-----------------------------------
Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Delaware, and is duly licensed or
qualified and in good standing as a foreign corporation in all states wherein
the nature of the property owned or business transacted makes such licensing or
qualification necessary, and is entitled to own its properties and assets, and
to carry on its business, as, and in the places where, such properties and
assets are now owned or operated or such business is now conducted or presently
proposed to be conducted. Non-material violations of this representation which
do not affect the Borrower's capacity to perform its obligations under the terms
of this Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
-2-
<PAGE>
(B) Litigation.
----------
There is not now pending or threatened against Borrower any action or
other proceedings or any claim which may materially and adversely affect
Borrower's ability to perform its obligations herein, nor do any of the
executive or managing personnel of Borrower know of any facts that may give rise
to any such litigation, proceeding or claim.
(C) Authority for Agreement.
-----------------------
Borrower has all requisite power and authority to undertake the
obligations, to enter into this Agreement, and to perform each of its
obligations contained in this Agreement; and this Agreement will constitute a
valid and legally binding obligation of Borrower enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, or other laws affecting creditors'
rights generally.
Borrower has obtained formal approval from its Board of Directors
through a Board Resolution to undertake the obligations herein and to pledge the
Collateral as security for the Note.
(D) No Defaults or Restrictions.
---------------------------
The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement will not violate any existing law or statute or violate any
existing term or provision of any order, writ, judgment, injunction or decree of
any court or any other governmental department, commission, board, bureau,
agency or instrumentality applicable to Borrower, or conflict with or result in
a breach of any of the terms, conditions or provisions of the Articles of
Incorporation, Bylaws, or other organizational documents of Borrower, or any
agreement to which Borrower is a party, or by which any of its properties are
bound, or constitute an event that might permit an earlier termination of or
otherwise materially affect any such agreement, or result in the creation or
imposition of a lien ' charge or encumbrance upon any of the property or assets
of Borrower pursuant to the terms of any pledge, mortgage, security agreement,
assignment, or any other instrument to which Borrower is a party or by which it
may be bound.
(E) Operation of Business.
---------------------
Borrower's businesses are being operated and maintained in an ordinary
and customary manner and in compliance with all statutes, rules, regulations and
ordinances. Non-material violations of this representation which do not affect
the Borrower's capacity to perform its obligations under the terms of this
Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
-3-
<PAGE>
(F) Authorization for Business.
--------------------------
Borrower has obtained all required permits, authorizations and
licenses, without unusual restrictions or limitations, to conduct the businesses
in which Borrower is presently engaged, all of which are in full force and
effect. Non-material violations of this representation which do not affect the
Borrower's capacity to perform its obligations under the terms of this
Agreement, shall not be considered as a default pursuant to the terms of
paragraph 7D hereof.
(G) Title to Collateral.
-------------------
Borrower has good and marketable title to all property which Borrower
has given or has agreed to give a security interest to the Lender; and there are
no pledges, assignments, liens or other encumbrances of any kind upon such
property. All of the Collateral is owned by Borrower free and clear of all
liabilities, obligations, security interests and encumbrances. The Borrower will
warrant and defend the Collateral against the claims and demands of all persons
not a party to this Agreement.
(H) Use of Proceeds.
---------------
Borrower will apply the proceeds from the loan described herein as
working capital in its ordinary course of business. Borrower does not now own
any "margin securities" as such term is defined in Regulation G of the Board of
Governors of the Federal Reserve System. Borrower will not use any part of the
proceeds from said loans herein directly or indirectly, to purchase or carry any
such margin securities or to reduce or retire any indebtedness originally
incurred to purchase any such margin securities.
4. CONDITIONS PRECEDENT.
--------------------
The effectiveness of this Agreement and the obligations of the Lender to
consummate any of the transactions contemplated hereby shall be subject to the
satisfaction of the following conditions precedent, at or prior to the time of
the Closing Date:
(A) Documents and Instruments.
-------------------------
The Lender shall have received all the instruments, documents, and
property contemplated to be delivered by the Borrower hereunder, and the same
shall be in full force and effect. All of the instruments and documents referred
to herein are collectively referred to as the "Security Documents."
-4-
<PAGE>
(B) Correctness of Warranties.
-------------------------
All representations and warranties contained herein or otherwise made
to the Lender in connection herewith shall be true and correct.
(C) Expenses of Lender.
------------------
The Borrower promises to reimburse the Lender promptly for all
reasonable out of pocket expenses of every nature which the Lender may incur in
connection with this Agreement, the Note, any other Security Documents,
documentary stamp tax, all recording fees, and for all legal fees incurred in
preparation for the transaction contemplated herein. Such expenses shall be paid
at closing or in a reasonable time thereafter upon receipt of written invoices.
The Borrower shall also pay reasonable post-closing expenses incurred by the
Lender on behalf of the Borrower, including but not limited to, preparation of
documents to terminate the loan and release the security therefrom. Furthermore,
the Borrower shall be liable for postclosing collection expenses, including, but
not limited to, expenses related to the repossession of the Collateral and to
the collection of obligations of the Borrower hereunder, including reasonable
attorneys' fees, including appellate proceedings, post-judgment proceedings and
bankruptcy proceedings. It is expressly agreed that in the event the Borrower
shall fail to pay such expenses within ten (10) days after demand, said non-
payment shall constitute a default of this Agreement.
5. BORROWER'S AFFIRMATIVE COVENANTS.
--------------------------------
The Borrower covenants and agrees that from the date hereof and until
payment in full of the principal of and interest on the Note, and all other
indebtedness to the Lender under this Agreement, unless the Lender shall
otherwise consent in writing, it will provide as follows:
(A) Pay Indebtedness to Lender and Perform Other Covenants.
------------------------------------------------------
The Borrower shall:
(i) make full and timely payments of the principal of and
interest on the Note, and all other indebtedness of the Borrower to the Lender,
whether now existing or hereafter arising;
(ii) fully comply with all the terms and covenants contained in
each of the instruments and documents given to the Lender pursuant to this
Agreement or of the times and places and in the manner set forth herein; and
(iii) at all times maintain the liens and security interest
provided for under or pursuant to this Agreement as valid and perfected liens
and security interests on the property intended to be covered thereby.
-5-
<PAGE>
(B) Further Assurances.
------------------
The Borrower shall, at its sole cost and expense, upon the request of
the Lender, duly execute and deliver or cause to be duly executed and delivered
to the Lender such further instruments and to and cause to be done such further
acts that may be necessary or proper in the opinion of the Lender to carry out
more effectively the intent and purpose of this Agreement.
(C) Continuing Contractual Work.
---------------------------
The Borrower shall continue to perform its obligations under existing
contracts for sales and services under its ordinary course of business with the
Lender and specifically, Borrower acknowledges and agrees to pay Lender promptly
within invoice terms, which are Net 30, but in no event later than ninety (90)
days of the date of Lender's invoice for work pertaining to contract
performance. Failure by Borrower to pay Lender within said ninety (90) days
shall constitute a breach of this Agreement.
In the event the Lender, at the time of execution of this Agreement,
has outstanding on its books any accounts receivable from Borrower that are
ninety (90) days or more past due, Lender is authorized to and shall pay said
past due amount from the loan proceeds. For example, if on the day of loan
closing, $150,000.00 in 90-day plus receivables to Lender are outstanding,
$150,000.00 of the $500,000.00 loan proceeds shall be paid to Lender, not as a
prepayment of principal, but to satisfy said receivables, and the outstanding
balance of the Note shall remain at $500,000.00.
Notwithstanding the above, the Lender specifically acknowledges and
agrees that UTS Invoice #13, dated November 22, 1996, in the amount of
$100,419.07, and ATED Invoice #11, dated November 22, 1996, in the amount of
$26,255.86, shall not be deemed a default hereunder unless payment on said
invoices is not received by April 22, 1997.
Further, the Parties agree that nothing contained herein shall limit
the Borrower's ability to raise good faith disputes as to the invoices received
from the Lender. Any good faith dispute by Borrower shall not be deemed a
default hereunder. Borrower shall have thirty (30) days from the date of invoice
to raise a good faith dispute regarding said invoice. Failure by the Borrower to
raise a good faith dispute within thirty (30) days of invoice shall be deemed an
acknowledgment that said invoice is valid, due and payable.
Borrower specifically acknowledges and agrees that amounts due under
UTS Invoice #13, dated November 22, 1996; #14, dated December 27, 1996; and #15,
dated January 24, 1997, and ATED Invoice #11, dated November 22, 1996; #12,
dated December 27, 1996; and #13, dated January 24, 1997; are not in dispute and
are due and payable.
In the event any good faith dispute arises on any specific invoices
not referenced
-6-
<PAGE>
above, Borrower acknowledges and agrees that the liability on the specific
invoices identified herein remain due and payable pursuant to the terms
contained in this paragraph.
6. BORROWER'S NEGATIVE COVENANTS.
-----------------------------
Borrower covenants and agrees that from the date hereof and until payment
in full of the principal of and interest on the Note, and all other indebtedness
to the Underwriter under this Agreement, unless the Lender shall otherwise
consent in writing, it will not, either directly or indirectly:
(A) Use of Proceeds.
---------------
Utilize the proceeds of the Note for any purpose other than as
necessary business working capital;
(B) Additional Encumbrances on Collateral.
-------------------------------------
Create, incur, assume or suffer to exist any mortgage, pledge,
security interest, encumbrance, lien, or charge of any kind upon any of the
Collateral referenced herein, except:
(i) mortgages, liens, pledges and security interests in favor
of the Lender.
(C) Exercise Shareholder Voting Rights of Borrower.
----------------------------------------------
As long as the terms of this Agreement and the Note have not been
breached or are not in default, the Borrower shall have all rights in the
pledged Shares except for the following:
(i) the right to possession;
(ii) the right to exercise its vote on any matters related to
the terms and conditions of this Agreement;
(iii) the right to exercise its vote on any matters related to
the terms and conditions of the Note; and
(iv) increasing, decreasing, removing or filling vacancies on
the Board of Directors of the Lender.
(D) Exercise Board of Directors Voting Rights of Borrower.
-----------------------------------------------------
At the time of execution of this Agreement, the Chief Executive
Officer of Borrower is one of three (3) members of the Board of Directors of
Lender. Borrower acknowledges and agrees that a conflict of interest shall exist
in the event any matters or issues related to the terms and conditions of this
Agreement, or the Note, and because of such conflict of interest, the Chief
Executive Officer of Borrower shall not vote on said matters or issues.
-7-
<PAGE>
(E) Anti-Dilution.
-------------
During the term of this Agreement and Note, and any extensions
thereto, the Borrower shall not issue, nor cause to be issued any additional
shares of Stock in the Lender.
(F) Breach of Covenants.
-------------------
Any action taken by Borrower in contravention of these covenants shall
be deemed null and void and of no force and effect, and shall also constitute a
breach of this Agreement.
7. EVENT OF DEFAULT.
----------------
The Note shall be immediately due and payable in full if one or more of the
following- described events of default shall occur:
(A) The Borrower (a) shall file a petition for adjudication as a
bankrupt; (b) shall file a petition or answer seeking reorganization or an
arrangement under any bankruptcy or similar statute of the United States of
America or any subdivision thereof or of any foreign jurisdiction; (c) shall
consent to the filing of a petition in any such bankruptcy or reorganization
proceeding; (d) shall consent to the appointment of a receiver or trustee or
officer performing similar functions with respect to any substantial part of its
property; (e) shall make a general assignment for the benefit of its creditors;
or (f) shall execute a consent to any other type of insolvency proceeding (under
the Bankruptcy Act or otherwise) or any informal proceeding for the dissolution
or liquidation of, or settlement of, claims against or winding up of affairs of
the Borrower; or
(B) The appointment of a receiver or trustee or officer performing
similar functions for the Borrower or for any of its assets, or the filing
against the Borrower of a petition for adjudication as a bankrupt or insolvent
or for reorganization under any bankruptcy or similar laws of the United States
of America or of any state thereof or of any foreign jurisdiction, or the
institution against the Borrower of any other type of insolvency proceeding
(under the Bankruptcy Act or otherwise) or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims against or winding
up of affairs of, the Borrower, and the failure to have such appointment vacated
or such petition or proceeding dismissed within thirty (30) days after such
appointment, filing or institution.
(C) Failure of the Borrower to make payment of any principal,
interest, or payment within twenty (20) days of its due date to the Lender under
the Note, or any of the corresponding Security Documents.
(D) Default in the performance of any other liability, obligation or
covenant of the Borrower to the Lender under the Security Documents, and the
continuance thereof for twenty (20) days after written notice to the Borrower
from the Lender.
-8-
<PAGE>
(C) Waiver of Default.
-----------------
The Lender at any time may waive any default or any event of default
which shall have occurred and any of its consequences, in which case the Parties
hereto shall be restored to their former positions and rights and obligations
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon, and no such waiver shall
be effective unless it is in a written document executed by a duly authorized
officer.
8. LENDER'S REMEDIES FOR DEFAULT.
-----------------------------
Upon the occurrence of an Event of Default and acceleration of the
indebtedness of the Borrower to the Lender, the Lender shall have the following
remedies:
(A) Action for Enforcement.
----------------------
In case any one or more Events of Default shall occur and be
continuing, the Lender may proceed to protect and enforce its rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenants, agreement or other provision contained herein or
in any Security Document, or to enforce the payment of the Note or any other
legal or equitable right or remedy.
(B) Forfeiture of Security Interest.
-------------------------------
The Lender may take possession of the Collateral after default and
exercise all rights, title and interest in said Collateral. Borrower expressly
waives any rights or interest it may have regarding repossession of the
Collateral and acknowledges and agrees that the Collateral shall be forfeited
upon an Event of Default.
(C) Rights and Remedies Under Escrow Agreement.
------------------------------------------
The Lender shall have all rights given to it under the Escrow
Agreement entered into on even date herewith. Under same, the Lender may take
possession of the escrowed shares (as defined therein), which right of
possession shall entitle them to all rights, including voting, incident to
common stock ownership.
(D) Rights and Remedies Cumulative.
------------------------------
No right or remedy herein conferred upon the Lender is intended to be
exclusive of any other right or remedy contained herein, in the Note, Security
Documents or in any instrument or document delivered in connection with or
pursuant to this Agreement, and every such right or remedy shall be cumulative
and shall be in addition to every other such right or remedy contained herein
and therein or now or hereafter existing at law or in equity or by statute or
otherwise.
-9-
<PAGE>
(E) Rights and Remedies Not Waived.
------------------------------
No course of dealing between the Borrower and the Lender or any
failure or delay on the part of the Lender in exercising any rights or remedies
hereunder shall operate as a waiver of any rights or remedies of the Lender and
no single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
9. MISCELLANEOUS.
-------------
(A) Waivers.
-------
The Borrower waives presentment, demand, protest, notice of default,
nonpayment, partial payments and all other notices and formalities relating to
this Agreement other than notices specifically required hereunder. The Borrower
consents to and waives notice of the granting of indulgences or extensions of
time of payment, the taking or releasing of security, the addition or release of
persons primarily or secondarily liable on or with respect to liabilities of the
Borrower to the Lender, all in such manner and at such time or times as the
Lender may deem advisable. No act or omission of the Lender shall in any way be
implied or affect any of the indebtedness or liabilities of the Borrower to the
Lender or rights of the Lender in any security. No delay by the Lender to
exercise any right, power or remedy hereunder or under any security agreement,
and no indulgence given to the Borrower in case of any default, shall impair any
such right, power or remedy or be construed as having created a course of
dealing or performance contrary to the specific provisions of this Agreement or
as a waiver of any default by the Borrower or any acquiescence therein or as a
violation of any of the terms or provisions of this Agreement. The Lender shall
have the right at all times to enforce the provisions of this Agreement and all
other documents executed in connection herewith in strict accordance with their
terms, notwithstanding any course of dealing or performance by the Lender in
refraining from so doing at any time. No course of dealing between the Borrower
and the Lender shall operate as a waiver of any of the Lender's rights.
(B) Governing Law; Benefit.
----------------------
This Agreement and all rights hereunder shall be governed by the laws
of the State of Florida. This Agreement shall bind and inure to the benefit of
Borrower and Lender, and the terms "Borrower," and "Lender", respectively, as
used in this Agreement shall include, the respective Parties and their
respective successors and assigns. It is agreed that venue shall be in Brevard
County, Florida.
-10-
<PAGE>
(C) Notices.
-------
Any notice or demand to be given hereunder shall be duly given if
delivered or mailed as follows:
To the Borrower:
The Ashton Technology Group, Inc.
Attention: Fredric W. Rittereiser, CEO
1900 Market Street
Suite 701
Philadelphia, Pennsylvania 19103
with a copy to:
Cadwalader, Wickersham & Taft
Attention: Harvey Spear, Esquire
100 Maiden Lane
New York, New York 10038
To the Lender:
Computer Science Innovations, Inc.
Attention: George H. Milligan, President
1235 Evans Road
Melbourne, Florida 32904
with a copy to:
Reinman & Wattwood, P.A.
Attention: Victor S. Kostro, Esquire
1825 S. Riverview Drive
Melbourne, Florida 32901
(D) Titles.
------
Titles to the sections of this Agreement are solely for the
convenience of the Parties hereto and are not an aid in the interpretation of
this Agreement or any part thereof.
(E) Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
the Parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same Agreement.
-11-
<PAGE>
(F) Entire Agreement.
----------------
This Agreement constitutes the entire agreement between the Parties
with the exception of the Promissory Note, Stock Pledge Agreement, and Escrow
Agreement and shall not be amended or modified in any respect without the
express written consent of the Parties to be affected.
