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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(X)Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended March 31, 1999 or
( )Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission file number: 001-11747
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THE ASHTON TECHNOLOGY GROUP, INC.
(Name of small business issuer in its charter)
Delaware 22-6650372
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 Market Street, Suite 701
Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:
(215) 751-1900
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
Redeemable Common Stock Purchase Warrants
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes (X) No ( ).
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Issuer'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)
Issuer's revenue for the fiscal year ended March 31, 1999 was $1,434,438.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Issuer computed by reference to the price at which
the common equity was sold on NASDAQ on June 21, 1999 was $197,540,742.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, was 20,569,172 at March 31, 1999, and 23,062,079 at June 21, 1999.
Documents incorporated by reference into Part III of this 10-KSB: Issuer's
Definitive Proxy Statement for its 1999 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................................................................... 1
ITEM 1.DESCRIPTION OF BUSINESS.......................................... 1
ITEM 2.DESCRIPTION OF PROPERTY.......................................... 11
ITEM 3.LEGAL PROCEEDINGS................................................ 11
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 11
PART II.................................................................. 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 13
ITEM 7.FINANCIAL STATEMENTS............................................. 18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................ 38
PART III................................................................. 39
ITEM 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 39
ITEM 10.EXECUTIVE COMPENSATION........................................... 39
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 39
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 39
PART IV.................................................................. 40
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEUDLES AND AND REPORTS ON
FORM 8-K........................................................ 40
SIGNATURES............................................................... 43
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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. 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 primarily 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 financial
electronic commerce ("e-commerce"). The Company is currently organized as a
holding company with four subsidiaries:
1) Universal Trading Technologies Corporation ("UTTC(TM)").
2) Gomez Advisors, Inc. ("Gomez").
3) Electronic Market Center, Inc. ("EMC").
4) ATG(TM) International, Inc. ("ATG(TM) International").
During the fiscal year ended March 31, 1999, Gomez generated all of the
Company's revenues. During the year ended March 31, 1998, the Company sold
Computer Science Innovations, Inc. ("CSI(R)"). The sale has been presented as
discontinued operations. Had CSI(R)'s results been consolidated during the
year ended March 31, 1998, CSI(R) would have generated over 90% of the
Company's consolidated revenue. Following the sale of CSI(R), Gomez (see
"Gomez Advisors, Inc.") has been the Company's sole source of revenue.
ATG(TM)
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 electronic information and transaction based
products and services. ATG(TM)'s products and services 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 financial e-commerce.
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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;
. 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).
As ATG(TM)'s information and transaction systems are developed, ATG(TM)
intends to, on an unconsolidated basis, generate revenue from licensing and
royalty payments for the use and operation of the systems by its subsidiaries.
CSI(R) was a subsidiary of the Company. CSI(R) was incorporated in Florida
in March 1983 and specialized in utilizing computer technologies and
sophisticated mathematical techniques to address complex information retrieval
and management problems. On November 6, 1997, 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. Financial
information related to CSI(R) has been presented as discontinued operations
(see "Item 7. Notes to Consolidated Financial Statements").
Universal Trading Technologies Corporation
UTTC(TM)'s business is to market and operate electronic pricing and
transactional systems for the securities market. UTTC(TM) will collect
transaction fees from trades executed through its systems. UTTC(TM)'s target
customers are exchanges, institutions, money managers, broker-dealers, 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 global trading environment which features:
. Absolute anonymity;
. Exchange-standard surveillance;
. Advanced computer and telecommunications technologies;
. Global accessibility through the MCI/Worldcom network as well as 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; and
. Electronic connection to pre-trade analytics and information, trade
execution, and post-trade clearing and settlement mechanisms.
UTTC(TM) has developed its first trading module, the volume weighted average
price ("VWAP(R)") trading system ("VTS(TM)"), an electronic securities pricing
and transaction system for trading exchange listed and NASDAQ National Market
securities (see "VWAP(R)").
UTTC(TM) Subsidiaries
REB Securities, Inc.
REB Securities, Inc. ("REB") is a wholly owned broker-dealer subsidiary of
UTTC(TM). REB was formed in April 1998 in order to pursue launching the
VTS(TM) on the Philadelphia Stock Exchange ("PHLX") through a
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broker-dealer in order to provide full supervision and regulation as a broker-
dealer. On October 20, 1998, REB's membership application was approved by the
PHLX subject to acquisition of a seat on the PHLX. REB will operate as the
facilities manager for the VTS(TM) and will not engage in any other broker-
dealer activities. On March 5, 1999, REB received approval from the National
Association of Securities Dealers ("NASD") to operate as a registered broker-
dealer. On April 1, 1999, REB obtained a PHLX membership seat thereby
triggering its admission on the PHLX.
Croix Securities, Inc.
Croix Securities, Inc. ("Croix") was formed in February 1999 as a wholly
owned subsidiary of UTTC(TM). Croix is initially expected to act as an
introducing broker on behalf of institutions trading through VTS(TM). Croix
may expand its operation to provide electronic broker-dealer services, which
include the development of research and analytical products to banks, broker-
dealers, insurance companies, and other financial intermediaries. In May 1999,
Croix filed applications with the PHLX and NASD to operate as a registered
broker-dealer. There can be no assurance that Croix will be able to obtain all
the necessary approvals to operate as a broker-dealer.
NextExchange Inc.
The Company formed NextExchange, Inc. ("NextExchange") in February 1999 as a
wholly owned subsidiary of UTTC(TM). NextExchange plans to avail itself of the
opportunities made available as a result of the SEC's recently articulated
support for non-mutualized, "for profit" exchanges. NextExchange intends to
register itself with the SEC as a fully electronic national securities
exchange. NextExchange will be designed and developed to trade equities,
options, and other derivative securities. The Company is currently in the
process of determining the funding required to design, develop and commence
operation of NextExchange. There can be no assurance that the Company will be
able to finance the development or to actually deploy NextExchange.
On June 4, 1999, UTTC(TM) completed a private placement of 145,700 shares of
convertible preferred stock for $2,000,000 (see "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Subsequent Events").
Electronic Market Center, Inc.
In June 1998, the Company formed Electronic Market Center, Inc. as a wholly
owned subsidiary of ATG(TM). The Company expects to utilize this subsidiary to
design, develop, operate and market the Company's electronic distribution
channel for a full range of financial products and services 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. The Company is currently in the process of raising capital to
complete the design and commence development of eMC(TM). Although the Company
has designed the specifications for the eMC(TM) and has developed a business
plan for the operation of eMC(TM), there can be no assurance that the Company
will be able to finance the development or to actually develop such a finance
system.
ATG(TM) International, Inc.
The Company formed ATG(TM) International, Inc. as a wholly owned subsidiary
in July 1998 to explore opportunities for marketing and licensing the
Company's products and services abroad. The international markets represent
potentially significant growth opportunities for the application of ATG(TM)'s
technology and skills in 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. The Company continues to pursue opportunities to
deploy its trading systems in China and Canada. As joint ventures and
strategic alliances with parties in Canada, China and elsewhere are developed,
the investments in the joint ventures or strategic alliances may be held
directly by ATG(TM) instead of ATG(TM) International, Inc. On June 4, 1999,
the Company entered into a letter of intent to create a joint venture company
with eTK, a wholly owned subsidiary of Thomson Kernaghan & Co., Ltd. ("TK"), a
Canadian investment dealer, to cultivate the application of VTS(TM) in Canada.
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Gomez Advisors, Inc.