-12-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement the day and
year first above written.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.,
a Delaware corporation
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
- ------------------------------- ------------------------------
John A. Blohm (Name) Fredric W. Rittereiser (Name)
- ------------------------ --------------------------
Secretary (Title) President & CEO (Title)
- ------------------------ --------------------------
(SEAL) "Borrower"
/s/ John A. Blohm /s/ Fredric W. Rittereiser
- ------------------------------- ----------------------------------
Witness FREDRIC W. RITTEREISER,
Chief Executive Officer
/s/ Robert Eprile
- -------------------------------
Witness
Attest: COMPUTER SCIENCE INNOVATIONS,
INC., a Florida corporation
/s/ George Milligan By: /s/ George Milligan
- ------------------------------- ------------------------------
George Milligan (Name) George Milligan (Name)
- ------------------------ ---------------------------
President - CSI (Title) President (Title)
- ------------------------ ---------------------------
(SEAL) "Lender"
-13-
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
---------------
$500,000.00 Date: February 18, 1997
FOR VALUE RECEIVED, the undersigned, THE ASHTON TECHNOLOGY GROUP, INC., a
Delaware corporation, (the "Maker") promises to pay to the order of COMPUTER
SCIENCE INNOVATIONS, INC., a Florida corporation, its successors and assigns
(the "Lender" or "Holder") located at 1235 Evans Road, Melbourne, FL 32904, or
elsewhere as directed from time to time in writing by the Holder hereof, the
principal sum of Five Hundred Thousand Dollars ($500,000.00), together with
interest thereof at the rate of eight and one-quarter percent (8.25%) per annum,
in lawful money of the United States of America, payable as follows:
(a) Interest shall accrue from the period of February 18, 1997, until
November 18, 1997, on the principal amount at an annual rate of Eight
and One-Quarter Percent (8.25%); and
(b) The principal sum of Five Hundred Thousand Dollars ($500,000.00),
and all accrued interest thereon shall be due on November 18, 1997.
Repayment of this Note is secured by certain shares of Class A and Class B
Common stock of Computer Science Innovations, Inc., held in escrow pursuant to
the terms of an Escrow Agreement dated of even date herewith.
Payment not received within said twenty (20) days of the due date shall be
deemed a default under this Note. If the undersigned defaults in the payment
hereunder, the Note shall bear interest at the rate of 15% ("default rate") on
the amount then due and payable. Upon default for non-payment of the Note, the
entire unpaid principal balance of this obligation, together with accrued
interest, shall, at the Holders election, become immediately due and payable.
Additionally, repayment of this Note is secured by a Short-Term Loan and
Security Agreement (the "Short-Term Loan Agreement'). It is expressly agreed
that all of the covenants, conditions and agreements of the Maker hereof under
said Short-Term Loan Agreement are made a part of this Note and shall be
included in the interpretation of this Note. Upon the occurrence of default in
the performance or observation of any term, agreement, or condition specified in
the Short-Term Loan Agreement, other than for non-payment on the Note, Maker
shall have twenty (20) days from the date of written notice of default to cure
said default.
In the event said default is not cured within the twenty (20) day period,
the entire unpaid principal balance of this obligation, together with accrued
interest, shall, at the Holders election, become immediately due and payable.
-14-
<PAGE>
Maker shall have the privilege to prepay the indebtedness evidenced hereby,
in whole or in part at any time. Partial prepayments shall first be applied
against accrued interest then due and owing, and thereafter against principal.
Any partial prepayment shall not postpone the due date or change the amount of
any subsequent payment.
All persons or entities now or at anytime liable for payment of this Note
hereby waive presentment, protest, notice of protest and dishonor. The Maker
and all persons/entities liable hereunder expressly consent to any extensions or
renewals, in whole or in part, and all delays in timely payment or other
performance which Holder may grant at any time and from time to time without
limitation and without any notice or further consent of the undersigned.
The remedies of Holder provided herein, or in the Short-Term Loan
Agreement, shall be cumulative and concurrent and may be pursued singularly,
successively, or together, at the sole discretion of Holder and may be exercised
as often as the occasion therefore shall arise.
In the event this Note is placed in the hands of an attorney for collection
by civil action the prevailing party shall be entitled to an award of its
reasonable attorneys' fees and costs, including those on appeal.
This Promissory Note is to be construed and enforced according to the laws
of the State of Florida or, if Holder elects the benefit thereof, applicable
Federal pre-emption laws.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
- ------------------------------------ ---------------------------------
Secretary (Seal) Fredric W. Rittereiser (Name)
------------------------------
President & CEO (Title)
------------------------------
"Maker"
-15-
<PAGE>
EXHIBIT "B"
STOCK PLEDGE AGREEMENT
----------------------
THIS PLEDGE AGREEMENT ("Agreement") is made this 18th day of February,
1997, by and between THE ASHTON TECHNOLOGY GROUP, INC., a Delaware corporation
("Pledgor") and COMPUTER SCIENCE INNOVATIONS, INC., a Florida corporation with
its principal place of business in Melbourne, Florida, ("Secured Party"),
collectively referred to as the "Parties."
In order to secure performance of the obligations of Pledgor pursuant to
that certain Short-Term Loan and Security Agreement ("Short-Term Loan
Agreement") by and among the Parties of approximate even date herewith, the
Parties hereby agree as follows:
1. SECURITY INTEREST AND COLLATERAL.
--------------------------------
The Pledgor hereby grants Secured Party a security interest (herein called
the "Security Interest") in the capital stock set forth on Appendix A attached
hereto, together with all proceeds of and other rights in connection with such
capital stock (hereinafter called the "Pledged Stock"), said Pledged Stock shall
be held in escrow pursuant to that certain Escrow Agreement of even date
herewith by and between The Ashton Technology Group, Inc., Computer Science
Innovations, Inc., and Reinman & Wattwood, P.A.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------------------------------------
The Pledgor represents, warrants and agrees that:
(A) Pledgor will duly endorse, in blank, each and every certificate
constituting the Pledged Stock by signing on such instrument or by signing a
separate document of assignment or transfer, in form and substance acceptable to
Secured Party.
(B) Pledgor will surrender all rights, title and interest in the
Pledged Stock in the event of a default under the Short-Term Loan Agreement as
defined therein.
(C) Pledgor is the owner of the Pledged Stock free and clear of all
liens, encumbrances, security interests and restrictions, except for the
Security Interest and will not convey, sell or transfer in any manner any
interest in the Stock during the term of this Agreement.
(D) Pledgor will keep the Pledged Stock free and clear of all liens,
encumbrances, security interests and restrictions, except for the Security
Interest.
(E) Pledgor will pay, when due, all taxes and other governmental
charges levied or assessed upon or against the Pledged Stock.
-16-
<PAGE>
(F) Pledgor represents and warrants that it has the full authority of
its Board of Directors to encumber and pledge the Pledged Stock as collateral to
secure performance of the obligations of Pledgor pursuant to that certain Short-
Term Loan Agreement.
3. EXERCISE SHAREHOLDER VOTING RIGHTS OF BORROWER.
----------------------------------------------
As long as the terms of this Agreement and the Note have not been breached
or are not in default, the Borrower shall have all rights in the pledged Shares
except for the following:
(i) the right to possession;
(ii) the right to exercise its vote on any matters related to the
terms and conditions of this Agreement;
(iii) the right to exercise its vote on any matters related to the
terms and conditions of the Note; and
(iv) the right to increase, decrease, remove or fill vacancies on the
Board of Directors of the Lender.
4. EXERCISE BOARD OF DIRECTORS VOTING RIGHTS OF BORROWER.
-----------------------------------------------------
At the time of execution of this Agreement, the Chief Executive Officer of
Borrower is one of three (3) members of the Board of Directors of Lender.
Borrower acknowledges and agrees that a conflict of interest shall exist in the
event any matters or issues related to the terms and conditions of this
Agreement, or the Note, and because of such conflict of interest, the Chief
Executive Officer of Borrower shall not vote on said matters or issues.
5. ANTI-DILUTION.
-------------
During the term of this Agreement and Note, and any extensions thereto, the
Borrower shall not issue, nor cause to be issued any additional shares of Stock
in the Lender.
6. EVENTS OF DEFAULT.
-----------------
For purposes of this Agreement, "Event of Default" shall mean a default as
defined in the Short-Term Loan Agreement, the terms of which are incorporated
herein by this reference, or a breach of a representation, covenant or warranty
set forth in this Agreement.
-17-
<PAGE>
7. REMEDIES UPON EVENT OF DEFAULT.
------------------------------
Upon the occurrence of an Event of Default, Secured Party may exercise any
or all of the following rights or remedies, together with all other rights or
remedies provided hereunder, or under applicable law; provided that no exercise
of any one or more of such rights or remedies shall preclude Secured Party from
exercising any other rights or remedies at the same time or at any other time:
(A) Exercise any or all of the rights or remedies of a secured party
under the Uniform Commercial Code with respect to the Pledged Shares, including,
but not limited to, the right to sell the Pledged Stock in a private or public
sale;
(B) Exercise all voting powers with respect to the Pledged Shares
while proceeding to exercise the remedies of a secured party referenced in
subsection 7(A) hereof;
(C) Exercise all of the remedies provided in the Short-Term Loan
Agreement;
(D) Exercise all of the remedies provided in the Escrow Agreement,
including but not limited to taking possession and acquiring all incidents of
ownership of the Pledged Stock.
(E) For purposes of this Agreement, ten (10) days notice to Pledgor
shall be deemed commercially reasonable.
7. RELEASE.
-------
The Secured Party agrees that it shall release all of the Pledged Stock
from the terms of this Agreement provided that simultaneously with such release
the obligations of the Short-Term Loan Agreement are performed in full.
-18-
<PAGE>
8. MISCELLANEOUS.
-------------
This Agreement can be waived, modified, amended, terminated or discharged,
and the Security Interest can be released, only explicitly in a writing signed
by the Secured Party. The Secured Party shall not have any responsibility for
(i) ascertaining or taking any action with respect to exchanges, tenders or
other matters relative to any Pledged Stock, whether or not the Secured Party is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve such rights against any parties with respect to any Pledged Stock.
Pledgor will reimburse Secured Party for all costs, expenses or disbursements of
any kind or nature whatsoever incurred in disposing of the collateral (including
reasonable attorneys fees). This Agreement shall be binding upon and inure to
the benefit of Pledgor and Secured Party and their respective successors and
assigns and shall take effect when signed by Pledgor and delivered to Secured
Party, and Pledgor waives notice of acceptance hereof by Secured Party. This
Agreement shall be governed by the internal laws of the State of Florida, and,
unless the context otherwise requires, all terms used herein which are defined
in Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state,
shall have the meanings therein stated. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement. To the extent required by applicable law, the
rights and obligations of the Secured Party may be assigned to a licensed
professional, person, or other entity. This Agreement may be amended at any
time by written instrument executed by the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have executed this Stock Pledge
Agreement on the day and year first above written.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
- -------------------------------- ---------------------------------
John A. Blohm (Name) Fredric W. Rittereiser (Name)
- ------------------------- ------------------------------
Secretary (Title) President & CEO (Title)
- ------------------------- ------------------------------
"Pledgor"
Attest: COMPUTER SCIENCE INNOVATIONS, INC.
/s/ George Milligan By: /s/ George Milligan
- -------------------------------- ---------------------------------
George Milligan (Name) George Milligan (Name)
- ------------------------- ------------------------------
President (Title) President (Title)
- ------------------------- ------------------------------
"Secured Party"
-19-
<PAGE>
APPENDIX "A"
------------
To secure the Borrower's prompt, punctual, and faithful performance of all
of the Borrower's liabilities herein, the Borrower hereby grants to the Lender a
continuing security interest in and to, and pledges to the Lender, pursuant to
the Stock Pledge Agreement, the following:
All rights, title and interest in the common stock of Computer
Science Innovations, Inc. currently owned by and in the
possession of Borrower, presently consisting of Six Hundred
Ninety-Seven Thousand Eight Hundred Seventy-One (697,871) Class A
Shares and One Million Twenty-One Thousand Three Hundred Eighty-
One (1,021,381) Class B Shares.
-20-
<PAGE>
EXHIBIT "C"
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT is entered into on this 18th day of February, 1997,
by and among THE ASHTON TECHNOLOGY GROUP, INC., a Delaware Corporation
(hereinafter referred to as "Pledgor"), COMPUTER SCIENCE INNOVATIONS, INC., a
Florida Corporation, (hereinafter referred to as "Corporation"), and Reinman &
Wattwood, P.A., hereinafter referred to as the "Escrow Agent."
WHEREAS, Pledgor is a party to that certain Short-Term Loan and Security
Agreement ("Short-Term Loan Agreement") of approximate even date herewith, and
incorporated herein by reference; and
WHEREAS, in order to more effectively implement the terms of the Short-Term
Loan Agreement, Pledgor is amenable to escrowing all of its shares of stock now
owned or subsequently acquired in Corporation. Pledgor has agreed to transfer
said common stock interest ("Stock") as additional security for payment by
Pledgor of that certain Promissory Note ("Note") being delivered pursuant to the
terms of that certain Short-Term Loan Agreement; and
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. The above recitals and all exhibits hereto are true and correct and
are incorporated herein by this reference.
2. Upon execution on even date herewith of the Short-Term Loan Agreement,
the Pledgor shall deliver to the Escrow Agent all Shares of the Stock
("Shares"), to be held in Escrow
-21-
<PAGE>
pursuant to the terms and conditions of this Agreement.
3. The Pledgor further agrees Escrow Agent to transfer Shares
simultaneously, and in accordance with the terms of the to execute stock powers
of Short-Term Loan Agreement and this Escrow Agreement. attorney authorizing the
4. As long as the terms and Agreement and the Note have not been breached
or are not in default, the Pledgor shall have all conditions of the Escrow
rights in the escrowed Shares except the right to possession and the right to
exercise its vote on Agreement, Short-Term Loan any matters related to the terms
and conditions of the Short-Term Loan Agreement and the Note. Additionally,
Pledgor shall have no right to exercise its vote on any matters related to
increasing, decreasing, filling vacancies or removing Directors on the Board of
Corporation.
5. In the event of any Note) the Chief Executive Officer ("CEO") of
Corporation shall give the Pledgor and the Escrow default (as defined in the
Agent written notice of said default. After receipt of the notice, the Escrow
Agent is authorized Short Term Loan Agreement to transfer the Shares and may
take such other actions as are required to carry out the intent of or the the
Short-Term Loan Agreement, the Note, and this Escrow Agreement.
6. The Escrow Agent shall be transactions of the escrowed Shares in
accordance with the provisions of this Escrow Agreement liable only for the and
the Short-Term Loan Agreement, and any amendments and supplements thereto. The
Escrow safekeeping, transfer, and Agent shall not be liable or responsible for
any loss unless the same is caused by its gross other negligence or willful
malfeasance. The parties hereto further agree to release, indemnify and hold
harmless the Escrow Agent from and against any and all claims, losses, damages,
expenses, or other liabilities arising out of the performance of the duties of
Escrow Agent pursuant to this Escrow
-22-
<PAGE>
Agreement.
7. In the event any dispute shall arise between the parties whereby the
Escrow Agent is in doubt as to his duties or liabilities under this Agreement,
the Escrow Agent, in its sole and absolute discretion, may continue to hold the
Shares held pursuant to this Escrow Agreement until the Pledgor and Corporation
mutually agree to the distribution thereof or until the Escrow Agent shall be
ordered to disburse same by judgment of a court of competent jurisdiction; or
the Escrow Agent may implead the escrowed Shares into the Registry of a Court of
competent jurisdiction, subject to distribution upon order of the Court. Upon
notifying the Pledgor and the Parties of the Short-Term Loan Agreement of such
action, all liability on the part of Escrow Agent shall fully cease and
terminate.
8. Notwithstanding the above, Pledgor and Corporation acknowledge that
the Escrow Agent shall not be precluded from providing continuing, legal
representation to Corporation on all matters unrelated to this specific Escrow
Agreement.
9. All parties agree that the Escrow Agent shall not be liable to any
party or person whomsoever except for willful breach of this Agreement or gross
negligence on the part of the Escrow Agent.
10. The Escrow Agent may resign at any time upon giving of thirty (30)
days written notice to Pledgor. If a Successor Escrow Agent is not appointed
within thirty (30) days after notice of resignation, the Escrow Agent may
petition any Court of competent jurisdiction to name a Successor Escrow Agent;
and the Escrow Agent herein shall be fully relieved of all liability under this
Agreement to any and all parties upon the transfer of the Escrow deposits to the
Successor
-23-
<PAGE>
Escrow Agent.
11. This Escrow Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each party
and delivered to the other party.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement this
18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
- ----------------------------- -------------------------------
John A. Blohm (Name) Fredric W. Rittereiser (Name)
- ---------------------- ----------------------------
Secretary (Title) President & CEO (Title)
- ---------------------- ----------------------------
(SEAL) "Pledgor"
Attest: COMPUTER SCIENCE INNOVATIONS, INC.
/s/ George Milligan By: /s/ George Milligan
- ----------------------------- -------------------------------
George Milligan (Name) George Milligan (Name)
- ---------------------- ----------------------------
President (Title) President (Title)
- ---------------------- ----------------------------
(SEAL) "Corporation"
REINMAN & WATTWOOD, P.A.
_____________________________
Witness By: /s/___________________________
_______________________ (Name)
_______________________(Title)
_____________________________
Witness
"Escrow Agent"
-24-
<PAGE>
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to ______________________________, or order, all right, title and interest in
One Million Twenty-One Thousand Three Hundred Eighty-One (1,021,381) Shares of
COMPUTER SCIENCE INNOVATIONS, INC. Class B Common stock, represented by
Certificate Number, _______ standing in the name of the undersigned on the books
of the Company.
The undersigned does hereby irrevocably constitute and appoint VICTOR S.
KOSTRO, ESQ., to transfer said stock on the books of said Company, with full
power of substitution in the premises.
Dated this 18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John A. Blohm By: /s/ Fredric W. Rittereiser
- ------------------------------ --------------------------------
John A. Blohm, (Name) Fredric W. Rittereiser (Name)
- ----------------------- -----------------------------
Secretary (Title) President & CEO (Title)
- ----------------------- ----------------------------
(SEAL)
-25-
<PAGE>
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer
to _________________________________, or order, all right, title and interest in
Six Hundred Ninety-Seven Eight Hundred Seventy-One (697,871) Shares of COMPUTER
SCIENCE INNOVATIONS, INC. Class A Common stock, represented by Certificate
Number standing in the name of the undersigned on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint VICTOR S.
KOSTRO, ESQ., to transfer said stock on the books of said Company, with full
power of substitution in the premises.
Dated this 18th day of February, 1997.
Attest: THE ASHTON TECHNOLOGY GROUP, INC.
/s/ John Blohm By: /s/ Fredric W. Rittereiser
- ------------------------------- ----------------------------------
John A. Blohm (Name) Fredric W. Rittereiser (Name)
- ------------------------ -------------------------------
Secretary (Title) President & CEO (Title)
- ------------------------ -------------------------------
(SEAL)
-26-
<PAGE>
AFFIDAVIT OF LOST CERTIFICATE
STATE OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
I, John A. Blohm, the Executive Vice President/Secretary (title) of The
Ashton Technology Group, Inc. ("Ashton"), being duly sworn, deposes and says:
1. That Ashton is the owner of 5 certificate(s) representing the ownership
of 1,134,006 shares of Class A Common Stock of Computer Science Innovations,
Inc. ("CSI"), a Florida corporation, which is represented on the books of the
CSI as Stock Certificates No. 149, 150, 151, 153, and 154, dated
________________.
2. That Ashton is the owner of 4 certificate(s) representing the ownership
of 1,600,471 shares of Class B Common Stock of Computer Science Innovations,
Inc. ("CSI"), a Florida corporation, which is represented on the books of the
CSI as Stock Certificates No. 183, 185, 186 and 187, dated ________________.
3. That Ashton lost said Certificates.
4. That Ashton, through its Officers, has made a diligent effort to find
the Certificates and since the Certificates were not found, it is understood
that CSI will issue replacement Certificates to the undersigned.
5. That it is understood by the undersigned that if, after receiving
replacement Certificates, the original Certificates are found, that it will
surrender said Certificates to the Secretary of CSI to be canceled of record.
ASHTON TECHNOLOGY GROUP, INC.
By: /s/ John Blohm
-------------------------------
John A. Blohm (Name)
---------------------------
Executive VP/Secretary (Title)
---------------------------
-27-
<PAGE>
STATE OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
ON THIS 18th day of February, 1997, before me personally appeared John A.
Blohm, the Executive Vice Pres. (title) of THE ASHTON TECHNOLOGY GROUP, INC., a
Delaware corporation, described in and who executed the foregoing instrument and
duly acknowledged to me that he executed the same as affidavit (title) as
aforesaid.
/s/ Maureen Daly
----------------------------------------
(Signature of Notary Public)
Maureen Daly
----------------------------------------
(Print, type or stamp Commissioned Name
of Notary Public)
Personally Known X OR Produced
-
Identification Type of Identification:___________
<PAGE>
EXHIBIT 10.39
TAX ALLOCATION AGREEMENT
Agreement dated March 27, 1997, by and among The Ashton Technology
Group, Inc. (Parent) and each of its undersigned subsidiaries (Subsidiaries).
WITNESSETH
Whereas, the parties hereto are members of an affiliated group
(Affiliated Group) as defined in Section 1504(a); and
Whereas, such Affiliated Group will file a U.S. consolidated income
tax return for its taxable year ended March 31, 1997 and is required to file
consolidated tax returns for subsequent years; and
Whereas, it is the intent and desire of the parties hereto that a
method be established for allocating the consolidated tax liability of the
Affiliated Group among its members, for reimbursing the Parent for payment of
such tax liability, for compensating any party for use of its losses or tax
credits, and to provide for the allocation and payment of any refund arising
from a carryback of losses or tax credits from subsequent tax years.
Now, Therefore, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return shall be filed by the
Parent for the tax year ended March 31, 1997, and for each
subsequent taxable period in respect of which this Agreement is
in effect and for which the Affiliated Group is required or
permitted to file a consolidated tax return. Each Subsidiary
shall execute and file such consent, elections, and other
documents that may be required or appropriate for the proper
filing of such returns.
2. For each tax period, each member of the Affiliated Group shall
compute its tax liability in accordance with the provisions of
Regulation (S) 1.1502-33(d)(3) with a fixed percentage of 100
percent and shall pay such amount (including any increased
liability allocated pursuant to such regulation above any
liability allocated pursuant to section 1552 of the Internal
Revenue Code) to the Parent. For purposes of this Agreement, any
liability for alternative minimum tax shall be treated as a tax
liability subject to this paragraph.
3. Payment of the consolidated tax liability for a taxable period
shall include the payment of estimated tax installments due for
such taxable period, and each Subsidiary shall pay to the Parent
its share of each payment within ten days of receiving notice of
such payment from the Parent, but in no event later than the due
date for each such payment. Any amounts paid by a Subsidiary
<PAGE>
on account of a separate return or separate estimated tax
payments that are credited against the consolidated tax liability
of the Affiliated Group shall be included in determining the
payments due from such Subsidiary. Any overpayment of estimated
tax should be refunded to the Subsidiary. Any payments made by a
Subsidiary to the Parent under this Agreement, including payments
by a Subsidiary to the Parent of any estimated tax installments
due for each taxable period, shall be paid to the Parent, even if
the Affiliated Group as a whole does not have any consolidated
estimated tax liability for such period.
4. To the extent payments received in respect of a taxable year by
Parent pursuant to paragraph 2, above, exceed the consolidated
tax liability for such period as a result of the absorption or
utilization of losses, deductions, credits or similar items of
certain members against other members' income, gain or similar
items, then the Parent shall pay such excess amount received to
those members whose items were absorbed or utilized in a manner
that reasonably reflects such utilization or absorption within 10
days of filing its consolidated federal income tax return for
such period.
5. If part or all of an unused loss or tax credit is allocated to a
member of the Affiliated Group pursuant to Regulation (S) 1.1502-
79, and is carried back or forward to a year in which such member
filed a separate return or a consolidated return with another
affiliated group, any refund or reduction in tax liability
arising from the carryback or carryover shall be retained by such
member. Notwithstanding the above, the Parent shall determine
whether an election shall be made not to carry back part or all
of a consolidated net operating loss for any tax year in
accordance with Section 172(b)(3).
6. If the consolidated tax liability is adjusted for any taxable
period, whether by means of an amended return, claim for refund,
or after a tax audit by the Internal Revenue Service, the
liability of each member shall be recomputed to give effect to
such adjustments, and in the case of a refund, the Parent shall
make payment to each member for its share of the refund,
determined in the same manner as in paragraphs 2 and 4 above,
within ten days after the refund is received by the Parent, and
in the case of an increase in tax liability, each member shall
pay to the Parent its allocable share of such increased tax
liability within ten days after receiving notice of such
liability from the Parent.
7. If during a consolidated return period the Parent or any
Subsidiary acquires or organizes another corporation that is
required to be included in the consolidated return, then such
corporation shall join in and be bound by this Agreement.
<PAGE>
8. This Agreement shall apply to the tax year ending March 31, 1997,
and all subsequent taxable periods unless the Parent and the
Subsidiaries agree to terminate the Agreement. Notwithstanding
such termination, this Agreement shall continue in effect with
respect to any payment or refunds due for all taxable periods
prior to termination.
9. Notwithstanding any other provisions of this Agreement, payment
of any estimated tax installment by a Subsidiary to the Parent
under this Agreement for the tax year ending March 31, 1997 shall
be made on or before March 31, 1997.
10. This Agreement shall be binding upon and inure to the benefit of
any successor, whether by statutory merger, acquisition of
assets, or otherwise, to any of the parties hereto, to the same
extent as if the successor had been an original party to the
Agreement.
In Witness Whereof, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives on March 27, 1997.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric Rittereiser
------------------------------------------
Name: Fredric W. Rittereiser
Title: President & CEO
COMPUTER SCIENCE INNOVATIONS, INC.
By: /s/ George Milligan
------------------------------------------
Name: George Milligan
Title: President
UNIVERSAL TRADING TECHNOLOGIES
CORPORATION
By: /s/ Robert Eprile
------------------------------------------
Name: Robert A. Eprile
Title: President
<PAGE>
EXHIBIT 10.40
-------------
[Letterhead of The Ashton Technology Group, Inc.]
January 23, 1996
Alliant Techsystems
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
Attention: Mr. Tom Shelly
Manager, Advanced Systems
Subject: Letter Contract No. ASH-LCO1231
Gentlemen:
1. Order: An order is hereby placed with you for the furnishing
to Ashton Technology Group, Inc. the design and system specifications for an
encryption device (to be known as the Ashton Technology Encryption Device
(ATED)), as set forth in Exhibit A (Statement of Work) attached hereto and
hereby made a part hereof. This order shall become a contract (this "Letter
Contract") on the terms and conditions set forth herein upon your unconditional
acceptance hereof, and shall be deemed effective as of December 8, 1995.
2. Authorization: You are directed upon your acceptance of this
order to proceed immediately to procure the necessary materials and to commence
the performance of the work called for herein, and to pursue such work with all
diligence to the end that the contracted for Goods. Documentation and Services
may be delivered or performed at the time or times specified in Exhibit A.
3. Consideration:
(a) Payments will be made to you pending execution of this
contract for your work expended in accomplishing the tasks defined in Paragraph
1 and Exhibit A. AlliantTech will present monthly invoices for the work
performed detailing the number of hours and labor categories for the work along
with the fully burdened, definitized billing rates to be
<PAGE>
negotiated for this contract. Ashton will pay Alliant Tech within 90 days of
receipt of invoice. In the event of the termination of this Letter Contract for
default or for convenience as set forth in Article 4.b hereof.
(b) You are not authorized to expend or obligate in
furtherance of your performance hereunder more than U.S. $75,000.00 in the
aggregate. Notwithstanding any other provision of this Letter Contract or its
exhibits to the contrary, any expenditure or obligation in excess of that amount
shall be at your own risk and Ashton Technology Group, Inc. shall not in any
event be obligated to pay more than that amount in the aggregate hereunder,
whether for completed work, termination costs, settlement expenses, or
otherwise.
4. Negotiation of Definitive Contract:
(a) By your acceptance of this order, you agree to enter
into good faith negotiations immediately with Ashton Technology Group, Inc.,
with the expectation of the execution of a definitive contract which will
include mutually acceptable detailed prices, delivery schedules and other terms
of this Letter Contract; provided, however, that the total price for the
definitive contract shall not exceed U.S. $350,000.00.
(b) It is expected that such definitive contract will be
issued prior to March 31, 1996. If we fail to agree upon the definitive contract
by said date, this Letter Contract shall terminate automatically and you will be
paid on the same terms as if this Letter Contract had been terminated by Ashton
Technology Group, Inc. for its convenience.
5. Incorporation of Special Terms and Conditions:
(a) Payment for completed or partially completed Goods,
Documentation and Services: Ashton requires Seller to deliver to Ashton any
completed Goods, Documentation and Services and such partially completed Goods.
Documentation and Services as Seller has produced or acquired for the
performance of any terminated portion of this Contract. Seller shall protect and
preserve as property including Intellectual Property in possession of Seller in
which Ashton has or may acquire an interest or right. The payment which Ashton
accepts shall be the lesser of the following amounts:
(i) The actual, reasonable direct costs and associated
overhead, including general and administrative overhead directly related to the
direct costs, expended by Seller in producing any such completed or partially
completed Goods, Documentation and Services which Ashton requires Seller to
deliver to Ashton pursuant to the preceding paragraph of this Article and that
Ashton accepts: or
(ii) The amount specified in Paragraph 3.b. of this Letter
Contract.
<PAGE>
b. Termination for Convenience. Ashton shall pay Seller the
lesser of the following amounts:
(i) The sum of (1) the actual, reasonable direct costs and
associated overhead, including general administrative overhead directly related
to the direct costs, expended by Seller in performance of work under this
contract, and (2) the amount reimbursable under paragraph 4.a. above; or
(ii) The amount specified in Paragraph 3.b of this Letter
Contract.
6. Acceptance: If the foregoing is satisfactory to you, please
indicate your acceptance hereof by signing and returning the enclosed extra
copy. Such acceptance will constitute this as a contract on the terms and
conditions set forth herein. Telefacsimile signatures shall be effective as
originals.
Very truly yours,
Ashton Technology Group, Inc.
Accepted this 23rd day of January 1996 Alliant Techsystems, Inc.
By: /s/ Raymond T. Tate By: /s/ William Labuda
--------------------------- -----------------------------
(Signature) (Signature)
Raymond T. Tate William M. Labuda
President Director
<PAGE>
EXHIBIT A
STATEMENT OF WORK: PHASE I
1. Study the operational environment of the UTS(TM) and participate in
design meetings focusing on the encryption device requirements and
hardware/communication/data flow interfaces.
2. Complete an Encryption System Specification. Hardware/Software
Requirements Specification and Interface Document.
3. Prepare a hardware architecture and block diagram complete with data
storage, sizing, and throughput requirements.
4. Prepare an encryption device Test Plan.
5. Prepare a detailed System Implementation Plan together with cost and
schedule for the number of encryption devices required for the UTS(TM) system.
All requirements that cannot be accommodated, should be noted. This document
will become the basis for the definitized contract negotiation.
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
March 29, 1996
Alliant Techsystems
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
Attention: Mr. Tom Shelly
Manager, Advanced Systems
Subject: Letter Contract No. ASH-LCO1231
Modification #01
Gentlemen:
1. Incorporation of Special Terms and Conditions:
(a) All actual expenses related to above noted contract, as
of March 31, 1996, shall be billed to The Ashton Technology Group, Inc. Payment
will be made to you within 90 days of receipt of invoice. All additional
expenses related to this contract shall be paid after all contract and
deliverable requirements are completed.
(b) Contract cap is $450,000.00
2. All other terms and conditions remain in effect under the
original Letter Contract No. ASH-LCO 1281, dated January 23, 1996.
3. Acceptance: If the foregoing is satisfactory to you, please
indicate your acceptance hereof by signing and returning the enclosed extra
copy. Such acceptance will constitute this as a contract on the terms and
conditions set forth herein. Telefacsimile signatures shall be effective as
originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 29th day of March 1996
Alliant Techsystems, Inc.
By: /s/ Raymond T. Tate By: /s/ William Labuda
-------------------------------- --------------------------------
(Signature) (Signature)
<PAGE>
Raymond T. Tate William M. Labuda
President Director
Contract No. ASH-LCO1231, Mod. 2
To: Alliant Techsystems, Inc.
Advanced Technical Applications
401 Defense Highway
Annapolis, MD 21401
This Agreement, made as of August 1, 1996, between Ashton Technology Group,
10420 Little Patuxent Parkway, Suite 490, Columbia, MD 21044 and Alliant
Techsystems, Advanced Technology Application, 401 Defense Highway, Annapolis, MD
21401.
The parties mutually agree as follows:
1. STATEMENT OF WORK
Defined as:
(a) Ashton Technology Encryption Device (ATED), delivery of 100 units
complete with Phase VI software as defined at the Ashton Technical Review
meeting dated August 27, 1996.
(b) Integration and test support through November 30, 1996.
(c) Crypto Administration Workstation Software, Phase II as defined at the
Ashton Technical Review Meeting dated August 27, 1996.
2. PERIOD OF PERFORMANCE
This contract definitizes letter contract ASH-LCO1231, and Mod. 1, dated
January 23, 1996. Alliant Techsystems shall supply items and services
described herein accordance with the terms hereof during the period 1-23-96
through 11-30-96.
3. PAYMENT
This is a Fixed Price Contract in the amount of $1,283,000.00 for the
delivery of 100 ATED units, integration, design and testing support, with
monthly milestone billings due and payable Net 30 days from receipt of
invoice.
4. TERMS AND CONDITIONS
This contract is expressly contingent upon acceptance of the Alliant
Techsystems general terms and conditions of sale (attached).
<PAGE>
WE HEREBY ACKNOWLEDGE AND ACCEPT THIS CONTRACT SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH HEREIN.
ASHTON TECHNOLOGY GROUP ALLIANT TECHSYSTEMS, INC.
By: /s/ Raymond T. Tate By: /s/ William Labuda
-------------------------- -----------------------------
Raymond T. Tate William M. Labuda
Title: President Title: Director/General Manager
Date: 8-1-96 Date: 8-1-96
<PAGE>
EXHIBIT 10.41
Motorola, Inc.
SATCOM
2501 S. Price Road
Chandler, AZ 85248-2899
TASK ORDER
Contract No.:C416TS
Task Order No.: 01 Effective Date of Task Order 1-16-96
To: Computer Science Innovations, Inc.
This Task Order is Issued pursuant to the above referenced contract
and is governed by the terms thereof,
TASK TITLE AND/OR CLIN: Operations and Maintenance Center-Gateway (OMC-G)
product verification.