Gomez Advisors, Inc. ("Gomez") was formed in May 1997 as a subsidiary of the
Company together with Julio Gomez, John Robb, and Dr. Alex Stein to provide
independent advice with respect to online investing and provide 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.
From its inception in May 1997 through March 1999, Gomez primarily derived
revenues from consulting contracts with e-commerce businesses. Consulting
revenues constituted 99% of total revenues for the period from inception to
March 31, 1998 and 65% of total revenues for the fiscal year ended March 31,
1999. In March 1999, Gomez began selling subscription-based research services
and products to e-commerce businesses. Accordingly, the Company expects
Gomez's consulting revenues to decrease substantially as a percentage of its
total revenues.
Gomez is a provider of Internet-based products and services to consumers and
businesses in select e-commerce industries. Gomez delivers interactive content
that provides decision support for consumers and businesses to more
efficiently engage in e-commerce. Gomez provides the following categories of
products and services:
. consumer-focused products and services delivered via its gomez.com Web
site; and
. business-focused products and services delivered via its GomezPro Web
site.
Through its consumer-focused Web site at www.gomez.com, Gomez provides e-
commerce consumers with research and data services to assist them in all
aspects of the e-commerce purchasing decision. On gomez.com, Gomez provides
Scorecard rankings of businesses in specific e-commerce markets, editorial and
educational content and navigation and search capabilities that help consumers
optimize their e-commerce experience. Through gomez.com, Gomez derives
advertising and sponsorship revenues and transaction-based revenues, paid on
either a fixed-fee or percentage-of-transaction basis, for leads generated or
transactions initiated through gomez.com.
With GomezPro, Gomez has built upon its e-commerce consumer-based expertise
to offer e-commerce businesses useful products and services that enable its
clients to more effectively understand the competitive e-commerce environment.
Currently Gomez offers GomezPro services for businesses in the online
brokerage and banking industries. Gomez is in the process of expanding these
services to all e-commerce segments for which it generates consumer-focused
Scorecards. The services offered to e-commerce businesses through the GomezPro
site consist of (a) GomezPro Research Station, (b) GomezPro advanced data
services and tools and (c) GomezPro business-to-business services. Gomez
generates subscription revenues to gain access to the GomezPro site and
Research Station, and it charges additional fees to subscribe to the GomezPro
advanced data services and tools. In addition, Gomez generates listing fees
and sponsorship revenues through its business-to-business services.
On April 24, 1999, Gomez completed a private placement of 1,100,000 shares
of convertible preferred stock at $5.00 per share and realized gross proceeds
of $5,500,000 (see "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Subsequent Events").
VWAP(R)
The VTS(TM) is the first product designed and developed by UTTC(TM). VTS(TM)
(version 2.x) is a facility of the PHLX. It is a fully automated system that
permits its participants to buy, sell, or short-sell VTS(TM)-eligible
securities before the market opens (pre-open) at the VWAP(R). The VWAP(R) is
the average price for a specific stock, weighted by the volume of shares of
that stock traded "regular way" during the day on all security exchanges
throughout the United States as reported to the Consolidated Tape. VTS(TM) is
short-sell exempt allowing submission of sell orders to the pre-open VWAP(R)
matching session.
Participants may submit large-sized orders and execute large-sized trades
without market impact because of the end-to-end anonymity of the system that
electronically protects the participant's identity, order, match (trade),
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residual (if any), and contra-side identity all the way through the settlement
and clearing process. The Company believes that there are no other trading
systems that provide this degree of end-to-end anonymity. Participants are
electronically informed of their (binding) matches and residuals (if any) at
approximately 9:20 AM EST, and are informed of the associated VWAP(R) pricing
at approximately 4:20 PM EST, shortly after the VWAP(R) calculations are
completed for the day. The pre-open VWAP(R), as provided only by VTS(TM),
provides "mutual satisfaction" and "best execution" within a highly liquid,
totally anonymous, electronic trading environment and should be distinguished
from time-sliced or volume-weighted composite prices that do not provide
assurances of such advantages. PHLX transaction fees, the only cost other than
clearing and settlement, for using the system are low and competitive due to
the low manual overhead associated with this fully automated, high capacity,
and highly reliable electronic matching system.
VTS(TM) is available to exchanges, broker/dealers, institutions, money
managers, and other financial intermediaries and end users. Interested firms
must enroll with REB or the PHLX in order to become active participants in the
VTS(TM) matching sessions that will occur once the system is operational,
every trading day automatically at 9:15 AM EST. Non-members must arrange for a
PHLX/SCCP member to sign a simple one page "bilateral give-up clearing
agreement" to obtain direct access to VTS(TM). The system has been designed to
afford a variety of electronic access mechanisms so that participating firms
and their trading room environments can easily and securely integrate to
VTS(TM) using VTS(TM)-supplied, global, secure, communications services, as
well as FIX pathways and the Internet. Participants need only read the VTS(TM)
"shrink wrap" license agreement to utilize VTS(TM)-supplied software,
hardware, and communications pathways.
For all VWAP(R) match executions, VTS(TM) will provide automated post-market
clearing and settlement. This is accomplished via a straight-through process
engineered to electronically provide necessary transaction data directly to
each clearing firm and to protect contra-side identity by inserting the SCCP
omnibus account in the middle of each transaction.
The Philadelphia Stock Exchange Agreement
On April 22, 1995, the PHLX and UTTC(TM) agreed to integrate and deploy the
VTS(TM) system as a new trading product of the PHLX. On September 18, 1995,
UTTC(TM) and PHLX memorialized the agreement in a formal contract for a term
of five years commencing from the date VTS(TM) becomes operational on the
PHLX. Pursuant to the letter agreement, UTTC(TM) designed and built the
VTS(TM) and holds all proprietary right, title and interest in the system. The
PHLX was responsible for filing a rule change with the SEC seeking regulatory
approval of the VTS(TM).
On October 28, 1997, the PHLX submitted to the SEC an amendment to its
original request for rule change, which was required because of the elapsed
time since the original submission in April 1996 and to reflect enhancements
made by UTTC(TM) to VTS(TM). On December 31, 1997, the SEC republished the
rule and amendments in the Federal Register. On March 24, 1999, the SEC
approved the rule, as amended.
The Company and the PHLX have completed joint, full-scale production testing
of the VTS(TM) and PHLX systems. The VTS(TM) is operationally ready and
management anticipates it will commence live customer operation as a facility
of the PHLX during its fiscal year ended March 31, 2000 (see "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations"). There can be no assurance however, that the operation of VTS(TM)
will commence or, if so, when it will commence. The Company's revenue will
depend on the volume of securities traded on the VTS(TM), the PHLX's and
UTTC(TM)'s marketing capabilities, and user acceptance of the VTS(TM).
National and international economic and political conditions and broad trends
may also affect securities trading volumes. Any one or all of these factors
could result in lower share volumes offered through the VTS(TM) and could
adversely impact the Company"s results of operations once the VTS(TM) becomes
operational. Variations in transaction volume could result in significant
volatility in operating results.
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Government Regulation
The Company, its subsidiaries and its transaction systems are or will be
subject to significant government regulation, under both federal and state
laws, and self-regulatory organization ("SRO") oversight. The SEC is primarily
responsible for the administration of federal securities law while SROs are
responsible for the day-to-day regulation of their broker-dealer members. SROs
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 the 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 requires the PHLX to file any proposed rules changes
with the SEC. The concept of the VTS(TM) system, which would constitute a new
PHLX facility accompanied by new PHLX rules, was 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 VTS(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 SEC determined that the VTS(TM) filing is consistent
with the purposes of the Exchange Act, particularly Section 6 of the Exchange
Act, which provides standards governing the rules of national securities
exchanges. The SEC recently adopted amendments to Rule 19b-4 and Regulation
ATS under the Exchange Act that will impact how the Company launches new
trading systems and products (see "Exchange Regulation and New Regulation
ATS").