TASK DESCRIPTION: CSI shall establish and manage an OMC-G verification
laboratory and create and execute an OMC-G verification process. All work
performed under this Task Order shall be in accordance with the requirements
specified in Exhibit C-1, Statement of Work #SOW-GO02l.GWS. Individual tasks
include the following:
a) Install an OMC-G verification lab
1) Current ETC Lab facility in Gilbert, AZ to be expanded to
accommodate OMC-G activity. Expansion to be completed as depicted
in CSI proposal for "Verification of the Gateway Operations and
Maintenance Center dated January 26, 1996.
b) Support the lab with qualified personnel
c) Manage and build the software releases from code delivered by the
developers
d) Create an acceptance test plan to verity each release to be delivered
to Gateway I & T team.
e) Create a verification plan that will verify the OMC-G functions for
each of the delivered releases
f) Write test cases including methods, procedures, and scripts compatible
with the lab, acceptance plans. and verification plans
g) Execute test cases and correlate results into pass/fail reports
h) Provide first level defect reporting in support of defect resolution
i) Provide verification metrics to document the process
<PAGE>
TASK DELIVERABLES: Task Deliverables shall be as detailed in Paragraph 7.0 of
SOW-GOD2l.GWS
TASK STAFFING PLAN (INCLUDING KEY PERSONNEL AND THE ESTIMATED HOURS BY LABOR
CATEGORY):
FIRM FIXED PRICE
For complete and timely delivery of the Goods, Documentation and
Services specified in Exhibit D-1 (Performance and Payment Schedule) and Exhibit
F-1 (Performance and Payment Schedule-Fixed Price), Motorola shall pay Seller
the designated firm fixed prices for each milestone itemized in both exhibits.
LEVEL OF EFFORT
In addition to Milestone payments per Exhibits D-1 and F-1, Motorola
shall pay Seller all accrued-to-date labor costs. Seller will invoice these
labor costs to Motorola on a monthly basis at the rates identified in the "LOE"
column of the rate table below:
<TABLE>
<CAPTION>
"CSI" "LOE"
Title Hourly Rate Hourly Rate Range of Total Hours
- ----------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Program Manager/Principle Engineer $103 $85 2,500-4,500
Senior Engineer $ 70 $58 1,000-4,500
Engineer $ 55 $46 2,200-4,200
Administrator $ 24 $20 100-1,000
</TABLE>
The range of total hours is a guideline to use in the performance of the Task
Order, and for each labor category is the minimum and maximum acceptable number
of hours to be billed during the LOE portion of the contract, starting on
January 1, 1996. These ranges are based on a review of the total hours estimated
in each job classification to perform the tasks detailed in the Statement of
Work, Exhibit C. The minimum required number of total hours invoiced by Seller
to amortize the entire contract value of Exhibit B-1, Line 29, 1996 Monthly
---------------------
Labor Cost, shall be 8,512.
- ----------
TRAVEL
Motorola shall pay all travel-related expenses at actual cost plus
General and Administrative (G&A) rate of 16.5%.
<PAGE>
OVERRUNS
Should the Seller overrun the total contract value of Exhibit B-1 Line
14, 1996 Monthly Labor Cost, Motorola may, at it's sole discretion, add hours
-----------------------
and appropriate contract value to complete any remaining milestones. In the
event that Motorola elects to terminate this contract when the total contract
value of Exhibit B-1, Line 14, 1996 Monthly Labor Cost, has been exhausted, and
-----------------------
before the completion of all milestones, Motorola shall pay Seller the balance
remaining of the full Contract value.
To the extent that a Contract overrun occurs through no fault of the
Seller, the Hourly Rate in the "CSI" Column of the above rate table shall apply
to any hours Motorola adds to the Contract by exercising it's right to do so.
For all additional hours Motorola elects to add to the Contract due to
Sellers responsibility. the Hourly Rate will be negotiated, but in no case will
the negotiated rates be less than the rates in the "LOE" Column of the above
rate table. Both "LOE" and "CSI" Column rates for add-on hours are negotiable up
or down for cost-of-living factors.
Seller shall provide a breakdown of the labor hours expended, an a
per-milestone basis, as the milestones are completed. This breakdown shall
include an analysis of any labor hour deviations from plan per Exhibit D.
Motorola and Seller shall reach agreement as to the cause of each deviation.
This agreement shall help form the basis of negotiation in the event that a
total contract hours overrun occurs.
TRAVEL REQUIRED: During the development process subcontractor personnel may be
directed to visit the development sites in Italy.
TASK PERFORMANCE SCHEDULE (including the Motorola required completion date): The
Task Performance Schedule shall be as defined in Exhibit D-1.
REQUIRED MATERIALS (Materials, Equipment, Subcontracts, Etc.): The materials
required for this Task Order are detailed in Exhibit C-1, the Statement of Work
DOCUMENTS ATTACHED TO THIS TASK ORDER:
. Exhibit B-1, Task Order #01 Contract Line Items
. Exhibit C-1, Statement of Work # SOW-GO021.GWS
. Exhibit D-1, Task Order #01 Performance and Payment Schedule
. Exhibit F-1, Task Order #01 Fixed Price Payment Schedule
. CSI proposal for "Verification of the Gateway Operations and
Maintenance Center," dated January 26, 1996
<PAGE>
Estimated Total Labor Cost: ($646,962)
Estimated Travel Cost: ($46,000)
Lab Setup Cost Cost: ($100,909)
Lab Operating Cost: ($17,100)
G&A ($12,310)
ESTIMATED TOTAL COST OF TASK ORDER: ($823,282)*
*THIS AMOUNT MAY NOT BE EXCEEDED WITHOUT MOTOROLA'S PRIOR WRITTEN APPROVAL.
MOTOROLA, INC. [SELLER]
/s/ Tim Odders /s/ Gerald Longanbach
- ---------------------------------- -----------------------------------------
(By) (By)
SBM Vice President
- ---------------------------------- -----------------------------------------
(Title) (Title)
2-28-96 3-13-96
- ---------------------------------- -----------------------------------------
(Date) (Date)
<PAGE>
CHANGE ORDER/CONTACT AMENDMENT
------------------------------
(only the boxes checked below are applicable to this document)
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Gerald Longanbach
------------------ -------------------------------------
(Address) 2501 S. Price Road 1235 Evans Road
------------------ -------------------------------------
Chandler, AZ 85248 Melbourne, FL 32904-2314
------------------ -------------------------------------
Telephone (602) 732-4772 Telephone (407) 676-2923
------------------ ----------------------------
Fax (602) 732-4346 Fax (407) 676-2355
------------------ ----------------------------------
CO/CA No.: 02 Dated: 2-26-96 To Contract No.: C416TS
-- ------- -------------------
[_] A. CHANGE ORDER
------------
1. Pursuant to the Article entitled "Changes" in the above described contract,
Motorola hereby directs Seller to immediately adopt and implement the changes
set forth on Attachment A hereto.
------------
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the items of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
[X] B. CONTRACT AMENDMENT
------------------
1. The parties to the above described contract hereby amend the contract as
set forth on Attachment A hereto.
------------
2. The amendments on Attachment A are binding when this Contract Amendment has
------------
been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all other
------------
terms and conditions of the contract, as amended to date, remain in full force
and effect.
[_] C. ACKNOWLEDGMENTS OF TECHNICAL REQUIREMENTS (include only applicable
sign-offs)
<PAGE>
1. By initialing below, each person is indicating that the changes made by
this Change Order/Contract Amendment are completely understood by such person.
Motorola Seller
Satellite Communications Division (typed name and initials)
a. Joe Kish a. ___________________________________
---------------------------------
b. Carlton Clarke b. ___________________________________
---------------------------------
c. _________________________________ c. ___________________________________
[X] D. SIGNATURES
This document must be executed below in order to be effective. Change
Orders require only Motorola's execution. Contract Amendments require
execution by both parties.
Motorola, Inc. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Gerald Longanbach
-------------------------------- ------------------------------------
Tim Odders, SBM Gerald Longanbach, Vice President
[_] E. ACKNOWLEDGMENT OF RECEIPT BY SELLER (for Change Orders only).
Received this ____ day of ________, 199__.
__________________________________________
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
------------
- --------------------------------------------------------------------------------
CO/CA No. 01 Contracts No. C416TS
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 02 changes as follows:
I) ARTICLE I-DESCRIPTION OF WORK
ARTICLE I SHALL READ AS FOLLOWS:
(a) Seller shall provide, on a firm fixed price basis, the necessary
labor, materials, personnel, facilities and services required to design,
develop, manufacture, assemble, test, and deliver an ETC Facility Lab and Plans
and Procedures as required for the Basic Task Description defined in Paragraph 4
of the SOW (Exhibit C) attached herein. Seller shall also provide, on a Firm-
Fixed Level of Effort (with Milestones) basis the necessary labor, materials,
personnel, facilities, and services required to design, develop, assemble, test
scripts and perform integration and test necessary for ETC product validation
(Goods, Documentation and Services) as identified under "Contract Line Items
detailed in Exhibit B." This effort shall be performed in accordance with the
requirements specified in Exhibit C, Statement of Work.
(b) Seller shall also provide the necessary labor, materials,
personnel, facilities, and services to perform work as defined in Task Orders
(Exhibit G) assigned and agreed to by both Parties under this Contract. Each
Task Order shall have a specific and separate Statement of Work attached.
II) ARTICLE 2-Performance Schedule
Add line to Article so as to read:
"Seller shall perform all work hereunder and deliver the Goods, Documentation
and Services described in Clause 3 as required by the Statement of Work, Exhibit
C, pursuant to the performance schedule in Exhibit D. Seller shall also perform
all work defined in future Task Orders as required by schedules detailed with
each respective Task Order.
<PAGE>
VI) ARTICLE 7-Exhibits:
CHANGE TO:
"THE FOLLOWING EXHIBITS ATTACHED HERETO ARE HEREBY INCORPORATED BY
REFERENCE INTO THIS CONTRACT:
Exhibit A - Motorola's General Terms and Conditions of Purchase for
the Iridium Communications System (Apr 94).
Exhibit B - Contract Line Items
Exhibit C - Statement of Work, dated October 31, 1995
Exhibit D - Performance and Payment Schedule
Exhibit E - Technical Specifications
Exhibit F - Performance and Payment Schedule-Fixed Price"
Exhibit G - Task Order(s)
V) ARTICLE 8-ORDER OF PRECEDENCE
Change to:
"In the event of any inconsistency among or between the parts of this
Contract, such inconsistency shall be resolved by giving precedence in the order
of the parts as set forth below:
1. These Contract Clauses
2. Exhibit A, General Terms and Conditions
3. Exhibit G, Task Order(s)
4. Exhibit B, Contract Line Items
S. Exhibit C, Statement of Work
6. Exhibit D, Performance and Payment Schedule
7. Exhibit E, Technical Specifications
8. Exhibit F, Performance and Payment Schedule-Fixed Price"
<PAGE>
CHANGE ORDER/CONTACT AMENDMENT
------------------------------
(only the boxes checked below are applicable to this document)
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Rod McCormick
--------------------- -----------------------------------
(Address) 2501 S. Price Road 1235 Evans Road
--------------------- -----------------------------------
Chandler, AZ 85248 Melbourne, FL 32904-2314
--------------------- -----------------------------------
Telephone (602) 732-4772 Telephone (407) 676-2923
--------------------- --------------------------
Fax (602) 732-3583 Fax (407) 676-2355
--------------------- --------------------------------
CO/CA No.: 03 Dated: 1-12-96 To Contract No.: C416TS
-- -------------- ------------------
[_] A. CHANGE ORDER
------------
1. Pursuant to the Article entitled "Changes" in the above described contract,
Motorola hereby directs Seller to immediately adopt and implement the changes
set forth on Attachment A hereto.
------------
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the items of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
[X] B. CONTRACT AMENDMENT
------------------
1. The parties to the above described contract hereby amend the contract as
set forth on Attachment A hereto.
------------
2. The amendments on Attachment A are binding when this Contract Amendment has
------------
been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all other
------------
terms and conditions of the contract, as amended to date, remain in full force
and effect.
[_] C. ACKNOWLEDGMENTS OF TECHNICAL REQUIREMENTS (include only applicable
sign-offs)
<PAGE>
1. By initialing below, each person is indicating that the changes made by
this Change Order/Contract Amendment are completely understood by such person.
Motorola CSI
Satellite Communications Division
a. ______________________________________ a. ________________________________
b. ______________________________________ b. ________________________________
c. ______________________________________ c. ________________________________
[X] D. SIGNATURES
This document must be executed below in order to be effective. Change
Orders require only Motorola's execution. Contract Amendments require
execution by both parties.
Motorola, Inc. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Rod McCormick
--------------------------------------- --------------------------------
Tim Odders, Strategic Business Manager Rod McCormick, Program Manager
[_] E. ACKNOWLEDGMENT OF RECEIPT BY SELLER (for Change Orders only).
Received this ____ day of ________, 199__.
__________________________________________
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
------------
- --------------------------------------------------------------------------------
CO/CA No. 03 Contract No. C416TS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 03 changes as follows:
I) Exhibit B-Contract Line Items:
Exhibit B, Rev. 2 shall take precedence over previous Exhibit B
documents in all references within the Contract.
II) Exhibit F-Performance and Payment Schedule
Exhibit F, Rev. 1 shall take precedence over previous Exhibit F in all
references within the Contract.
These changes are being made to add an additional $75,000 in funding to
compensate for additional costs incurred during the development of the ETC Lab
in Gilbert, AZ. These costs were a result of Motorola direction.
<PAGE>
CHANGE ORDER/CONTACT AMENDMENT
------------------------------
(only the boxes checked below are applicable to
this document)
Motorola, Inc.
Satellite Communications Division Computer Science Innovations, Inc.
[Contracting Rep] Tim Odders Rod McCormick
------------------- ----------------------------------
(Address) 2501 S.Price Road 1235 Evans Road
------------------- ----------------------------------
Chandler, AZ 85248 Melbourne, FL 32904-2314
------------------- ----------------------------------
Telephone (602) 732-4772 Telephone (407) 676-2923
------------------- -------------------------
Fax (602) 732-3583 Fax (407) 676-2355
------------------- ------------------------------
CO/CA No.: 04 Dated: 8-12-96 To Contract No.: C416TS
--- ------------ ----------------
[_] A. CHANGE ORDER
------------
1. Pursuant to the Article entitled "Changes" in the above described
contract, Motorola hereby directs Seller to immediately adopt and implement the
changes set forth on Attachment A hereto.
-------------------
2. This change order is a part of and is governed by the provisions of the
contract. This Change Order is valid only if signed by Motorola's Contracting
Representative named in the contract identified above. Any claim for an
equitable adjustment as a result of adopting and implementing this Change Order
must be submitted in accordance with the terms of the contract.
3. Except as expressly modified by this Change Order, all other terms and
conditions of the contract, as amended to date, remain in full force and effect.
4. This Change Order becomes binding when a copy signed by Motorola's
Contracting Representative is received by Seller.
[X] B. CONTRACT AMENDMENT
------------------
1. The parties to the above described contract hereby amend the contract as
set forth on Attachment A hereto.
-------------------
2. The amendments on Attachment A are binding when this Contract Amendment
------------
has been executed by the Contracting Representatives of both parties. Such
amendments constitute a full and final settlement, accord and satisfaction of
any and all claims for an equitable adjustment under the contract for such
changes, and Seller waives any further claims to such adjustments for such
changes.
3. Except as expressly amended by the provisions on Attachment A, all other
------------
terms and conditions of the contract, as amended to date, remain in full force
and effect.
[_] C. ACKNOWLEDGMENTS OF TECHNICAL REQUIREMENTS
-----------------------------------------
(include onlyvapplicable sign-offs)
1. By initialing below, each person is indicating that the changes made by
this Change Order/Contract Amendment are completely understood by such person.
<PAGE>
Motorola CSI
Satellite Communications Division
a. Jerry Longanbach a. _______________________________
--------------------------------
b. ________________________________ b. _______________________________
c. ________________________________ c. _______________________________
[X] D. SIGNATURES
----------
This document must be executed below in order to be effective. Change
Orders require only Motorola's execution. Contract Amendments require
execution by both parties.
Motorola, Inc. Computer Science Innovations, Inc.
Satellite Communications Division
By /s/ Tim Odders By /s/ Rod McCormick
------------------------------------ -----------------------------------
Tim Odders, Strategic Business Manager Rod McCormick, Program Manager
[_] E. ACKNOWLEDGMENT OF RECEIPT BY SELLER (for Change Orders only).
-------------------------------------------------------------
Received this ____ day of ________, 199__.
_____________________________________
<PAGE>
CHANGE ORDER/CONTRACT AMENDMENT
ATTACHMENT A
------------
- --------------------------------------------------------------------------------
CO/CA No. 04 Contract No. C416TS
- --------------------------------------------------------------------------------
Seller: Computer Science Innovations, Inc.
- --------------------------------------------------------------------------------
Contract Amendment 04 changes as follows:
I) EXHIBIT B-Contract Line Items:
Exhibit B, Rev. 3 shall take precedence over previous Exhibit B documents
in all references within the Contract.
II) Exhibit B-1, OMC-G Contract Line Items:
Exhibit B-1, Rev.1 shall take precedence over previous Exhibit B-1
documents in all references within the Contract.
III) Exhibit D-Performance and Payment Schedule:
Exhibit D, Rev. 2 shall take precedence over previous Exhibit D documents
in all references within the Contract.
IV) Exhibit D-1, OMC-G Performance and Payment Schedule:
Exhibit D-1, Rev. 1, shall take precedence over previous Exhibit D-1
documents in all references within the Contract.
V) Exhibit F-Performance and Payment Schedule, Fixed Price
Exhibit F, Rev. 2, shall take precedence over previous Exhibit F documents
in all references within the Contract.
These changes are being made to add an additional $300,000 in funding to this
Contract. This funding is being allocated over the appropriate milestones as
they have been redefined in the Exhibits.
<PAGE>
CONTRACT
C585TP
BETWEEN
MOTOROLA, INC.
GOVERNMENT AND SPACE TECHNOLOGY GROUP
SATELLITE COMMUNICATIONS DIVISION
AND
COMPUTER SCIENCE INNOVATIONS, INC.
IN SUPPORT OF THE
Development and Management
of the
GILBERT, AZ. PRODUCT VERIFICATION LAB
<PAGE>
IRIDIUM is a registered trademark and service mark of Iridium, Inc. 6/94
<PAGE>
PREAMBLE
This Contract is entered into between Motorola, Inc., a corporation
organized under the laws of the State of Delaware acting through the Satellite
Communications Group of its Space and Systems Technology Group (hereinafter
called "Motorola"), with offices located at 2501 South Price Road, Chandler,
Arizona, 85248-2899, and Computer Science Innovations, Inc. (hereinafter called
"Seller"), a corporation organized under the laws of State of Florida with
offices located at 1235 Evans Road, Melbourne, FL 32904-2314.
RECITALS
WHEREAS, Motorola is developing a global personal communications system
known as the IRIDIUM Communications System that will use a constellation of
satellites in low-earth orbit, and a number of "gateway" surface facilities in
various countries around the world that will link the satellites with the
public-switched telephone network; and,
WHEREAS, Iridium, Inc., a privately-owned Delaware corporation is intended
to become the owner/operator of the Space System portion of the IRIDIUM
Communications System; and,
WHEREAS, Motorola and Iridium, Inc. executed an IRIDIUM Space System
Contract which is intended to function as the mechanism whereby Motorola will
sell to Iridium, Inc. the Space System portion of the IRIDIUM Communications
System; and,
WHEREAS, Iridium, Inc. and Motorola have executed an IRIDIUM Communications
System Operations and Maintenance Contract, whereby Motorola will operate and
maintain the IRIDIUM Space System for a period of five (5) years following
completion of the Space System Contract; and,
WHEREAS, Motorola intends to supply various Gateway configurations under
separate contracts with operators of IRIDIUM Gateways; and,
WHEREAS, this Contract is intended to function as the vehicle by which
Seller shall provide the services as identified in the Statement of Work, for
the Development and Management of the Gilbert Product Verification for the
Gateway of the IRIDIUM Communications System as a subcontractor to Motorola
under the aforementioned Contracts; and,
Now, therefore, in consideration of the foregoing, Motorola and Seller (the
"Parties") agree as follows:
<PAGE>
1. DESCRIPTION OF WORK
-------------------
Seller shall provide, on a firm fixed price basis, the necessary labor,
materials, personnel, facilities and services required to design, develop,
manufacture, assemble, test and deliver the Gilbert Product Verification
Facility. This effort shall be performed in accordance with the requirements
specified in Exhibit B, Statement of Work.
2. PERFORMANCE SCHEDULE
--------------------
Seller shall perform all work hereunder and deliver the Goods,
Documentation and Services of as described in the Statement of Work and Exhibit
B.
3. PRICE AND PAYMENT
-----------------
For complete and timely delivery of the Goods, Documentation and Services
specified in Contract Line Items 001-025, Motorola shall pay Seller the
designated firm fixed prices.
<TABLE>
<CAPTION>
Contract Line
Item No. Description Unit Price
- ------- ----------- ----------
(ESTIMATED)
<S> <C> <C>
001 Monthly Labor Costs for January, 1997 $ 135,107.00
002 Monthly Labor Costs for February, 1997 $ 200,065.00
003 Monthly Labor Costs for March, 1997 $ 194,516.00
004 Monthly Labor Costs for April, 1997 $ 189,308.00
005 Monthly Labor Costs for May, 1997 $ 189,308.00
006 Monthly Labor Costs for June, 1997 $ 189,308.00
007 Monthly Labor Costs for July, 1997 $ 189,308.00
008 Monthly Labor Costs for August, 1997 $ 114,732.00
009 Monthly Labor Costs for September, 1997 $ 114,732.00
010 Monthly Labor Costs for October, 1997 $ 95,982.00
011 Monthly Labor Costs for November, 1997 $ 95,982.00
012 Monthly Labor Costs for December, 1997 $ 20,982.00
-------------
Sub-Total (Labor Not-To-Exceed) $1,729,330.00
013 Travel Costs (Not-To-Exceed) $ 27,960.00
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Contract Line
Item No. Description Unit Price
- ------- ----------- ----------
(ESTIMATED)
<S> <C> <C>
014 Monthly Lab Costs for January, 1997 $ 17,680.00
015 Monthly Lab Costs for February, 1997 $ 17,680.00
016 Monthly Lab Costs for March, 1997 $ 17,680.00
017 Monthly Lab Costs for April, 1997 $ 17,680.00
018 Monthly Lab Costs for May, 1997 $ 17,680.00
019 Monthly Lab Costs for June, 1997 $ 17,680.00
020 Monthly Lab Costs for July, 1997 $ 17,680.00
021 Monthly Lab Costs for August, 1997 $ 17,680.00
022 Monthly Lab Costs for September, 1997 $ 17,680.00
023 Monthly Lab Costs for October, 1997 $ 17,680.00
024 Monthly Lab Costs for November, 1997 $ 17,680.00
025 Monthly Lab Costs for December, 1997 $ 17,680.00
-------------
Sub-Total $ 212,160.00
TOTAL FIRM FIXED PRICE $1,969,450.00
</TABLE>
4. INVOICES
--------
Invoices for payment shall be sent to Motorola at the following address:
MOTOROLA
Government and Systems Technology Group
Accounts Payable
P.O. Box 9B
Scottsdale, AZ 85252
A copy of each invoice shall be sent concurrently to Motorola's Contracting
Representative.
5. CONTRACTING REPRESENTATIVES
---------------------------
The only representatives of Motorola and Seller authorized to make changes
to this Contract and to sign contractual documents (the "Contracting
Representatives") are the following:
MOTOROLA Computer Science Innovations, Inc.
Satellite Communications Division 1235 Evans Road
2501 South Price Road Melbourne, FL 32904
Chandler, AZ 85248-2899
Attn: Alex Williams Attn: Rod McCormick
Strategic Business Mgr. Vice-President
-19-
<PAGE>
or
Susanne L. Cavadeas
Controller
Phone: (602) 732-6817 Phone: (800) 289-2923
Fax: (602) 732-4346 Fax: (407) 676-2355
Either party may change its aforementioned Contracting Representatives at
any time by providing written notice to the other party.
6. GENERAL TERMS AND CONDITIONS
----------------------------
MOTOROLA'S GENERAL TERMS AND CONDITIONS OF PURCHASE FOR THE IRIDIUM
COMMUNICATIONS SYSTEM (June 94) attached hereto as Exhibit A shall govern this
Contract, except to the extent expressly modified herein. Provisions of this
Contract shall be referred to as "Clauses" and provisions of Exhibit A shall be
referred to as "Articles."
7. EXHIBITS
--------
The following Exhibits attached hereto are hereby incorporated by reference
into this Contract:
Exhibit A - Motorola's General Terms and Conditions of Purchase for the
Iridium Communications System (June 94).
Exhibit B - Statement of Work, for the Development and Management of the
Gilbert Product Verification Facility
8. ORDER OF PRECEDENCE
-------------------
In the event of any inconsistency among or between the parts of this
Contract, such inconsistency shall be resolved by giving precedence in the order
of the parts as set forth below:
1. These Contract Clauses
2. Exhibit A, General Terms and Conditions
3. Exhibit B, Statement of Work
9. KEY PERSONNEL
-------------
Seller shall not replace or reassign any Key Personnel without the prior
approval of Motorola. Any replacement of Key Personnel must be with personnel
who are equally knowledgeable and capable.
10. DISPOSITION OF MATERIAL/EQUIPMENT
---------------------------------
Upon completion of this contract, disposition of residual material and
equipment shall be accomplished under the direction of Motorola's authorized
representatives.
-20-
<PAGE>
11. ASSIGNMENT OF LEASE/TERMINATION
-------------------------------
Seller shall be responsible for securing the proper lease for the
Verification Facility per the attached Statement of Work and shall act in
accordance with such lease, unless, upon demand by Motorola, Seller shall assign
such lease to Motorola.
12. EFFECTIVE DATE
--------------
This Contract shall be deemed effective as of January 1, 1997.
IN WITNESS WHEREOF, the authorized representatives of the Parties have executed
this Contract by signing below.
MOTOROLA, INC. Computer Science Innovations, Inc.
By: /s/ Alex Williams By: /s/ Rodney L. McCormick
-------------------------- ------------------------------
Alex Williams Rod McCormick
Strategic Business Manager Vice President
-21-
<PAGE>
EXHIBIT 10.42
[Letterhead of The Ashton Technology Group, Inc.]
May 15, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Extension of Letter Contract No. ASH-LC12111
Gentlemen:
1. Order: An order is hereby placed with you to continue to furnish to Ashton
-----
Technology Group, Inc. the software required for the encryption server for the
Ashton Technology Encryption Device (ATED). The detailed requirements for this
work are as set forth in Exhibit A (Letter Contract of December 11, 1995)
attached hereto and hereby made a part hereof. This order shall become a
contract on the terms and conditions set forth in the December 11, 1995 contract
upon your unconditional acceptance hereof, and shall be deemed effective as of
MAY 15. 1996.
2. Negotiation of Definitive Contract:
----------------------------------
a. By your acceptance of this order, you agree to enter into good faith
negotiations immediately with Ashton Technology Group, Inc. with the expectation
of the execution of a definitive contract which will include mutually acceptable
detailed prices, delivery schedules and other terms of this Letter Contract,
provided, however, that the total price for the definitive contract shall not
exceed U.S. $506,266.00.
<PAGE>
b. It is expected that such definitive contract will be issued prior to
DECEMBER 31, 1996. If we fail to agree upon the definitive contract by said
date, this Letter Contract shall terminate automatically and you will be paid on
the same terms as if this Letter Contract had been terminated by Ashton
Technology Group, Inc. for its convenience.
3. Acceptance: If the foregoing is satisfactory to you, please indicate
----------
your acceptance hereof by signing and returning the enclosed extra copy. Such
acceptance will constitute this as a contract on the terms and conditions set
forth herein.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 15 day of May, 1996
Computer Science Innovations, Inc.
By: /s/ John A. Blohm By: /s/ George Milligan
------------------------------ ---------------------------------
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
December 16, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC112111 dated December 11, 1995
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
Paragraph 3(b) is hereby amended to decrease the spending ceiling to $404,603.
In addition, the provisions of paragraph 4 are hereby modified to indicate that
a definitized contract (valued at $404,603) is hereby completed (see enclosed
spreadsheet) and that the contract end date has been determined to be 31 January
1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an amendment to the referenced contract
and will supersede all previous amendments to the referenced contract.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 20 day of December, 1996
Computer Science Innovations, Inc.
By: /s/ F. Rittereiser By: /s/ George Milligan
------------------------------- ----------------------------------
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
<PAGE>
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 12-16-96
-------------------------------
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
February 5, 1997
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC12111
Reference: (1) Contract No. ASH-LC12111 dated December 11, 1995
(2) Contract Definition dated December 16, 1996
Gentlemen:
Reference (2) modifies and defines reference (1). The purpose of this letter is
to provide a cost & time extension to definitized contract ASH-LC10261. The
basis of estimate (BOE) and terms & conditions (T&Cs) are attached to this
letter. Paragraph 3(b) is hereby amended to decrease the spending ceiling from
$404,603 to $393,911. In addition, the provisions of Paragraph 4 are hereby
modified to indicate a new definitized contract (valued at $393,911) that
incorporates the attached BOE and T&Cs and has a contract end date shall be 28
March 1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an incremental amendment to the
referenced contract. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 18 day of Feb 1996
Computer Science Innovations, Inc.
By: /s/ Fred Rittereiser By: /s/ George Milligan
------------------------------- -----------------------------------
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President
<PAGE>
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 2-18-97
-------------------------
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
EXHIBIT 10.43
[Letterhead of The Ashton Technology Group, Inc.]
March 22, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Time and Material Contract No. ASH-10261
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
paragraph 3b. is hereby amended to increase the spending ceiling to $300,000. In
addition, the provisions of paragraph 4b. are hereby modified to show that the
definitized contract will be negotiated prior to May 31, 1996.
If the foregoing is satisfactory to you, please indicate your acceptance
hereof by signing and returning the enclosed extra copy. Such acceptance will
constitute this as a contract on the terms and conditions set forth herein.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 29 day of March, 1996
Computer Science Innovations, Inc.
By: /s/ John Blohm By: /s/ George Milligan
------------------------------- -------------------------------
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
May 15, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Time and Material Contact No. ASH-10261
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
paragraph 3b. is hereby amended to increase the spending ceiling to
$1,046,456.00. In addition, the provisions of paragraph 4b. are hereby modified
to show that the definitized contract will be negotiated prior to December 31,
1996.
If the foregoing is satisfactory to you, please indicate your acceptance
hereof by signing and returning the enclosed extra copy. Such acceptance will
constitute this as a contract on the terms and conditions set forth herein.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 15 day of May, 1996
Computer Science Innovations, Inc.
By: /s/ John Blohm By: /s/ George Milligan
----------------------------------- -----------------------------
(Signature) (Signature)
for Raymond T. Tate George H. Milligan
President President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
December 16, 1996
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contact No. ASH-LC10261 dated October 26, 1995
Gentlemen:
Reference subject contract, the provisions of limitation of funds shown in
paragraph 3(b) is hereby amended to increase the spending ceiling to $1,212,228
(which includes reserves to be approved by UTTC). In addition, the provisions
of paragraph 4 are hereby modified to indicate that a definitized contract
(valued at $1,212,228) is hereby completed (see enclosed spreadsheet) and that
the contract end date has been determined to be 31 January 1997.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an amendment to the referenced contract
and will supersede all previous amendments to the referenced contract.
Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 20 day of Dec, 1996
Computer Science Innovations, Inc.
By: /s/ F. Rittereiser By: /s/ George Milligan
------------------------------- -----------------------------
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
President President
<PAGE>
Universal Trading Technologies, Inc.
By: /s/ Fred Weingard 12-16-96
---------------------------------
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
[Letterhead of The Ashton Technology Group, Inc.]
February 5, 1997
Computer Science Innovations, Inc.
1235 Evans Road
Melbourne, FL 32904-2314
Attention: Mr. George Milligan
President
Subject: Contract No. ASH-LC10261
Reference: (1) Contract No. ASH-LC10261 dated October 26, 1995
(2) Contract Definition dated December 16, 1996
Gentlemen:
Reference (2) modifies and defines reference (1). The purpose of this letter is
to provide a cost & time extension to definitized contract ASH-LC10261. The
basis of estimate (BOE) and terms & conditions (T&Cs) are attached to this
letter. Paragraph 3(b) is hereby amended to increase the spending ceiling from
$1,212,228 to $1,306,000. In addition, the provisions of Paragraph 4 are hereby
modified to indicate a new definitized contract (valued at $1,306,000) that
incorporates the attached BOE and T&Cs and has a contract end date shall be 28
March 1997 or when the level-of-effort (LOE) for all key staff runs out,
whichever comes first.
If the foregoing is satisfactory to you, please indicate your acceptance hereof
by signing and returning the enclosed extra copy. Upon your acceptance and
signature, this letter will constitute an incremental amendment to the
referenced contract. Telefacsimile signatures shall be effective as originals.
Very truly yours,
Ashton Technology Group, Inc. Accepted this 18 day of Feb 1996
Computer Science Innovations, Inc.
By: /s/ Fred Rittereiser By: /s/ George Milligan
----------------------------- -----------------------------
(Signature) (Signature)
Mr. Fred Rittereiser Mr. George Milligan
<PAGE>
President President
Universal Trading Technologies, Corp.
By: /s/ Fred Weingard
--------------------------------
(Signature)
Mr. Fred S. Weingard
Executive Vice President
<PAGE>
EXHIBIT 10.44
MEMORANDUM OF UNDERSTANDING
BETWEEN
THE ASHTON TECHNOLOGY GROUP, INC.
AND
E.COM INTERNATIONAL, INC.
1. The Ashton Technology Group, Inc. ("Ashton") is engaged in the development,
commercialization and marketing of on-line transaction systems for the financial
services industry.
2. E.Com International, Inc. ("E.Com") develops, manufactures and markets
integrated wireless mobile computing products for mobile computer users.
3. In connection with the deployment of its on-line transaction systems Ashton
wishes to provide the users of its transaction systems with the ability to reach
its transaction systems from remote locations on a wireless basis. The users of
Ashton's on-line transaction systems will be financial services executives and
professional securities traders, including but not limited to: institutional
money managers, institutional traders, exchange specialists, floor brokers,
block traders and NASDAQ market makers.
4. Ashton wishes to become the exclusive distributor of E.Com's Discovery
family of products to the "professional" financial services market. The
"professional" financial services market is defined as financial services
industry participants and their employees, corporate pension funds and their
employees, and individuals whose business is the trading of securities.
5. E.Com desires to penetrate the "professional" financial services market and
hereby appoints Ashton as its exclusive distributor for the "professional"
financial services market. This exclusive distribution right will expire on 31
December 2000, unless it is extended by mutual agreement.
6. In consideration of its appointment as E.Com's exclusive distributor for
the "professional" financial services market Ashton will make the following
commitment to purchase the Discovery, or other appropriate product from E.Com.
1998 a minimum of 500 units
1999 [_] units
2000 [_] units
This purchase commitment will be further refined to provide a quarterly
delivery schedule no later than November 15 of the year preceding the year of
each purchase commitment. For the year 1998 Ashton currently anticipates taking
delivery of 100 units during each of the first and second calendar quarters and
150 units during each of the third and forth calendar quarters.