Broker-dealers such as REB and Croix are subject to regulation related to
all aspects of the securities business, including sales methods, record
keeping, capital structure, and conduct of directors, officers and employees.
The Company plans to operate NextExchange as a registered national
securities exchange pursuant to Section 6 under the Exchange Act. Registered
exchanges are subject to pervasive federal regulatory responsibilities,
including filing and receiving approval of any rule changes with the SEC
before any rule policy and/or practice of the exchange may be implemented.
Registered exchanges are SRO's and accordingly, must establish comprehensive
surveillance programs to oversee trading by their broker-dealer members.
NextExchange intends to capitalize on the SEC's view supporting the concept of
for-profit, non-member owned exchanges (see "Exchange Regulation and New
Regulation ATS").
The Company is unable to currently predict whether additional regulations
will be adopted which could have a material impact on the Company, its
products, its business partners, or its customers.
Exchange Regulation and New Regulation ATS
The Company believes the business and regulatory environment for introducing
new trading systems has become more flexible based on proposals adopted by the
SEC in December 1998 regarding alternate trading systems ("ATSs") and exchange
pilot trading systems. On April 16, 1998, the SEC proposed new rules and rule
amendments that would 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 registered national securities
exchanges and associations.
On December 2, 1998, the SEC adopted new rules and rule amendments, which
were similar to the proposed ATS regulations. The ATS regulations and Pilot
Rule were published in the Federal Register on December 11, 1998. Most of
these new regulations became effective on April 20, 1999. The ATS regulations
will permit, among other things, ATSs to choose whether to register as
national securities exchanges or to register as broker-dealers. In addition,
the SEC proposed regulatory amendments that will permit registered exchanges
such as the PHLX to introduce pilot trading systems for up to two years
without preliminary SEC approval, the Pilot Rule.
It is the Company's belief that the SEC underscored the importance of the
new regulatory structure as a result of ATSs' growing importance in executing
transactions in both listed and NASDAQ securities. The SEC
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cited that ATSs execute approximately 20 percent of the volume in NASDAQ
securities and four percent of volume in listed securities. The SEC projected
that these figures will triple in the next three years. In summary, the
Company believes the implications of the new regulatory market structure
include:
. Regulation ATS requirements are fewer and less burdensome for start-up
ATSs reflecting their smaller initial volume levels. ATSs with larger
volumes are now subject to regulations approaching those imposed upon
registered exchanges.
. The SEC supported the concept that an exchange may be operated as a for-
profit, non-member enterprise and that an existing exchange could
relinquish its registered exchange status to operate a broker-dealer
ATS.
. The SEC expressed a clear view that new technology and global
competition are driving the new regulatory structure.
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 VTS(TM) system will compete with other electronic trading
systems, including Reuters Group PLC's Instinet system, Investment Technology
Group, Inc.'s POSIT system and Optimark Technologies, Inc.'s Optimark system.
The Company believes that competitive criteria include quality of trade
execution, pricing and reliability of post-execution processing and settlement
operations. The VTS(TM) system will also compete with various national and
regional securities exchanges for trade execution services.
UTTC(TM)'s success is heavily dependent upon the acceptance of the VTS(TM)
by institutional investors. Failure to obtain such acceptance could result in
lower share volumes and a lack of liquidity on the VTS(TM). Market and
customer acceptance of the VTS(TM) will depend upon, among other things,
VTS(TM)'s operational performance, which has not yet been tested in the
environment of live trading activity. In addition, once operational, the
VTS(TM)'s institutional customers may reduce or discontinue the use of the
VTS(TM) at any time. While the Company's management continues to solicit
customers to use the VTS(TM) there can be no assurance that UTTC(TM) will
attract a sufficient number of customers to the VTS(TM). Failure to market and
introduce the VTS(TM) or to obtain a critical threshold level of trading
volume could result in a material adverse effect on UTTC(TM) and the
consolidated operations of the Company.
Gomez competes in the market for research products and advisory services
directly with other independent providers of such services, including, The
Gartner Group, Jupiter Communications, Forrester Research, Inc. and McKinsey &
Company, Inc. Gomez also competes directly and indirectly for online
advertising and sponsorship revenues with established search engines, such as
Yahoo, Excite and Lycos, and other Web sites, especially sites that provide e-
commerce consumer information, such as www.BizRate.com, www.CompareNet.com and
www.gotoNET.com.
The trade execution and analytical services to be offered by Croix will
compete with services offered by leading brokerage firms and other information
service and transaction processing firms.
Product Development
The Company continues to invest in the enhancement, marketing and deployment
of the VTS(TM) as well as pursuing opportunities to deploy the Company's
trading systems in the Asian and Canadian markets. The Company's efforts are
focused on (i) enhancements to the VTS(TM), (ii) funding and development of
the eMC(TM) and (iii) development of the electronic Options Exchange System
("eOX(TM)"), an electronic crossing network for derivative products. The
Company also continues to refine the design requirements and evaluate market
acceptance of the electronic Auction System ("eAS(TM)") and the electronic
Public Limit Order Book ("ePLOB(TM)"). It is envisioned that these systems
will form the technical backbone of NextExchange.
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The technologies underlying the Company's products and services are subject
to rapid evolution and change. ATG(TM)'s future success depends upon the
Company's ability to respond quickly and successfully to technological
advances by developing and introducing new and improved products and services.
The Company may not be able to respond to such advances. Competitors,
including those with greater financial and other resources, could also succeed
in developing technologies, products, or services that could directly compete
with the Company's products.
As a developing company, which has had a limited operating history, the
Company is subject to the risks and difficulties common to new businesses. The
Company was founded in 1994 as a development stage company with no operating
history. Until recently, the Company's revenue was generated primarily by
CSI(R). Because CSI(R) no longer fit into the Company's long-term strategic
plan involving e-commerce, the Company sold CSI(R) on November 6, 1997. Since
then, the Company's only other source of revenue has been Gomez, which was
formed on May 22, 1997. The Company's revenue for the year ended March 31,
1999 was $1,434,438. The Company has never realized any operating profit and
has generated a significant accumulated deficit as a result of the reported
losses.
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 patent,
trademark, copyright, trade secret protection, employee and third party
confidentiality and non-disclosure agreements, license agreements, and other
federal and state intellectual property protection methods to protect the
proprietary rights. Neither ATG(TM), UTTC(TM) nor Gomez currently holds any
material patents or has filed for copyright protection. UTTC(TM) has filed
"intent-to-use" or "actual use" documents with the U.S. Patent & Trademark
Office for all of the Company's products presently available or currently
being developed. In April, 1999, The Dover Group, Inc. ("Dover") assigned all
right, title, and interest to the registered mark "VWAP(R)" to UTTC(TM) for a
nominal consideration (see "Item 7. Notes to Consolidated Financial
Statements"). Accordingly, UTTC(TM) has the exclusive ownership interest in
the "VWAP(R)" mark. 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.
CAPITALIZATION AND OWNERSHIP OF SUBSIDIARIES
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 (see
"Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Subsequent Events").
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) shares of its
Series A Convertible PIK Preferred Stock (with a liquidation preference of
$10.00 per share) (the "Series A Preferred"); (ii) 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 cash or
additional shares of Series A Preferred until February 15, 2000. Each holder
of shares of Series A Preferred has the right to convert each share of Series
A Preferred into: (i) ten shares of Common Stock; and (ii) one two-year
warrant to
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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. 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 250,000 shares of its Series A Preferred at $10.00 per
share, 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 sold 290,000 shares of Series B Preferred. The sale of the Series B
Preferred closed on May 6, 1998. 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 described below, in the aggregate amount of
approximately $1,445,000.