2
<PAGE>
In any calendar quarter that Ashton fails to meet its quarterly purchase
commitment, and is not current with its purchase commitment by the calendar
quarter following such shortfall, E.Com may at its discretion discontinue the
exclusivity distribution status of this agreement. In any event, E.Com will
provide Ashton 30 day written notice of its intent to discontinue exclusivity
status in such an event.
With regard to the purchase commitments for the years of 1999 and 2000,
Ashton will establish the minimum level of its purchase commitment not later
than June 30, 1998 in consultation with E.Com. Ashton currently anticipates
that its minimum commitment for 1999 will be 1000 units.
7. In consideration for the above purchase commitment, E.Com will sell these
units to Ashton at a price equal to 75% of E.Com's listed distributor price,
provided, however, that no distributor will receive pricing which is more
favorable than the pricing received by Ashton.
8. In addition to the above purchase commitment Ashton will purchase the final
30 units in E.Com's proposed private placement as described in the private
placement memorandum dated September 1997.
9. It is understood and agreed that it will be necessary to coordinate the
encryption protocols of E.Com's Discovery and its successor products with that
of Ashton's on-line transaction systems, and that each of Ashton and E.Com will
make the necessary resources available to assure the compatibility of the
respective encryption protocols.
10. It is further understood and agreed that E.Com's Discovery will have to be
made compatible with the wireless "gateways" of Ashton's on-line transaction
systems and those of the financial market participants who subscribe to Ashton's
on-line transaction systems. Each of Ashton and E.Com will make the necessary
resources available to assure that the Discovery, or its successor products,
will communicate with the necessary "gateways".
11. Ashton and E.Com agree to enter into reciprocal and mutually satisfactory
confidentiality agreements with respect to each of the their technologies and
business plans.
12. This memorandum of understanding provides an outline of a preliminary
business understanding which will be formalized in a contract following further
business discussions between the parties and due diligence.
/s/ William F. Stevens /s/ Fredric W. Rittereiser
E.Com International
October 31, 1997
3
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT 10.45
SR# 80715
NETWORK SERVICES AGREEMENT CUSTOMER ELECTIONS
The Agreement between CompuServe Incorporated ("CompuServe") and Customer
referred to below ("Customer") is comprised of, and the parties agree to be
bound by: (i) this Network Services Agreement Customer Elections, (ii) the
Agreement Terms and Conditions (dated 7/97), (iii) the Network Services Rate
Schedule which is updated by CompuServe on a periodic basis, to the extent
Customer orders or uses a specific service and (iv) any Attachment or Amendment
attached to this Agreement. Customer elects FIXED-Dial as its default dial-up
pricing plan.
Customer elects an initial Extended Term Plan of three (3) year(s) with a
Monthly Minimum of [*]. CompuServe agrees to provide Customer with the
Implementation Program and special terms contained in this Network Services
Agreement Customer Elections.
I. IMPLEMENTATION PROGRAM
To assist Customer in gaining experience with, and user acceptance of, the
Network Services provided hereunder, CompuServe agrees to provide an
Implementation Program during which:
1. This Agreement will be effective upon written acceptance by an
authorized representative of Customer and CompuServe. The
Implementation Program will commence on the first day following
provision by CompuServe to Customer of the network and interfaces
necessary for the Customer's use of CompuServe Network Services and
conclude at the end of three (3) full months thereafter. The initial
Extended Term Plan shall commence on the first day of the month
following completion of the Implementation Program. Customer shall
have the option to terminate this Agreement, to be effective at the
end of the Implementation Program, upon written notice to CompuServe
at least ten (10) days.
2. The Extended Term Plan Monthly Minimum specified in this Network
Services Agreement Customer Elections will not be in effect during the
Implementation Program.
3. Customer agrees to pay a one-time Implementation Program Fee of
[*] which will be billed on the invoice associated with Month 1
of the initial Extended Term Plan. CompuServe agrees to waive the
following charges during the Implementation Program:
* The bracketed material has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
3.1 the Installation Charge for up to two (2) FNL256 and one (1) IP
Link Plus to be installed during the Implementation Program or
the initial Extended Term Plan in Customer's data center located
at 1900 Market Street, Philadelphia, PA, provided these links
and/or equipment are ordered prior to or during the
Implementation Program,
3.2 the Installation Charge for one (1) FNL256 with Special Telco
CompuServe Communications Center Diversity to be installed during
the Implementation Program or the initial Extended Term Plan in
Region A, provided these links and/or equipment are ordered prior
to or during the Implementation Program,
3.3 the FNL Monthly Circuit Charge, FNL Monthly Port Charge, the
Bandwidth Monthly Charge and the Bandwidth Monthly Surcharge and
Pro-rated Charge for one (1) FNL256 with Special Telco CompuServe
Communications Center Diversity to be installed in Region A.
3.4 the FNL Monthly Circuit Charge and the FNL Monthly Port Charge
for up to two (2) FNL256 to be installed in Region A,
3.5 the Monthly Fee per PVC and the Monthly Charge per Unit for one
(1) IP Link Plus Bi-Directional CIR of 256Kbps to be installed in
Region A,
3.6 the CompuServe Dail-up Access Services Charges and Surcharges,
3.7 the Moves and Changes charges, and
3.8 the Monthly Account Charge.
Customer shall be billed for all other applicable charges as contained
in the Network Services Rate Schedule.
If Customer elects to terminate this Agreement, according to the
provisions contained in this Agreement, Customer agrees to pay
CompuServe the Implementation Program Fee of [*] in this
Network Services Agreement Customer Elections plus all other charges
outstanding and due CompuServe.
4. Neither Discount Schedule A nor Discount Schedule B will be in effect
during the Implementation Program.
II. MODIFICATIONS TO THE NETWORK SERVICES RATE SCHEDULE
* The bracketed material has been omitted pursuant to a request for
confidential treatment request and filed separately with the Securities and
Exchange Commission.
2
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
1. During the initial Extended Term Plan and subject to the terms
contained in Paragraph 2.1 of the Agreement Terms and Conditions,
CompuServe agrees to bill Customer a special FNL Monthly Circuit
Charge of [*] each in lieu of the rate contained in the Network
Services Rate Schedule for up to two (2) FNL256 to be installed at
1900 Market Street, Philadelphia, PA. Neither Discount Schedule A nor
B apply to this special FNL Monthly Circuit Charge.
2. During the initial Extended Term Plan and subject to the terms
contained in Paragraph 2.1 of the Agreement Terms and Conditions,
CompuServe agrees to bill Customer a special Monthly Circuit Charge of
[*] in lieu of the rate contained in the Network Services Rate
Schedule for one (1) FNL256 with Special Telco CompuServe
Communications Center Diversity to installed in Region A. Neither
Discount Schedule A nor B apply to this special Monthly Charge.
3. During the initial Extended Term Plan, CompuServe agrees to waive the
FNL Monthly Port Charge, Bandwidth Monthly Charge and Bandwidth
Monthly Surcharge for one (1) FNL256 with Special Telco CompuServe
Communications Center Diversity to be installed in Region A. Neither
Discount Schedule A nor B apply to this special Monthly Charge.
III MODIFICATIONS TO THE AGREEMENT TERMS AND CONDITIONS
1. Paragraph 1.1 is modified to include:
CompuServe agrees that should the VTS Trading System application not
be initiated or discontinued once so initiated, Customer may terminate
this Agreement in its entirety upon one (1) months written notice to
CompuServe. This notice shall also include copies of associated
documents or similar proof related to these triggering events.
Customer agrees to pay CompuServe all charges outstanding and due
CompuServe. This provision does not apply to a discontinuation
resulting from a decision by Customer to develop an application
substantially similar to the VTS Trading System application using a
data network provider other than CompuServe.
Network Services
Account No. 56853
ACCEPTED FOR CUSTOMER: ACCEPTED FOR COMPUSERVE
INCORPORATED:
* The bracketed material has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
3
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
Customer Name: Ashton Technology Group
Signature: /s/ Fredric W. Rittereiser Signature: /s/ Dana Brown
/s/ Fred S. Weingard
Name: Fredric W. Rittereiser
Title: President Name: Dana Brown, Manager
Name: Fred S. Weingard
Title: Exec. V.P. Systems & Title: Contract Development &
Technology Administration
Date: January 13, 1998 Date: January 16, 1998
4
<PAGE>
[Letterhead of CompuServe Network Services]
January 20, 1998
Frederic Rittereiser
President
Ashton Technology Group
1900 Market Street
Philadelphia, PA 19103
Re: Network Services Account # 56S53
Dear Mr. Rittereiser:
We are pleased that Ashton Technology Group has expressed confidence in
CompuServe by endorsing our Agreement for Network Services. We appreciate this
endorsement and wish to reconfirm to you our commitment to customer service and
technical support.
Effective ongoing communications between CompuServe and our customers is a high
priority at CompuServe. We value your recommendations and encourage you to
provide feedback through your local CompuServe representative.
Enclosed is a copy of the endorsed agreement between our firms. Also provided
is a copy of CompuServe's "Network Online Report Access System" documentation,
which contains instructions for use of your company's monthly online usage
reports. This document explains procedures for accessing reports and obtaining
online help. Please contact your CompuServe representative, Colleen Santoro at
(610) 407-7214, for information on how to access your company's reports.
Thank you once again for your business, and we enthusiastically look forward to
a solid business partnership.
Sincerely
/s/ Diane Lipperman/BW
Diane Lipperman
Contract Analyst
Marketing Support
DLL/bw
Enclosures
5
<PAGE>
cc: Rick Wentz
Colleen Santoro
6
<PAGE>
[Letterhead of CompuServe Network Services]
March 24, 1998
Mr. Fred Weingard
Ashton Technology Group
1900 Market Street
Philadelphia, PA 19103
RE: Account Number 56853
Reference Number 84349
Dear Mr. Weingard:
This letter is to confirm the following update to your Agreement with
CompuServe:
Effective upon installation, CompuServe agrees to waive the Installation Charge
for up to two (2) FRAME-Net Router 2501 (Cisco) installed or to be installed in
Philadelphia, PA.
If you have any questions or require additional information about this letter or
your Agreement with CompuServe, please contact your local CompuServe
representative, Colleen Santoro at 215-563-7607. Thank you for your business,
and we look forward to supporting Ashton Technology Group as our business
partnership continues.
Sincerely,
/s/ Dana Brown
Dana Brown
Manager, Contract Development and Administration
DB:ecl
cc: Colleen Santoro, CompuServe Philadelphia Office
7
<PAGE>
EXHIBIT 10.46
THE ASHTON TECHNOLOGY GROUP, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
THIS AGREEMENT, dated as of _______________, 1998, is made by and
between The Ashton Technology Group, Inc., a Delaware corporation (the
"Company"), and the person named on the signature page hereof (the "Grantee").
WHEREAS, the Board of Directors has determined that it would be to the
advantage and best interests of the Company and its stockholders to grant the
nonqualified option provided herein to the Grantee as an incentive for increased
efforts during the Grantee's employment with, or providing services to, the
Company, and has advised the Company thereof and instructed the undersigned
officers to issue said option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 - Cause
- ----------- -----
"Cause" shall mean (a) refusal to perform the Grantee's lawful duties
including, without limitation, those duties as directed by the Board of
Directors; (b) material misconduct; (c) gross negligence in the performance of
the Grantee's duties; (d) intentional destruction or theft of the Company's
property or falsification of the Company's documents; (e) conviction of a felony
or any crime involving moral turpitude; and (f) conduct that has or may have
material adverse effect on the reputation of the Company.
Section 1.2 - Common Stock
- ----------- ------------
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
Section 1.3 - Fair Market Value
- ----------- -----------------
Unless otherwise specified herein, when a public market for the Common
Stock of the Company exists, the term "Fair Market Value" used in connection
with the value of shares of Common Stock shall mean the average of the high and
low reported sales prices of Common Stock on the exchange on which such Common
Stock is traded ( or such other market as shall constitute the principal trading
market for the Common Stock) on the date which Fair Market Value is being
<PAGE>
determined (or, if there is no such trading on such date, the last preceding
date on which there was such trading). When no public market for the Common
Stock of the Company exists, Fair Market Value shall be determined by the Board.
Section 1.4 - Option
- ----------- ------
"Option" shall mean the nonqualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.5 - Permanent Disability
- ----------- --------------------
The term "Permanent Disability" shall mean the inability of the
Grantee to perform substantially all the Grantee's duties and responsibilities
to the Company by reason of a physical or mental disability or infirmity for a
continuous period of six months. The date of such Permanent Disability shall be
the last day of such six-month period or if later, the day on which the Grantee
submits satisfactory medical evidence of such Permanent Disability.
Section 1.6 - Retirement
- ----------- ----------
"Retirement" shall mean, with respect to the Grantee, retirement on or
after the Grantee's attainment of age 65 or such earlier age as may be otherwise
determined by the Board of the Directors of the Company.
Section 1.7 - Secretary
- ----------- ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.8 - Termination of Employment
- ----------- -------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship (or other relationship pursuant to which services are
performed) is terminated for any reason whatsoever. The Compensation Company of
the Company's Board of directors (the "Company"), in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not limited to, all questions of whether
particular leaves of absences constitute Termination of Employment.
2
<PAGE>
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ------------ ---------------
For good and valuable consideration, on and as of the date hereof (the
"Grant Date"), the Company irrevocably grants to the Grantee the Option to
purchase any part or all of the number of shares of the Company's Common Stock
set forth on the signature page hereof, subject to adjustment as provided in
Section 2.4 hereof, upon the terms and conditions set forth in this Agreement.
Section 2.2 - Exercise Price
- ------------ --------------
The exercise price (the "Exercise Price") of the shares of stock
covered by the Option shall be $1.875 per share, without commission or other
charge.
Section 2.3 - Consideration to the Company
- ----------- ----------------------------
In consideration of the granting of the Option by the Company, the
Grantee agrees by the execution of this Agreement that the Grantee shall render
faithful and efficient services to the Company, with such duties and
responsibilities as the Company shall from time to time prescribe.
Section 2.4 - Adjustment in Option
- ------------ --------------------
Subject to Section 2.5, in the event the outstanding shares of Common
Stock subject to the Option are, from time to time, changed into or exchanged
for a different number or kind of shares of the Company or other securities of
the Company by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Company shall make an appropriate and equitable adjustment in the
number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any such adjustment
made by the Company shall be final and binding.
Section 2.5 - Merger or Consolidation, Recapitalization, Etc.
- ------------ -----------------------------------------------
In its absolute discretion, and on such terms and conditions as it
deem appropriate, the Company may at any time provide that the Option cannot be
exercised after the merger or consolidation of the Company with or into another
corporation, the sale or other disposition of all or substantially all of the
assets of the Company (including the exchange of such assets for the securities
of another corporation), the acquisition by another person of 80% or more of the
Company's then outstanding shares of voting stock or the recapitalization,
reclassification, liquidation or dissolution of the Company, and if the Company
so provides, it shall also provide, by a resolution adopted prior to the
occurrences of such merger, consolidation, disposition, acquisition,
recapitalization, reclassification, liquidation or dissolution, that, for some
period of time prior to such
3
<PAGE>
event, the Option shall be exercisable as to all shares subject thereto,
notwithstanding anything to the contrary in Section 3.1 and/or in any
installment provisions of such Option and/or that the grantee shall receive
cash, in lieu of exercising the Option, in the amount by which the Fair Market
Value as of the date of such event, of the number of shares of Common Stock to
which the Option relates exceeds the Exercise Price for the shares of Common
Stock which are subject to the Option, and that upon the occurrence of such
event, such Option shall terminated and be of no further force or effect;
provided, however, the Company may provide in its absolute discretion that even
- -------- -------
if the Option shall be exercisable only for the kind and amount of securities
and/or other property, or the cash equivalent thereof, receivable as a result of
such event by the holder of a number of shares of stock for which such Option
could have been exercised immediately
prior to such event.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ------------- ------------------------------
(a) The Option is granted for an aggregate of the number os
shares of Company Common Stock set forth on the signature page hereof (the
"Option Shares");
(b) The Option shall automatically become exercisable after
September 12, 1997.
Section 3.2 - Expiration of Option
- ------------- --------------------
After the first to occur of the following events, the Option
shall expire and may not be exercised to any extent by the Grantee:
(a) Immediately upon the Grantee's Termination of Employment for
Cause;
(b) Five years from the date of issuance; or
(c) 30 days after the Grantee's Termination of Employment for any
reason, other than death, Permanent Disability, Retirement or Cause.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ------------ ---------------------------
During the lifetime of the Grantee, only the Grantee (or the
Grantee's legal guardian) may exercise the Option or any portion thereof. After
the death of the Grantee, any exercisable
4
<PAGE>
portion of the Option may, prior to the time when the Option becomes exercisable
under Section 2.5 or Section 3.2, be exercised by the Grantee's personal
representative or by any person empowered to do so under the Grantee's will or
under the then applicable laws of descent and distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes exercisable under Section
2.5 or Section 3.2; provided, however, that any partial exercise shall be for
-------- -------
whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or the Secretary's office all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 2.5 or Section 3.2:
(a) Notice in writing signed by the Grantee or the other person
then entitled to exercise the Option or portion thereof is thereby
exercised, such notice complying with all applicable rules established by
the Company.