ATG(TM) owns approximately 94% of the outstanding common stock of UTTC(TM).
During the fiscal year ended March 31, 1998, ATG(TM) 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.
During the fiscal year ended March 31, 1999, ATG(TM)'s ownership of UTTC(TM)
decreased to 94% due the settlement with David Rosensaft ("Rosensaft") whereby
UTTC(TM) issued 416,667 shares of UTTC(TM) Common Stock to Rosensaft (see
"Item 7. Financial Statements").
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 $10.00 per share (the
"Series C Preferred"), for an aggregate purchase price of $1,000,000. Holders
of shares of Series C Preferred had the right to convert each share of Series
C Preferred into one share of Common Stock at the defined floating conversion
price which amounted to $1.51 per share. In addition, the Series C Investors
received warrants exercisable into an aggregate of 100,000 shares of Common
Stock at an exercise price of $1.70 for a period of five years.
As of March 31, 1998, 50,000 shares of the Series C Shares were converted
into 281,071 shares of Common Stock. Between March 31 and April 21, 1998, the
remainder of the shares 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 Market Price to Settondown Capital International Ltd. (the
"Placement Agent").; In addition, the Company paid $50,000 and granted an
option to purchase 150,000 shares of Common Stock at $1.875 per share to
Adirondack Capital L.L.C. ("Adirondack"), whose managing director is a
director of the Company, for services in structuring the offering.
ATG(TM) Series D and E Convertible Preferred Stock; Private Equity Line of
Credit
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. The Company also agreed to promptly file a registration
statement with the SEC under the Securities Act,
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registering shares of Common Stock issuable in connection with the
transactions contemplated by the Private Equity Agreement (the "Registration
Statement"), whereby the Private Equity Investors purchased 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% in cash to
Adirondack.
The Private Equity Investors are not obligated to purchase any Put shares
unless, among other things, (i) the Registration Statement is effective, (ii)
the Company is listed and its Common Stock is trading on a national exchange
or quotation system, (iii) the closing bid price of the Common stock on the
day immediately preceding such purchase is at least $1.50 per share, and (iv)
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 Company currently
meets all the conditions listed in the Private Equity Agreement.
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. As of March 31, 1999, all
outstanding shares of Series D and Series E Preferred have been converted into
4,430,579 shares of Common Stock.
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 additional Warrants to purchase up to an aggregate of 100,000 of
such shares on July 15, 1998.The Warrants are exercisable for five years at an
exercise price of $4.58. All the warrants were exercised during April 1999.
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 and (iv) 20,000 shares of Common Stock and
(v) attorneys fees of $30,000. In addition,,and the Company paid a fee of
$150,000 and granted an option to purchase 450,000 shares of Common Stock at
$1.875 per share to Adirondack, for its assistance in structuring the
transaction. Upon the completion of the purchase of shares of Series E
Preferred, the Company paid 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. 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.
Gomez Recapitalization and Private Placement
Prior to January 22, 1999, Gomez operated as a wholly owned subsidiary of
ATG(TM). Upon Gomez's formation in May 1997, ATG(TM) paid $25,000 to Gomez as
consideration for 1,000 shares of its common stock and also agreed to provide
additional funding for Gomez's operations in the amount of $1,475,000. By
January 22, 1999, ATG(TM) had fully funded its commitment to Gomez. On January
22, 1999, an Exchange Agreement was entered into by and between Gomez,
ATG(TM), certain persons affiliated with Gomez, and certain persons affiliated
with ATG(TM). Pursuant to the Exchange Agreement:
. ATG(TM) exchanged all of its rights and interest in the $1,475,000 of
loans made by ATG(TM) to Gomez for an additional 59,000 shares of Gomez
common stock and subsequently exchanged all 60,000 shares of Gomez
common stock that it held for 4,905 shares of Gomez Series A Preferred
Stock;
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. Julio Gomez, John Robb, and Dr. Alexander Stein (collectively "The Gomez
Founders") exchanged options to purchase 3,000,000 shares of Gomez
common stock and paid $.01 per share for 2,103,000 shares of Gomez
common stock;
. The Gomez Founders exchanged options to purchase 2,000,000 shares of
Gomez common stock for an option to purchase 3,003,000 shares of Gomez
common stock at $.011 per share pursuant to the Gomez 1999 Long-Term
Incentive Plan; and
. Certain officers and directors of ATG(TM) exchanged options to purchase
1,500,000 shares of Gomez's common stock and paid $.01 per share for
1,631,000 shares of restricted Gomez common stock.
Upon completion of an initial public offering of Gomez common stock, each
outstanding share of Gomez Series A Preferred Stock will be automatically
converted into 1,000 shares of Gomez common stock.
On April 24, 1999, Gomez completed a private placement of 1,100,000 shares
of Redeemable Convertible Series B Preferred Stock ("Gomez Series B Preferred
Stock") for $5,500,000. The Gomez Series B Preferred Stock ranks senior to the
Gomez Series A Preferred Stock and pays cumulative dividends semi-annually at
an annual rate of 6% of its liquidation preference and is payable in cash or
additional shares of Gomez Series B Preferred until April 2002. At any time
after April 2002, and if an initial public offering registration statement has
not been filed with the SEC, holders of 67% of the outstanding shares of Gomez
Series B Preferred Stock can request all such shares to be redeemed. Each
holder of shares of Gomez Series B Preferred Stock has the right to convert
each share of Gomez Series B Preferred Stock into one share of Gomez common
stock. Upon the consummation of an initial public offering, each share of
Gomez Series B Preferred Stock will automatically convert into one share of
Gomez common stock. In addition, Gomez paid a fee of $50,000 to Adirondack,
for its assistance in structuring the transaction.
Upon completion of the Exchange and the private placement, ATG(TM) had 70%
of the total voting equity ownership of Gomez. Assuming conversion of all
shares of the Gomez Series A and Gomez Series B Preferred Stock, ATG(TM) would
own approximately 50.4% of the total outstanding shares of Gomez common stock.
Employees
As of March 31, 1999, the Company and its subsidiaries employed a total of
52 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. Gomez
leases 5,000 square feet of office space at 97 Lowell Road, Suite A-13,
Concord, Massachusetts 01742. Management believes that the Company will need
additional space as it expands. Management believes, however, that it will be
able to obtain additional space as needed on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders was held on May 29, 1998 for the purpose
of considering and voting upon: (i) increasing the number of authorized shares
of 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 Common Stock pursuant to certain put rights
and upon the conversion or exercise, as the case may be, of ATG(TM)'s Series D
Preferred, Series E Preferred and warrants to purchase shares of Common Stock
issued pursuant to the Private Equity Agreement dated April 3, 1998. All three
items were approved by the security holders at the May 29, 1998 Special
Meeting of Stockholders.
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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 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 under the symbols, ASTN and ASTNW, respectively. The
following sets forth the initial offering, high and low prices for the Common
Stock during the periods indicated:
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1999
First Quarter.................................................. $4.09 $1.91
1998
Fourth Quarter................................................. $3.16 $1.09
Third Quarter.................................................. $3.63 $1.38
Second Quarter................................................. $4.13 $2.03
First Quarter.................................................. $4.38 $1.13
1997
Fourth Quarter................................................. $2.13 $0.81
Third Quarter.................................................. $2.75 $0.81
Second Quarter................................................. $4.13 $2.38
First Quarter.................................................. $7.69 $3.00
The following sets forth the initial offering, high and low prices for the
Warrants during the periods indicated:
<CAPTION>
High Low
----- -----
<S> <C> <C>
1999
First Quarter.................................................. $1.88 $0.63
1998
Fourth Quarter................................................. $1.63 $0.50
Third Quarter.................................................. $1.38 $0.25
Second Quarter................................................. $1.63 $0.75
First Quarter.................................................. $1.88 $0.19
1997
Fourth Quarter................................................. $1.00 $0.19
Third Quarter.................................................. $1.38 $0.38
Second Quarter................................................. $2.25 $1.06
First Quarter.................................................. $3.25 $1.63
</TABLE>
On March 31, 1999, the closing price of the Common Stock was $3.66 and the
closing price of the Warrants was $1.63.
As of March 31, 1999, there were approximately 281 holders of record of
Common Stock in "Street Name" representing approximately 11,600 stockholders
and approximately 134 holders of record of Warrants in "Street Name".
During the past three fiscal years, the Company has issued five classes of
convertible preferred stock (see Item 1. "Description of the Business--
Capitalization and Ownership of Subsidiaries").
No dividends have been declared on the Common Stock through March 31, 1999
and the Board of Directors has no current intention to declare or pay
dividends on the Common Stock in the foreseeable future.
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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
fiscal years ended March 31, 1998 and 1999.
Overview
The Company is engaged in the development and commercialization of on-line
transaction systems for participants in the U.S. and international financial
markets. The Company was founded in 1994 to take advantage of commercial
opportunities through the application of advanced telecommunication and
computing technologies to the area of financial and electronic commerce ("e-
commerce"). The Company is currently organized as a parent company, which has
four subsidiaries:
. Universal Trading Technologies Corporation ("UTTC(TM)") and its
subsidiaries
. Gomez Advisors, Inc. ("Gomez")
. Electronic Market Center, Inc. ("EMC")
. ATG(TM) International, Inc. ("International")
The Company's limited operating history and dependence upon the operation of
its VTS(TM) makes the prediction of future operating results difficult.
Although the Company has undertaken several initiatives to activate its
VTS(TM) and develop additional sources of revenue, there can be no assurance
that the Company's products will become operational or the Company will become
profitable. For the years ended March 31, 1998 and 1999, Gomez generated all
of the Company's revenues. Gomez provides information and research to
individuals and businesses that want to effectively and efficiently transact
e-commerce online.
The Company intends to continue to increase its investments in research and
development, sales and marketing and related infrastructure. Such increases
will be dependent upon factors including, but not limited to, operation of the
VTS(TM), success in hiring the appropriate personnel, market acceptance of the
Company's products, and development of a revenue stream from the Company's
products. Due to the anticipated increases in the Company's operating
expenses, the Company's operating results are materially and adversely
affected while revenue is not generated from the Company's transaction
products.
At March 31, 1999, the Company's consolidated total assets were $5,653,737
compared to $2,998,020 at March 31, 1998. Current assets at March 31, 1999
totaled $3,088,095 and current liabilities were $1,208,759. Stockholders'
equity at March 31, 1999 increased to $4,444,978 from $1,236,573 at March 31,
1998 due to the issuance of $1,275,000 of the Series B Preferred and the
issuance of 4,810,788 shares of Common Stock for $7,250,000. In addition, the
Company issued 3.15 shares for $3,150,000 of the Series D Preferred and 2.1
shares for $2,100,000 of the Series E Preferred during the year, which were
subsequently converted into 4,430,579 shares of Common Stock. The increase in
stockholders' equity resulting from the issuance of preferred stock and common
stock was partially offset by the net loss of $14,276,485 and net issuance
costs of $1,587,999. Preferred stock dividends of $882,477 for the year March
31, 1999 represent cash dividends of $640,040 and stock dividends comprised of
1,968.75 shares of Series A Preferred, .02395 shares of Series D Preferred,
and 182,392 shares of Common Stock issued to the Series D and Series E
Preferred stockholders upon conversion of shares of the Series D Preferred and
Series E Preferred.
Results of Operations
The net loss applicable to Common Stock totaled $19,693,644, or $1.80 per
share, for the year ended March 31, 1999 compared to $10,989,131, or $1.46 per
share, last year.
During the year ended March 31, 1999, the Company incurred a net loss of
$14,276,485, or $1.30 per share, as compared to a net loss of $8,674,902, or
$1.15 per share, during the prior year. The net loss for the year
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<PAGE>
ended March 31, 1998 includes the discontinued operations of Computer Science
Innovations, Inc. ("CSI(R)"). Excluding discounted operations, the net loss
for the year ended March 31, 1998 totaled $8,345,442, or $1.11 per share. In
addition, the results for the years ended March 31, 1998 and 1999 are not
directly comparable since Gomez was incorporated in May 1997 and operated for
approximately ten months of the year ended March 31, 1998.
On a consolidated basis, the Company's revenue for the year ended March 31,
1999 totaled $1,434,438 compared to $313,659 for the year ended March 31,
1998. Gomez generated all of the Company's revenue for both years.
Substantially all of Gomez's revenue for the period from Inception (May 22,
1997) to March 31, 1998 was generated from advisory engagements with clients
seeking to improve the quality of their Internet service offerings. For the
year ended March 31, 1999, Gomez's consulting revenue increased 203% to
$941,250 due to an increase in the number of consulting engagements. For the
year ended March 31, 1999, advertising revenue totaled $249,156, or 17% of
total revenue, and site revenue generated from lead generation and affiliate
programs totaled $198,952, or 14% of total revenue. In March 1999, Gomez began
selling its GomezPro research services and products to e-commerce businesses.
Accordingly, the Company expects Gomez's consulting revenue to decrease
substantially as a percentage of total revenue.
Costs of revenues for the years ended March 31, 1998 and 1999 represent the
costs associated with the delivery of Gomez's advisory services, and include
the costs of salaries for personnel providing the advisory services.
On April 8, 1997, the Company announced that UTTC(TM) had completed
development of the VTS(TM). Although the VTS(TM) has been operationally ready
since April 1997, trading on the system as a facility of the PHLX could not
begin until the SEC approved Rule 237 as proposed by the PHLX. Such approval
was obtained on March 24, 1999. Company personnel and PHLX staff have
completed preparatory system launch sessions and joint, full-scale production
testing of the VTS(TM) and PHLX systems. REB will operate as the facilities
manager for the VTS(TM). On a forward-looking basis, the VTS(TM) is expected
to commence live customer operation during the year ended March 31, 2000.
During the years ended March 31, 1998 and 1999, the Company capitalized
system development costs related to the VTS(TM) totaling $224,686 and $61,375,
respectively. The Company has ceased capitalization of computer software costs
related to the VTS(TM). During the years ended March 31, 1998 and 1999, the
Company amortized software development costs in the amount of $196,974 and
$190,707, respectively.
Depreciation consists primarily of depreciation of property and equipment,
mainly computer equipment. Depreciation for the year ended March 31, 1999
increased to approximately $477,000 from $327,000 the prior year due to an
increase in the computer equipment purchased. Capital expenditures increased
to $644,403 for the year ended March 31, 1999 compared to $348,392 for the
prior year. The level of capital expenditures is expected to increase as the
Company moves to implement operation of the VTS(TM) and to develop additional
trading systems.