(b) Full payment of the Exercise Price in cash or certified bank
check for the shares with respect to which such Option or portion thereof
is exercised or, if acceptable to the Company, (i) (A) by surrender or
delivery to the Company of shares equal to or less than the Exercise Price
or (B) in the event the Company registers its Common Stock under the
Securities Act of 1933, as amended (the "Act"), by registration on form S-8
(or any successor form), through the written election of the Grantee to
have shares of such Common Stock withheld by the Company from the shares
otherwise to be received, with such withheld shares having the aggregate
Fair Market Value on the date of exercise equal to or less than the
Exercise Price, plus (ii) cash or certified check for any difference
between the value of the shares so surrendered or withheld and the Exercise
Price;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Grantee or other person then
entitled to exercise such Option or portion thereof, stating that the
shares of stock are being acquired for the Grantee's own account, for
investment purposes only and without any present intention of distributing
or reselling said shares or any of them except as may be permitted under
the Act, and then applicable rules and regulations thereunder, and that the
Grantee or other person then entitled to exercise such Option or portions
thereof will indemnify the Company against and hold it free and harmless
from any loss, damage, expense of liability resulting to the Company if any
sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above; provided, however, that the
--------- -------
Company may, in its absolute discretion, take whatever additional actions
it deems appropriate to ensure the observance
5
<PAGE>
and performance of such representation and agreement and to effect
compliance with the Act and any other federal or state securities laws or
regulations;
(d) Full payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold and remit to any taxing
authority upon exercise of the Option; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Grantee,
appropriate proof of the right of such person or persons to exercise the
Option.
Without limiting the generality of the foregoing, the Company may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of the Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) and the
legend referred to above shall, however, not be required if the shares to be
issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares. The Company shall
determine acceptable methods for tendering and withholding Common Stock of the
Company as payment of the Exercise Price upon exercise of an Option and in
satisfaction of any withholding obligation and may impose such limitations and
prohibitions on the use of Common Stock of the Company to exercise an Option as
it deems appropriate, including without limitation, any limitation or
prohibition designed to avoid certain accounting consequences that may result
from the use of Common Stock of the Company as payment of the Exercise Price
upon exercise of an Option and in satisfaction of any withholding obligation.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ------------ --------------------------------------------
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
of issued shares that have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificates of shares of stock purchased upon the exercise
of the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed if so required by
such exchanges;
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations
of the Securities and Exchange Commission or of any other governmental
regulatory body, which the Company shall, in its absolute discretion, deem
necessary or advisable;
6
<PAGE>
(c) The obtaining of approval or other clearance from any state
or federal governmental agency which the Company shall reasonably determine
to be necessary or advisable;
(d) The payment to the Company of all amounts which, under
federal, state or local law, it is required to withhold and remit to any
taxing authority upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Company may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Cash Payment in Lieu of Stock
- ------------ -----------------------------
Notwithstanding anything to the contrary contained herein, if at
the time the Option or any exercisable portion thereof is delivered for exercise
to the Company, or at any time prior to the issuance of a certificate of stock
in respect of such Option or portion thereof, the Common Stock has ceased to be
listed any national securities exchange or otherwise publicly traded (whether or
not listed on any stock exchange), the Board of Directors, in its sole
discretion, shall have the option of delivering (i) shares of Common Stock or
(ii) a cash payment in lieu of shares of Common Stock equal to the difference
between the Fair Market Value of the Common Stock and the Exercise Price,
multiplied by the number of shares of Common Stock that would have been issued
upon such exercise.
Section 4.6 - Rights as Stockholder
- ------------ ---------------------
The Grantee shall not be, nor have any of the rights or
privileges of a stockholder of the Company in respect of any shares purchasable
upon the exercise of the Option or any portion thereof unless and until
certificates representing such shares shall have been issued by the Company to
such Grantee.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 - Administration
- ----------- --------------
The Company's Board of Directors shall have the power to
interpret this Agreement. All actions taken and all interpretations and
determination made by the Company shall be final and binding upon the Grantee,
the Company and all other interested persons. No member of the Company shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Agreement or the Option. In its absolute discretion,
the board of directors may
7
<PAGE>
at any time and from time to time exercise any and all rights and duties of the
Company under this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
No Option or interest or right therein shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means, whether such disposition be voluntary or
involuntary or by operation of law or by judgment, levy, attachment, garnishment
or any other legal or equitable proceeding (including bankruptcy) and any
attempted disposition thereof shall be null and void and of no effect; provided,
--------
however, that nothing in this Section 5.2 shall prevent transfers by will or by
- -------
the applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Grantee shall be addressed to the Grantee at the
address given beneath the Grantee's signature hereto. By a notice given
pursuant to this Section 5.4, either party may hereafter designate a different
address for notices to be given to such party. Any notice which is required to
be given to the Grantee shall, if the Grantee is then deceased, be given to the
Grantee's personal representative if such representative has previously informed
the Company of such representatives status and address by written notice under
this Section 5.4. Any notice shall have been deemed duly given when enclosed in
a properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office of branch post office regularly maintained by
the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6 - Amendment
- ----------- ---------
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
8
<PAGE>
Section 5.7 - Governing Law
- ----------- -------------
The laws of the State of Delaware shall govern the
interpretation, validity and performance of the terms of this Agreement
regardless of the law that might be applied under the principles of conflicts of
laws.
Section 5.8 - Jurisdiction
- ----------- ------------
Any suit, action or proceeding against the Grantee with respect
to this Agreement, or any judgment entered by any court in respect of any
thereof, may be brought in any court of competent jurisdiction in the State of
Pennsylvania, as the Company may elect in its sole discretion, and the Grantee
agrees to submit to the nonexclusive jurisdiction of such courts for the purpose
of any such suit, action, proceeding or judgment. By the execution and delivery
of this Agreement, the Grantee appoints the Secretary as the Grantee's agent
upon whom process may be served in any such suit, action or proceeding. Service
of process upon such agent, together with notice of such service given to the
Grantee in the manner provided in Section 5.4 hereof, shall be deemed in every
respect effective service of process upon him in any suit, action or proceeding.
Nothing herein shall in any way, be deemed to limit the ability of the Company
to serve any such writs, process or summonses in any other matter permitted by
applicable law or to obtain jurisdiction over the Grantee, in such other
jurisdictions, and in such manner, as may be permitted by applicable law. The
Grantee hereby irrevocably waives any objections which the Grantee may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the State of Pennsylvania, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum. No suit, action or proceeding against
the Company with respect to this Agreement may be brought in any court, domestic
or foreign, or before any similar domestic or foreign authority. The Company
hereby submits to the jurisdiction of such courts for the purpose of any such
suit, action or proceeding.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
THE ASHTON TECHNOLOGY GROUP, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
- --------------------------- The aggregate number of shares
Name of Grantee: of Common Stock for which this
Title: Option is exercisable is ___________
(the "Option Shares")
- ---------------------------
- ---------------------------
Address
Grantee's Taxpayer
Identification Number:
- --------------------------
10
<PAGE>
EXHIBIT 10.47
THE ASHTON TECHNOLOGY GROUP, INC.
NONQUALIFIED DEFERRED STOCK OPTION AGREEMENT
--------------------------------------------
THIS AGREEMENT, dated as of _______________, 1998, is made by and
between The Ashton Technology Group, Inc., a Delaware corporation (the
"Company"), and the person named on the signature page hereof (the "Grantee").
WHEREAS, the Board of Directors has determined that it would be to the
advantage and best interests of the Company and its stockholders to grant the
nonqualified option provided herein to the Grantee as an incentive for increased
efforts during the Grantee's employment with, or providing services to, the
Company, and has advised the Company thereof and instructed the undersigned
officers to issue said option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 - Cause
- ----------- -----
"Cause" shall mean (a) refusal to perform the Grantee's lawful duties
including, without limitation, those duties as directed by the Board of
Directors or officers senior to the Grantee; (b) material misconduct; (c) gross
negligence in the performance of the Grantee's duties; (d) material failure to
follow the Company's policies, directives or orders applicable to the employees
holding comparable positions; (e) intentional destruction or theft of the
Company's property or falsification of the Company's documents; (f) conviction
of a felony or any crime involving moral turpitude; and (g) violation of the
Company's code of conduct; and (h) conduct that has or may have material adverse
effect on the reputation of the Company.
Section 1.2 - Common Stock
- ----------- ------------
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
Section 1.3 - Fair Market Value
- ------------ -----------------
Unless otherwise specified herein, when a public market for the Common
Stock of the Company exists, the term "Fair Market Value" used in connection
with the value of shares of Common Stock shall mean the average of the high and
low reported sales prices of Common Stock
<PAGE>
on the exchange on which such Common Stock is traded (or such other market as
shall constitute the principal trading market for the Common Stock) on the date
which Fair Market Value is being determined (or, if there is no such trading on
such date, the last preceding date on which there was such trading). When no
public market for the Common Stock of the Company exists, Fair Market Value
shall be determined by the Board.
Section 1.4 - Option
- ----------- ------
"Option" shall mean the nonqualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.5 - Permanent Disability
- ------------ --------------------
The term "Permanent Disability" shall mean the inability of the
Grantee to perform substantially all the Grantee's duties and responsibilities
to the Company by reason of a physical or mental disability or infirmity for a
continuous period of six months. The date of such Permanent Disability shall be
the last day of such six-month period or if later, the day on which the Grantee
submits satisfactory medical evidence of such Permanent Disability.
Section 1.6 - Retirement
- ----------- ----------
"Retirement" shall mean, with respect to the Grantee, retirement on or
after the Grantee's attainment of age 65 or such earlier age as may be otherwise
determined by the Board of the Directors of the Company.
Section 1.7 - Secretary
- ----------- ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.8 - Termination of Employment
- ----------- -------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship (or other relationship pursuant to which services are
performed) is terminated for any reason whatsoever. The Compensation Committee
of the Company's Board of directors (the "Committee"), in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not limited to, all questions of
whether particular leaves of absences constitute Termination of Employment.
Notwithstanding any other provision of this Agreement, the Company has an
absolute and unrestricted right to terminate any employee's employment at any
time for any reason whatsoever with or without Cause.
2
<PAGE>
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
For good and valuable consideration, on and as of the date hereof (the
"Grant Date"), the Company irrevocably grants to the Grantee the Option to
purchase any part or all of the number of shares of the Company's Common Stock
set forth on the signature page hereof, subject to adjustment as provided in
Section 2.4 hereof, upon the terms and conditions set forth in this Agreement.
Section 2.2 - Exercise Price
- ----------- --------------
The exercise price (the "Exercise Price") of the shares of stock
covered by the Option shall be $1.875 per share, without commission or other
charge.
Section 2.3 - Consideration to the Company
- ----------- ----------------------------
In consideration of the granting of the Option by the Company, the
Grantee agrees by the execution of this Agreement that the Grantee shall render
faithful and efficient services to the Company, with such duties and
responsibilities as the Company shall from time to time prescribe. Nothing in
this Agreement shall confer upon the Grantee any right to continue in the employ
of the Company or shall interfere with or restrict in any way the rights of the
Company, which are expressly reserved, to terminate the employment of the
Grantee at any time for any reason whatsoever, with or without Cause.
Section 2.4 - Adjustment in Option
- ----------- --------------------
Subject to Section 2.5, in the event the outstanding shares of Common
Stock subject to the Option are, from time to time, changed into or exchanged
for a different number or kind of shares of the Company or other securities of
the Company by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise, the Committee shall make an appropriate and equitable adjustment in
the number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any such adjustment
made by the Committee shall be final and binding.
Section 2.5 - Merger or Consolidation, Recapitalization, Etc.
- ----------- -----------------------------------------------
In its absolute discretion, and on such terms and conditions as it
deem appropriate, the Committee may at any time provide that the Option cannot
be exercised after the merger or consolidation of the Company with or into
another corporation, the sale or other disposition of all or substantially all
of the assets of the Company (including the exchange of such assets for the
securities of another corporation), the acquisition by another person of 80% or
more of the
3
<PAGE>
Company's then outstanding shares of voting stock or the recapitalization,
reclassification, liquidation or dissolution of the Company, and if the Company
so provides, it shall also provide, by a resolution adopted prior to the
occurrences of such merger, consolidation, disposition, acquisition,
recapitalization, reclassification, liquidation or dissolution, that, for some
period of time prior to such event, the Option shall be exercisable as to all
shares subject thereto, notwithstanding anything to the contrary in Section 3.1
and/or in any installment provisions of such Option and/or that the grantee
shall receive cash, in lieu of exercising the Option, in the amount by which the
Fair Market Value, as of the date of such event, of the number of shares of
Common Stock to which the Option relates exceeds the Exercise Price for the
shares of Common Stock which are subject to the Option, and that upon the
occurrence of such event, such Option shall terminated and be of no further
force or effect; provided, however, the Company may provide in its
-------- -------
absolute discretion, that even if the Option shall be exercisable after any such
event, from and after such event, any such Option shall be exercisable only for
the kind and amount of securities and/or other property, or the cash equivalent
thereof, receivable as a result of such event by the holder of a number of
shares of stock for which such Option could have been exercised immediately
prior to such event.
ARTICLE IV
PERIOD OF EXERCISABILITY
------------------------
Section .1 - Commencement of Exercisability
- ------------ ------------------------------
(a) The Option is granted for an aggregate of the number os shares of
Company Common Stock set forth on the signature page hereof (the "Option
Shares"); and
(b) The Option shall become exercisable as follows:
Percentage of Total Shares
Date Option Becomes Exercised As to Which Option is Exercisable
----------------------------- ---------------------------------
September 11, 1998 20%
September 11, 1999 20%
September 11, 2000 60%
Notwithstanding the foregoing, the Option shall not be exercisable as
to any additional shares following Termination of Employment of the Grantee for
any reason other than a Termination of employment because of death, Permanent
Disability or Retirement of the Grantee. In the event of a Termination because
of such death, Permanent Disability or Retirement, the Option shall immediately
become exercisable as to all shares.
4
<PAGE>
Section 3.2 - Expiration of Option
- ----------- --------------------
After the first to occur of the following events, the Option shall
expire and may not be exercised to any extent by the Grantee:
(a) Immediately upon the Grantee's Termination of Employment for
Cause;
(b) The Grantee is not continuously employed by the Company, Gomez
Advisors, Inc., Universal Trading Technologies Corporation or one of their
subsidiaries from September 11, 1997 through September 11, 1998, provided,
--------
however, that for purposes of this Section, "continuously employed" shall
-------
mean 30 days after the Grantee's Termination of Employment for any reason,
other than for death, Permanent Disability, Retirement or Cause;
(c) The Grantee dies on or before September 11, 1998; or
(d) Five years from the date of issuance.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
- ----------- ---------------------------
During the lifetime of the Grantee, only the Grantee (or the Grantee's
legal guardian) may exercise the Option or any portion thereof. After the death
of the Grantee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 2.5 or Section 3.2, be
exercised by the Grantee's personal representative or by any person empowered to
do so under the Grantee's will or under the then applicable laws of descent and
distribution.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
2.5 or Section 3.2; provided, however, that any partial exercise shall be for
-------- -------
whole shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or the Secretary's office all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 2.5 or Section 3.2:
5
<PAGE>
(a) Notice in writing signed by the Grantee or the other person then
entitled to exercise the Option or portion thereof is thereby exercised,
such notice complying with all applicable rules established by the Company.
(b) Full payment of the Exercise Price in cash or certified bank check
for the shares with respect to which such Option or portion thereof is
exercised or, if acceptable to the Company, (i) (A) by surrender or
delivery to the Company of shares equal to or less than the Exercise Price
or (B) in the event the Company registers its Common Stock under the
Securities Act of 1933, as amended (the "Act"), by registration on form S-8
(or any successor form), through the written election of the Grantee to
have shares of such Common Stock withheld by the Company from the shares
otherwise to be received, with such withheld shares having an aggregate
Fair Market Value on the date of exercise equal to or less than the
Exercise Price, plus (ii) cash or certified bank check for any difference;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Grantee or other person then
entitled to exercise such Option or portion thereof, stating that the
shares of stock are being acquired for the Grantee's own account, for
investment purposes only and without any present intention of distributing
or reselling said shares or any of them except as may be permitted under
the Act, and then applicable rules and regulations thereunder, and that the
Grantee or other person then entitled to exercise such Option or portions
thereof will indemnify the Company against and hold it free and harmless
from any loss, damage, expense of liability resulting to the Company if any
sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above; provided, however, that the
--------- -------
Committee may, in its absolute discretion, take whatever additional actions
it deems appropriate to ensure the observance and performance of such
representation and agreement and to effect compliance with the Act and any
other federal or state securities laws or regulations;
(d) Full payment to the company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option;
and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Grantee,
appropriate proof of the right of such person or persons to exercise the
Option.
Without limiting the generality of the foregoing, the Company may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of the Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) and the
legend referred to above shall, however, not be required if the shares to be
issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares. The Company shall
determine acceptable methods for tendering and withholding Common Stock of the
Company as payment of the Exercise
6
<PAGE>
Price upon exercise of an Option and in satisfaction of any withholding
obligation and may impose such limitations and prohibitions on the use of Common
Stock of the Company to exercise an Option as it deems appropriate, including
without limitation, any limitation or prohibition designed to avoid certain
accounting consequences that may result from the use of Common Stock of the
Company as payment of the Exercise Price upon exercise of an Option and in
satisfaction of any withholding obligation.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares that have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions.
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall reasonably determine
to be necessary or advisable;
(d) The payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option;
and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may from time to time establish for reasons
of administrative convenience.
Section 4.5 - Cash Payment in Lieu of Stock
- ----------- -----------------------------
Notwithstanding anything to the contrary contained herein, if at the
time the Option or any exercisable portion thereof is delivered for exercise to
the Company, or at any time prior to the issuance of a certificate of stock in
respect of such Option or portion thereof, the Common Stock has never been or
has ceased to be listed any national securities exchange or otherwise publicly
traded (whether or not listed on any stock exchange), the Board of Directors, in
its sole discretion, shall have the option of delivering (i) shares of Common
Stock or (ii) a cash payment in lieu of
7
<PAGE>
shares of Common Stock and the Exercise Price, multiplied by the number of
shares of Common Stock that would have been issued upon such exercise.