Pursuant to Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, the Company recognized a noncash compensation
charge of $4,864,860 to reflect the difference between the estimated fair
market value of the vested Gomez stock options at the date of grant and the
exercise price of the related options issued to the Gomez Founders during the
year ended March 31, 1999. Gomez issued 3,003,000 options at an average price
of $.01 per share, all of which were granted at less than the deemed fair
value at the date of grant. Gomez expects to recognize noncash compensation
charges of $2,432,430 and $6,744,870 for the years ended March 31, 2000 and
2001, respectively, as the stock options vest. However, the full amount of
such charges would be recognized upon the closing of an initial public
offering or upon a change in control as a result of an automatic acceleration
clause contained in the Exchange Agreement.
The Company also incurred a noncash charge of $497,876 related to the
issuance of non-employee stock options to consultants providing marketing
services to the Company during the year ended March 31, 1999.
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<PAGE>
During the year ended March 31, 1998, the Company recognized a noncash
compensation charge of $1,804,917 related to the issuance of non-employee
stock options to consultants and professional advisors. The Company has
utilized both common stock and stock options in payment of services as a means
to conserve cash.
These noncash charges do not materially affect the Company's balance sheet
as the reduction in stockholders' equity is offset by an increase in
additional paid-in capital.
In February 1998, the Company entered into a consulting agreement with
Continental Capital & Equity Corporation ("Continental") whereby the Company
issued 300,000 shares of Common Stock, with a fair value of $475,125, in
exchange for promotional services through February 1999. During August 1998,
the Company amended the consulting agreement with Continental whereby the
Company issued 250,000 additional shares of Common Stock, with a fair market
value of $416,657, in exchange for additional promotional services and a
reduction in cash payments required pursuant to a previous consulting
agreement. During the year ended March 31, 1999, the Company recorded a
deferred consulting expense of $416,657 as a reduction to stockholders' equity
as a result of amending the consulting agreement. During the year ended March
31, 1999, $569,730 was reflected as a noncash charge for the amortization of
deferred consulting expenses compared to $39,844 during the year ended March
31, 1998.
Selling, general and administrative expenses ("SG&A"), excluding the noncash
compensatory charge, totaled $5,108,899 and $9,225,551 for the years ended
March 31, 1998 and 1999, respectively. For the year ended March 31, 1999,
Gomez's SG&A totaled $2,329,370, or 25% of the Company's total SG&A, compared
to $503,637 from the period from Inception (May 22, 1997) to March 31, 1998.
The increase in Gomez's SG&A was due primarily to a full year of operation,
growth in staff, leasing of office facilities and other expenses incurred in
building Gomez's infrastructure. As of March 31, 1999, Gomez had 25 employees
compared to six employees as of March 31, 1998. Gomez's expenses are expected
to continue to increase due to growth of the business.
Excluding Gomez, the Company's SG&A for the year ended March 31, 1999
totaled $6,896,181 compared to $4,605,262 during the year ended March 31,
1998. The increase in SG&A is primarily a result of growth in staff and
increases in marketing, consulting and professional fees. As of March 31,
1999, ATG(TM) and UTTC(TM) employed a total of 27 employees compared to 17
employees at March 31, 1998.
Other income for the year ended March 31, 1999 includes $290,080 from a
settlement with Alliant Techsystems, Inc. payable as a result of judgements
rendered in favor of the Company, offset by the payment of $47,500 to David
Rosensaft ("Rosensaft") (see Item 7. "Notes to Consolidated Financial
Statements"), and the $105,000 reduction in the carrying value of the
Company's investment in E.Com International. During the year ended March 31,
1998, the Company incurred total other expenses of $1,102,731 consisting of
$760,000 for the settlement of the Rosensaft litigation (See Item 7. "Notes to
Consolidated Financial Statements"), and $342,731 for interest paid on the
UTTC notes(TM). The notes were exchanged for the Series B Preferred which
eliminated the interest payments, but resulted in the payment of dividends
which are not included in net loss (see Item 1. "Description of the Business--
Capitalization and Ownership of Subsidiaries").
The Company believes, on a forward-looking basis, that SG&A will increase
for the fiscal year ended March 31, 2000, when compared to the current fiscal
year. The Company believes that significant spending related to the
enhancement, development and marketing of its products is required to remain
competitive and establish the necessary trading volumes once the Company's
systems are implemented.
Liquidity and Capital Resources
At March 31, 1999, the Company's principal source of liquidity consisted of
cash and cash equivalents of $2,667,347. On April 3, 1998, the Company entered
into the Private Equity Agreement with the Private Equity Investors, which
provided for an aggregate commitment of $18,000,000 to the Company, subject to
the satisfaction of certain conditions (see "Notes to Consolidated Financial
Statements--Stockholders' Equity"). As of March 31, 1999, the Company has
drawn down $12,250,000 of the total $18,000,000.
15
<PAGE>
The Company believes, on a forward-looking basis, it will begin to generate
revenue, in addition to those generated by Gomez, during its fiscal year
ending March 31, 2000. The level and timing of such revenue is dependent,
among other factors, upon the Company's assumptions regarding (i) the date the
VTS(TM) commences live operation; (ii) the trading volume experienced by the
VTS(TM); and (iii) the pricing the Company is able to obtain for VTS(TM) trade
execution. Until adequate revenue is derived from the VTS(TM), the Company's
cash, cash equivalents and cash flow from operations will not be sufficient to
meet the presently anticipated cash requirements. Therefore, the Company
anticipates exercising additional Puts to the Private Equity Investors until
the Private Equity Line is completely utilized. Based upon the Company's
current plan of operations, it is anticipated that the remaining amount
available under the Private Equity Agreement will provide sufficient working
capital for at least the next 12 months.
The Company's future capital requirements will depend on many factors,
including the timing for launch of the VTS(TM), market acceptance of the
Company's products, the timing and extent of spending to support new product
development efforts and the timing of introductions of new products and
enhancements to existing products. The Company may need additional financing
in the future if (i) the Company experiences unexpected costs, (ii) there are
further delays in the introduction of the VTS(TM), or (iii) the Company fails
to successfully develop markets for its products. The Company will also
require additional financing to fund development of its products, such as
eMC(TM) and NextExchange. Such financing may be raised through spin-offs,
additional equity offerings, borrowings, or other collaborative relationships,
which may require the Company to share ownership of its subsidiaries and/or
revenue from products. There can be no assurance that additional equity or
debt financing, if required, will be available on acceptable terms or at all.
In addition, in order to exercise Puts pursuant to the Private Equity
Agreement, the Company must satisfy certain conditions as required in the
Private Equity Agreement.
Year 2000 Computer Compliance
The Company has assessed the potential impact of what is commonly referred
to as the "Year 2000" or "Y2K" issue, concerning the inability of certain
information systems and automated equipment to properly recognize and process
dates containing the Year 2000 and beyond. If not corrected, these systems and
equipment could fail or create erroneous results. The Company is subject to
the potential impact of the Y2K issue due to the nature of financial
information and the potential impacts which may arise from software, hardware,
and equipment both within the Company's direct control and outside of the
Company's control.
The Company views its Y2K risks as arising from three primary sources: (i)
internal software, hardware and equipment utilized in the operations of the
Company; (ii) applications the Company has developed or is developing for use
by its customers; and (iii) third parties with which the Company has material
relationships.
State of Readiness. The Company has determined that none of its critical
internal systems and equipment presents Y2K issues. The Company is
continuously acquiring and replacing both hardware and software and is
obtaining Y2K compliance certifications with such purchases. The Company's
systems interface electronically and operationally with software, hardware and
equipment outside of the Company's control. The Company also contracts with
third parties for such services as telecommunications. These third party
vendors with whom the Company has material agreements are large publicly
traded organizations. The Company is reviewing the publicly available Y2K
disclosures of these vendors; however there can be no assurance that the
Company will not be adversely affected by the failure of these third parties
to become Y2K compliant. The Company is not independently verifying the Y2K
compliance of these vendors.