Section 4.6 - Rights as Stockholder
- ----------- ---------------------
The Grantee shall not be, nor have any of the rights or privileges of
a stockholder of the Company in respect of any shares purchasable upon the
exercise of the Option or any portion thereof unless and until certificates
representing such shares shall have been issued by the Company to such Grantee.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 - Administration
- ----------- --------------
The Committee shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Committee
shall be final and binding upon the Grantee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Agreement or the Option. In its absolute discretion, the board of directors
may at any time and from time to time exercise any and all rights and duties of
the Committee under this Agreement.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
No Option or interest or right therein shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means, whether such disposition be voluntary or involuntary or by
operation of law or by judgment, levy, attachment, garnishment or any other
legal or equitable proceeding (including bankruptcy) and any attempted
disposition thereof shall be null and void and of no effect; provided, however,
-------- -------
that nothing in this Section 5.2 shall prevent transfers by will or by the
applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Grantee shall be addressed to the Grantee at the
address given beneath the Grantee's signature hereto. By a notice
8
<PAGE>
given pursuant to this Section 5.4, either party may hereafter designate a
different address for notices to be given to such party. Any notice which is
required to be given to the Grantee shall, if the Grantee is then deceased, be
given to the Grantee's personal representative if such representative has
previously informed the Company of such representatives status and address by
written notice under this Section 5.4. Any notice shall have been deemed duly
given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, deposited (with postage prepaid) in a post office of branch post
office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Amendment
- ----------- ---------
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
Section 5.7 - Governing Law
- ----------- -------------
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Agreement regardless of the law
that might be applied under the principles of conflicts of laws.
Section 5.8 - Jurisdiction
- ----------- ------------
Any suit, action or proceeding against the Grantee with respect to
this Agreement, or any judgment entered by any court in respect of any thereof,
may be brought in any court of competent jurisdiction in the State of
Pennsylvania, as the Company may elect in its sole discretion, and the Grantee
agrees to submit to the nonexclusive jurisdiction of such courts for the purpose
of any such suit, action, proceeding or judgment. By the execution and delivery
of this Agreement, the Grantee appoints the Secretary as the Grantee's agent
upon whom process may be served in any such suit, action, proceeding or
judgment. By the execution and delivery of this Agreement, the Grantee appoints
the Secretary as the Grantee's agent upon whom process may be served in any such
suit, action or proceeding. Service of process upon such agent, together with
notice of such service given to the Grantee in the manner provided in Section
5.4 hereof, shall be deemed in every respect effective service of process upon
him in any suit, action or proceeding. Nothing herein shall in any way be
deemed to limit the ability of the Company to serve any such writs, process or
summonses in any other matter permitted by applicable law or to obtain
jurisdiction over the Grantee, in such other jurisdictions, and in such manner,
as may be permitted by applicable law. The Grantee hereby irrevocably waives
any objections which the Grantee may now or hereafter have to the laying of the
venue of any suit, action or proceeding arising out of or relating to this
Agreement brought in any court of competent jurisdiction in the State of
Pennsylvania, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in any
9
<PAGE>
inconvenient forum. No suit, action or proceeding against the company with
respect to this Agreement may be brought in any court, domestic or foreign, or
before any similar domestic or foreign authority. The Company hereby submits to
the jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
THE ASHTON TECHNOLOGY GROUP, INC.
By:
----------------------------------
Name:
--------------------------
Title:
-------------------------
________________________ The aggregate number of shares
Name of Grantee: of Common Stock for which this
Title: Option is exercisable is __________
(the "Option Shares")
________________________
________________________
Address
Grantee's Taxpayer Identification Number: ______________________________
10
<PAGE>
EXHIBIT 10.48
THE ASHTON TECHNOLOGY GROUP, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
THIS AGREEMENT, dated as of ____________________, 1998, is made by and
between The Ashton Technology Group, Inc., a Delaware corporation (the
"Company"), and the grantee named on the signature page hereof (the "Grantee").
WHEREAS, the Board of Directors of the Company has determined that it
would be to the advantage and best interests of the Company and its stockholders
to grant the nonqualified option provided for herein to the Grantee and has
advised the Company thereof and instructed the undersigned officers to issue
said option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 - Common Stock
- ----------- ------------
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
Section 1.2 - Fair Market Value
- ----------- -----------------
Unless otherwise specified herein, when a public market for the Common
Stock of the Company exists, the term "Fair Market Value" used in connection
with the value of shares of Common Stock shall mean the average of the high and
low reported sales prices of Common Stock on the principal exchange on which
such Common Stock is traded (or such other market as shall constitute the
principal trading market for the Common Stock) on the date which Fair Market
Value is being determined (or, if there is no such trading on such date, the
last preceding date on which there was such trading). When no public market for
the Common Stock of the Company exists, Fair Market Value shall be determined by
the Board.
Section 1.3 - Option
- ----------- ------
"Option" shall mean the nonqualified option to purchase Common Stock
of the Company granted under this Agreement.
<PAGE>
Section 1.4 - Secretary
- ----------- ---------
"Secretary" shall mean the Secretary of the Company.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
- ----------- ---------------
Subject to the approval of the Company's shareholders to an increase
in the number of authorized shares of Common Stock of the Company from
20,000,000 to 60,000,000, and for good and valuable consideration, on and as of
the date hereof (the "Grant Date"), the Company grants to the Grantee the Option
to purchase any part or all of the number of shares of the Company's Common
Stock set forth on the signature page hereof, subject to adjustment as provided
in Section 2.4 hereof, upon the terms and conditions set forth in this
Agreement.
Section 2.2 - Exercise Price
- ----------- --------------
The exercise price (the "Exercise Price") of the shares of stock
covered by the Option shall be $1.875 per share, without commission or other
charge.
Section 2.3 - Consideration to the Company
- ----------- ----------------------------
The Company has granted this Option to Grantee in consideration of
consulting or other advisory services Grantee has provided to the Company.
Nothing in this Agreement shall confer upon the Grantee any right to continue to
provide services to the Company or to receive any other remuneration or payment
from the Company.
Section 2.4 - Adjustment in Option
- ----------- --------------------
Subject to Section 2.5, in the event the outstanding shares of Common
Stock subject to the Option are, from time to time, changed into or exchanged
for a different number or kind of shares of the Company or other securities of
the Company by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, combination of shares, or
otherwise the Company shall make an appropriate and equitable adjustment in the
number and kind of shares or other consideration as to which the Option, or
portions thereof then unexercised, shall be exercisable. Any such adjustment
made by the Company shall be final and binding.
2
<PAGE>
Section 2.5 - Merger or Consolidation, Recapitalization, Etc.
- ----------- -----------------------------------------------
In its absolute discretion, and on such terms and conditions as it
deems appropriate, the Company may at any time provide that the Option cannot be
exercised after the merger or consolidation of the Company with or into another
corporation, the sale or other disposition of all or substantially all of the
assets of the Company (including the exchange of such assets for the securities
of another corporation), the acquisition by another person of 80% or more of the
Company's then outstanding shares of voting stock or the recapitalization,
reclassification, liquidation or dissolution of the Company, and if the Company
so provides, it shall also provide, by a resolution of its Board of Directors
adopted prior to the occurrence of such merger, consolidation, disposition,
acquisition, recapitalization, reclassification, liquidation or dissolution,
that, for some period of time prior to such event, the Option shall be
exercisable as to al shares subject thereto, notwithstanding anything to the
contrary in Section 3.1 and/or that the grantee shall receive cash, in lieu of
exercising the Option, in the amount by which the Fair Market Value, as of the
date of such event, of the number of shares of Common Stock to which the Option
relates exceeds the Exercise Price for the shares of Common Stock which are
subject to the Option, and that upon the occurrence of such event, such Option
shall terminate and be of no further force or effect; provided, however, that
-------- -------
the Company may provide, in its absolute discretion, that even if the Option
shall remain exercisable after any such event, from and after such event, any
such Option shall be exercisable only for the kind and amount of securities
and/or other property, or the cash equivalent thereof, receivable as a result of
such event by the holder of a number of shares of stock for which such Option
could have been exercised immediately prior to such event.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
- ----------- ------------------------------
Upon approval of the Company's shareholders described in Section 2.1,
the Option shall automatically become exercisable. In the event that such
shareholder approval is not obtained, this option shall be null and void and of
no other effect.
Section 3.2 - Expiration of Option
- ----------- --------------------
The Option shall expire and may not be exercised to any extent by the
Grantee after March 31, 2003.
ARTICLE IV
EXERCISE OF OPTION
------------------
3
<PAGE>
Section 4.1 - Eligibility to Exercise
- ----------- -----------------------
During the lifetime of the Grantee (if an individual), only the
Grantee (or the Grantee's legal guardian) may exercise the Option or any portion
thereof. After the death of the Grantee, any exercisable portion of the Option
may be exercised by the Grantee's personal representative or by any person
empowered to do so under the Grantee's will or under the then applicable laws of
descent and distribution. During the existence of the Grantee (if an entity),
only the Grantee may exercise the Option or any portion thereof. If the Grantee
ceases to exist as a legal entity, any exercisable portion of the option may be
exercised by any successor to all or substantially all of the Grantee's assets.
Section 4.2 - Partial Exercise
- ----------- ----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under this
Agreement; provided, however, that any partial exercise shall be for whole
-------- -------
shares only.
Section 4.3 - Manner of Exercise
- ----------- ------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or the Secretary's office all of the
following prior to the time when the Option or such portion becomes
unexercisable under this Agreement:
(a) Notice in writing signed by the Grantee or the other person or
entity then entitled to exercise the Option or portion thereof stating that
the Option or portion thereof is thereby exercised, such notice complying
with all applicable rules established by the Company;
(b) Full payment of the Exercise Price in cash or certified bank check
for the shares with respect to which such Option or portion thereof is
exercised or, if acceptable to the Company, (i)(A) by surrender or delivery
to the Company of shares of its Common Stock with an aggregate fair market
value on the date of exercise equal to or less than the Exercise Price or
(B) in the event the Company registers the Company's Common Stock under the
Securities Act of 1933, as amended (the "Act"), by registration on form S-8
(or any successor form), through the written election of the Grantee to
have shares of such Common Stock withheld by the Company from the shares
otherwise to be received, with such withheld shares having an aggregate
Fair Market Value on the date of exercise equal to or less than the
Exercise Price, plus (ii) cash or certified bank check for any difference
between the value of the shares so surrendered or withheld and the Exercise
Price;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Grantee or other person then
entitled to exercise such Option or portion thereof, stating that the
shares of stock are being acquired for the Grantee's own
4
<PAGE>
account, for investment purposes only and without any present intention of
distributing or reselling said shares or any of them except as may be
permitted under the Act, and then applicable rules and regulations
thereunder, and that the Grantee or other person then entitled to exercise
such Option or portions thereof will indemnify the Company against and hold
it free and harmless from any loss, damage, expense of liability resulting
to the Company if any sale or distribution of the shares by such person is
contrary to the representation and agreement referred to above; provided,
--------
however, that the Company may, in its absolute discretion, take whatever
-------
additional actions it deems appropriate to ensure the observance and
performance of such representation and agreement and to effect compliance
with the Act and any other federal or state securities laws or regulations;
(d) Full payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold and remit to any taxing
authority upon exercise of the Option; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or entity other than the Grantee,
appropriate proof of the right of such person or entity to exercise the
Option.
Without limiting the generality of the foregoing, the Company may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of the Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) and the
legend referred to above shall, however, not be required if the shares to be
issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares. The Company shall
determine acceptable methods for tendering and withholding Common Stock of the
Company as payment of the Exercise Price upon exercise of an Option and in
satisfaction of any withholding obligation and may impose such limitation and
prohibitions on the use of Common Stock of the Company to exercise an Option as
it deems appropriate, including, without limitation, any limitation or
prohibition designed to avoid certain accounting consequences that may result
from the use of Common Stock of the Company as payment of the Exercise Price
upon exercise of an Option and in satisfaction of any withholding obligation.
Section 4.4 - Conditions to Issuance of Stock Certificates
- ----------- --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares that have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
5
<PAGE>
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed if so required by such exchanges;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental
regulatory body, which the Company shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of approval or other clearance from any state or
federal governmental agency which the Company shall reasonable determine to
be necessary or advisable;
(d) The payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold and remit to any taxing
authority upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Company may from time to time establish for reasons of
administrative convenience.
Section 4.5 - Cash Payment in Lieu of Stock
- ----------- -----------------------------
Notwithstanding anything to the contrary contained herein, if at the
time the Option or any exercisable portion thereof is delivered for exercise to
the Company, or at any time prior to the issuance of a certificate of stock in
respect of such Option or portion thereof, the Common Stock has ceased to be
listed any national securities exchange or otherwise publicly traded (whether or
not listed on any stock exchange), the Board of Directors, in its sole
discretion, shall have the option of delivering (i) shares of Common Stock or
(ii) a cash payment in lieu of shares of Common Stock equal to the difference
between the Fair Market Value of the Common Stock and the Exercise Price,
multiplied by the number of shares of Common Stock that would have been issued
upon such exercise.
Section 4.6 - Rights as Stockholder
- ----------- ---------------------
The Grantee shall not be, nor have any of the rights or privileges of
a stockholder of the Company in respect of any shares purchasable upon the
exercise of the Option or any portion thereof unless and until certificates
representing such shares shall have been issued by the Company to such Grantee.
ARTICLE V
MISCELLANEOUS
-------------
6
<PAGE>
Section 5.1 - Administration
- ----------- --------------
The Company's Board of Directors shall have the power to interpret
this Agreement. All actions taken and all interpretations and determination
made by the Company shall be final and binding upon the Grantee, the Company and
all other interested persons. No member of the Board shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Agreement or the Option.
Section 5.2 - Option Not Transferable
- ----------- -----------------------
No Option or interest or right therein shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means, whether such disposition be voluntary or involuntary or by
operation of law or by judgment, levy, attachment, garnishment or any other
legal or equitable proceeding (including bankruptcy) and any attempted
disposition thereof shall be null and void and of no effect; provided, however,
-------- -------
that nothing in this Section 5.2 shall prevent transfers by will or by the
applicable laws of descent and distribution.
Section 5.3 - Shares to Be Reserved
- ----------- ---------------------
Subject to Section 2.1 above, the Company shall at all times during
the term of the Option reserve and keep available such number of shares of stock
as will be sufficient to satisfy the requirements of this Agreement.
Section 5.4 - Notices
- ----------- -------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Grantee shall be addressed to the Grantee at the
address given beneath the Grantee's signature hereto. By a notice given
pursuant to this Section 5.4, either party may hereafter designate a different
address for notices to be given to such party. Any notice which is required to
be given to the Grantee shall, if the Grantee is then deceased, be given to the
Grantee's personal representative if such representative has previously informed
the Company of such representatives status and address by written notice under
this Section 5.4. Any notice shall have been deemed duly given when enclosed in
a properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office of branch post office regularly maintained by
the United States Postal Service.
Section 5.5 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Amendment
- ----------- ---------
7
<PAGE>
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
Section 5.7 - Governing Law
- ----------- -------------
The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Agreement regardless of the law
that might be applied under the principles of conflicts of laws.
Section 5.8 - Jurisdiction
- ----------- ------------
Any suit, action or proceeding against the Grantee with respect to
this Agreement, or any judgment entered by any court in respect of any thereof,
may be brought in any court of competent jurisdiction in the State of
Pennsylvania, as the Company may elect in its sole discretion, and the Grantee
agrees to submit to the nonexclusive jurisdiction of such courts for the purpose
of any such suit, action, proceeding or judgment. By the execution and delivery
of this Agreement, the Grantee appoints the Secretary as the Grantee's agent
upon whom process may be served in any such suit, action or proceeding. Service
of process upon such agent, together with notice of such service given to the
Grantee in the manner provided in Section 5.4 hereof, shall be deemed in every
respect effective service of process upon him in any suit, action or proceeding.
Nothing herein shall in any way be deemed to limit the ability of the Company to
serve any such writs, process or summonses in any other matter permitted by
applicable law or to obtain jurisdiction over the Grantee, in such other
jurisdictions, and in such manner, as may be permitted by applicable law. The
Grantee hereby irrevocably waives any objections which the Grantee may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the State of Pennsylvania, and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. No suit, action or proceeding against
the Company with respect to this Agreement may be brought other than in a court
of competent jurisdiction in the State of Pennsylvania, and the Grantee hereby
waives any right which he may otherwise have had to bring such an action in any
other court, domestic or foreign, or before any similar domestic or foreign
authority. The Company hereby submits to the jurisdiction of such courts for
the purpose of any such suit, action or proceeding.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
THE ASHTON TECHNOLOGY GROUP, INC.
By:_______________________________________
Name: Fredric W. Rittereiser
Title: Chairman
________________ The aggregate number of shares of
Name of Grantee: Common Stock for which this Option
Title: Is exercisable is____________________
(the "Option Shares")
___________________________
___________________________
Address
Grantee's Taxpayer
Identification Number:
__________________________
9
<PAGE>
EXHIBIT 21
----------
Subsidiaries of The Ashton Technology Group, Inc.
Name State of Incorporation
- ---- ----------------------
Computer Science Innovations, Inc. Florida
Universal Trading Technologies Corporation Delaware
Gomez Advisors, Inc. Delaware
Electronic Market Center, Inc. Delaware
REB Securities, Inc. Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 815,680
<SECURITIES> 0
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0
6,238,875
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</TABLE>