The Company has also determined that none of the applications it has
developed for use by its customers present Y2K issues. The Company is in the
process of obtaining an independent certification of its VTS(TM)'s Y2K
readiness. In addition, the Company's customers cannot enter or export non-Y2K
compliant dates into the VTS(TM) and all VTS(TM) business partners interact
with the VTS(TM) via Y2K compliant interfaces.
16
<PAGE>
Risks. Since the Company's VTS(TM) has not been activated, the potential
liabilities and costs associated with the Y2K compliance issue cannot be
estimated with certainty at this time. The potential costs, including any
potential loss of revenue, would be dependent upon several factors including,
but not limited to, the volume transacted through the Company's products, the
Y2K readiness of customers utilizing the Company's products and the
concentration of volume among the Company's customers. Because of these
uncertainties regarding others, there can be no assurance that the Y2K issue
will not have a material financial impact in any future period.
Costs. To date, the Company has not incurred any material costs in
identifying, evaluating or resolving Year 2000 compliance issues and expects
any additional costs incurred to complete its review will be immaterial.
However, the costs incurred to address this issue could increase materially if
the Company identifies non-compliant systems and third-party technology, which
must be replaced or modified or if the Company identifies any other problems
related to the Year 2000 issue, which must be addressed.
Contingency Plan. Because of the factors described above, the Company has no
Y2K contingency plan and does not intend develop such a plan at this time.
Should the Company become aware that certain products or services provided by
third parties are not Y2K compliant, then the Company will develop contingency
plans for those affected services and vendors.
Subsequent Events
In April 1999, Gomez completed a private placement of 6% Series B
Convertible Preferred Stock, par value $.01 per share, to accredited investors
at a price of $5 per share. Gross proceeds received by Gomez from the sale
amounted to $5,500,000. Gomez intends to use the net proceeds from the
issuance for staffing increases, capital expenditures related to the upgrading
and marketing of its existing products and services, the development and
marketing of new products and services, and for general corporate purposes,
including working capital.
In June 1999, UTTC(TM) completed a private placement of Series TK
Convertible Preferred Stock, par value $.01 per share. Gross proceeds received
by UTTC(TM) from the sale amounted to $2,000,000. The proceeds will be used
for general corporate purposes, including working capital.
On June 4, 1999 the Company, filed a post effective amendment on Form S-3
with the S.E.C. to update its registration statement on Form S-2B, originally
filed by the Company on February 8, 1996 in connection with its initial public
offering, which was declared effective on May 2, 1996. The post effective
amendment was declared effective on June 23, 1999.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements:
Report of Independent Auditors............................................ 19
Consolidated Balance Sheets at
March 31, 1998 and 1999.................................................. 20
Consolidated Statements of Operations
for the years ended March 31, 1998 and 1999.............................. 21
Consolidated Statement of Stockholders'
Equity for the years ended March 31, 1998 and 1999....................... 22
Consolidated Statements of Cash Flows
for the years ended March 31, 1998 and 1999.............................. 24
Notes to Consolidated Financial Statements................................ 25
</TABLE>
18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
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 1999 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 1999 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 7, 1999, except for
paragraph one of Note 14, as
to which the date is April 23,
1999 and paragraph two of Note
15 as to which the date is
June 4, 1999.
19
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 815,680 $ 2,667,347
Accounts receivable and prepayments................ 130,843 308,249
Current portion of notes receivable................ 103,619 112,499
Stock subscriptions receivable..................... 245,000 --
------------ ------------
Total current assets........................... 1,295,142 3,088,095
Notes receivable, net of current portion........... 458,040 717,284
Property and equipment, net of accumulated
depreciation...................................... 849,799 1,017,179
Investments and Exchange Membership................ 105,000 196,900
Capitalized software development costs............. 224,686 95,354
Intangible assets.................................. -- 58,563
Other assets....................................... 65,353 480,362
------------ ------------
Total Assets................................... $ 2,998,020 $ 5,653,737
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses.............. $ 1,736,447 $ 675,841
Notes payable...................................... 25,000 --
Other liabilities.................................. -- 532,918
------------ ------------
Total current liabilities...................... 1,761,447 1,208,759
Commitments and Contingencies
Stockholders' equity:
Preferred stock authorized 3,000,000 shares,
250,000 shares designated as Series A--
(liquidation preference $10 per share); shares
issued and outstanding; 250,000 and 125,219..... 2,500,000 1,252,188
590,000 shares designated as Series B--
(liquidation preference $10 per share); shares
issued and outstanding; 460,000 and 417,500..... 3,188,875 4,175,000
105,000 shares designated as Series C $.01 par
value--(liquidation preference equals stated
value); shares issued and outstanding; 55,000
and none........................................ 550,000 --
10 shares designated as Series D $.01 par value--
(liquidation preference equals stated value);
shares issued and outstanding; none............. -- --
10 shares designated as Series E $.01 par value--
$1,000,000 per share liquidation preference;
shares issued and outstanding; none............. -- --
Common stock--par value: $.01; shares authorized:
60,000,000; Shares issued and outstanding;
8,143,571 and 20,569,172.......................... 81,436 205,692
Additional paid-in capital......................... 15,730,870 39,133,830
Deferred consulting expense........................ (438,281) (285,208)
Accumulated deficit................................ (20,376,327) (40,036,524)
------------ ------------
Total stockholders' equity......................... 1,236,573 4,444,978
------------ ------------
Total Liabilities and Stockholders' Equity..... $ 2,998,020 $ 5,653,737
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenues........................................... $ 313,659 $ 1,434,438
------------ ------------
Costs and expenses:
Cost of revenues................................. 79,000 168,000
Development costs................................ 196,974 190,707
Depreciation and amortization.................... 326,736 515,240
Noncash compensatory charges..................... 1,844,761 5,932,466
Selling, general and administrative.............. 5,108,899 9,225,551
------------ ------------
Total costs and expenses....................... 7,556,370 (16,031,964)
------------ ------------
Loss from operations............................... (7,242,711) (14,597,526)
Other (expenses)/income:
Net interest (expense)/income.................... (342,731) 146,816
Other (expense) income........................... (760,000) 133,222
------------ ------------
Total other (expenses) income.................. (1,102,731) 280,038
------------ ------------
Loss from continuing operations.................... (8,345,442) (14,317,488)
------------ ------------
Minority interest in earnings of subsidiaries...... -- 41,003
Minority interest in earnings of discontinued
operations........................................ (11,465) --
Income from operations of discontinued operations
of Computer Science Innovations (less applicable
income taxes of $42,000).......................... 67,935 --
Loss on disposal of Computer Science Innovations... (385,930) --
------------ ------------
Net loss........................................... $ (8,674,902) $(14,276,485)
============ ============
Dividends attributed to preferred stock............ -- (1,113,277)
Beneficial conversion feature of preferred stock... (2,206,480) (4,270,435)
Dividends in arrears on preferred stock............ (107,749) (33,447)
------------ ------------
Net loss applicable to common stock................ $(10,989,131) $(19,693,644)
============ ============
Net loss per share from continuing operations...... $ (1.42) $ (1.80)
Net loss per share from discontinued operations.... $ (0.04) --
------------ ------------
Net loss per share................................. $ (1.46) $ (1.80)
============ ============
Weighted average number of common shares
outstanding....................................... 7,519,555 10,953,818
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
THE ASHTON TECHNOLOGY GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock Series A Series B Series C
------------------- ---------------------- ---------------------- --------------------
Number of Number of Number of Number of
Shares Amount Shares Amount Shares Amount Shares Amount
---------- -------- --------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1997................... 7,562,500 $ 75,625 -- -- -- -- -- --
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 exchange of UTTC
notes payable.......... -- -- -- -- 297,500 2,975,000 -- --
Recognition of
beneficial conversion
feature of preferred
stock.................. -- -- -- -- -- (1,411,125) -- --
Issuance of Series C
Convertible Preferred
Stock.................. -- -- -- -- -- -- 105,000 $1,050,000
Series C Convertible
Preferred Stock
converted to common
stock.................. 281,071 2,811 -- -- -- -- (50,000) (500,000)
Issuance cost in
connection with
preferred stock........ -- -- -- -- -- -- -- --
Issuance of options to
purchase common stock.. -- -- -- -- -- -- -- --
Issuance of common stock
for consulting
services............... 300,000 3,000 -- -- -- -- -- --
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
Conversion of preferred
stock to common stock.. 7,062,421 70,624 (126,750) (1,267,500) (175,000) (1,750,000) (55,000) (550,000)
Preferred stock
dividends.............. 182,392 1,824 1,969 19,688 -- -- -- --
Issuance of Series
Preferred Stock........ -- -- -- -- 127,500 1,275,000 -- --
Issuance costs in
connection with
preferred stock........ 20,000 200 -- -- 5,000 50,000 -- --
Recognition of
beneficial conversion
feature of preferred
stock.................. -- -- -- -- -- 1,411,125 -- --
Issuance costs in
connection with common
stock.................. -- -- -- -- -- -- -- --
Issuance of options to
purchase common stock.. -- -- -- -- -- -- -- --
Issuance of options to
purchase Gomez common
stock.................. -- -- -- -- -- -- -- --
Issuance of common
stock.................. 4,810,788 48,108 -- -- -- -- -- --
Issuance of common stock
for consulting
services............... 250,000 2,500 -- -- -- -- -- --
Issuance of common stock
and stock options for
asset acquisitions..... 100,000 1,000 -- -- -- -- -- --
Amortization of deferred
consulting expense..... -- -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- --
---------- -------- -------- ----------- -------- ----------- ------- ----------
Balance at March 31,
1999................... 20,569,172 $205,692 125,219 $ 1,252,188 417,500 $ 4,175,000 -- --
========== ======== ======== =========== ======== =========== ======= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
THE ASHTON TECHNOLOGY GROUP
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--(Continued)
Years ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Series D Series E
--------------------- --------------------- Additional Deferred
Number of Number of Paid-in Accumulated Consulting Stockholders'
Shares Amount Shares Amount Capital Deficit Expense Equity
--------- ----------- --------- ----------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1997.................. -- -- -- -- $10,482,197 $ (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 exchange of UTTC
notes payable......... -- -- -- -- (309,005) -- -- 2,665,995
Recognition of
beneficial conversion
feature of preferred
stock................. -- -- -- -- 3,617,605 (2,206,480) -- --
Issuance of Series C
Convertible Preferred
Stock................. -- -- -- -- -- -- -- 1,050,000
Series C Convertible
Preferred Stock
converted to common
stock................. -- -- -- -- 497,189 -- -- --
Issuance cost in
connection with
preferred stock....... -- -- -- -- (1,594,466) -- -- (1,594,466)
Issuance of options to
purchase common
stock................. -- -- -- -- 2,562,225 -- -- 2,562,225
Issuance of common
stock for consulting
services.............. -- -- -- -- 475,125 -- $(438,281) 39,844
Net loss............... -- -- -- -- -- (8,674,902) -- (8,674,902)
------ ----------- ----- ----------- ----------- ------------ --------- ------------
Balance at March 31,
1998.................. -- -- -- -- 15,730,870 (20,376,327) (438,281) 1,236,573
Conversion of preferred
stock to common
stock................. (3.174) $(3,173,950) (2.1) $(2,100,000) 8,770,826 -- -- --
Preferred stock
dividends............. 0.024 23,950 -- -- 426,975 (1,113,277) -- (640,040)
Issuance of Series
Preferred Stock....... 3.00 3,000,000 2.00 2,000,000 -- -- -- 6,725,000
Issuance costs in
connection with
preferred stock....... 0.15 150,000 0.10 100,000 (1,163,199) -- -- (862,999)
Recognition of
beneficial conversion
feature of preferred
stock................. -- -- -- -- 2,859,310 (4,270,435) -- --
Issuance costs in
connection with common
stock................. -- -- -- -- (725,000) -- -- (725,000)
Issuance of options to
purchase common
stock................. -- -- -- -- 497,876 -- -- 497,876
Issuance of options to
purchase Gomez common
stock................. -- -- -- -- 4,864,860 -- -- 4,864,860
Issuance of common
stock................. -- -- -- -- 7,201,892 -- -- 7,250,000
Issuance of common
stock for consulting
services.............. -- -- -- -- 414,157 -- (416,657) --
Issuance of common
stock and stock
options for asset
acquisitions.......... -- -- -- -- 254,463 -- -- 255,463
Amortization of
deferred consulting
expense............... -- -- -- -- -- -- 569,730 569,730
Net loss............... -- -- -- -- -- (14,276,485) -- (14,276,485)
------ ----------- ----- ----------- ----------- ------------ --------- ------------
Balance at March 31,
1999.................. -- -- -- -- $39,133,830 $(40,036,524) $(285,208) $ 4,444,978
====== =========== ===== =========== =========== ============ ========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss........................................... $(8,674,902) $(14,276,485)
Income from discontinued operations............... (67,935) --
Minority interest in earnings of discontinued
operations....................................... 11,465 --
Loss on sale of discontinued operations........... 385,930 --
----------- ------------
Loss from continuing operations.................... (8,345,442) (14,276,485)
Adjustments to reconcile net loss to net cash (used
in) provided by continuing operations:
Depreciation and amortization...................... 326,736 705,947
Noncash compensatory charge for common stock
options.......................................... 1,804,917 5,362,736
Minority interest in earnings of subsidiaries..... -- (41,003)
Common stock issued for consulting services....... 39,844 569,730
Writedown E.Com investment........................ -- 105,000
Changes in operating assets and liabilities
Decrease/(increase) in receivables and
prepayments...................................... 261,537 (177,406)
Decrease in stock subscription receivable......... -- 245,000
(Increase) in other assets........................ (6,863) (415,009)
Increase/(decrease) in accounts payable and
accrued expenses................................. 344,732 (1,440,637)
Increase in other liabilities..................... -- 532,918
----------- ------------
Net cash used in continuing operations.......... (5,574,539) (8,829,209)
Net cash provided by discontinued operations.... 50,045 --
----------- ------------
Net cash used in operating activities.............. (5,524,494) (8,829,209)
Cash Flows From Investing Activities:
Purchase of fixed assets........................... (348,392) (644,403)
Investment in E.Com................................ (105,000) --
(Increase) in notes receivable..................... -- (380,000)
Cash received from notes receivable................ 32,466 111,876
Proceeds from sale of subsidiary, net of cash
disposed.......................................... 154,108 --
Capitalized software development costs............. (224,686) (61,375)
----------- ------------
Net cash used in investing activities........... (491,504) (973,902)
----------- ------------
Cash Flows From Financing Activities:
Preferred stock dividends paid in cash............. -- (319,062)
Issuance costs for preferred stock and notes
payable........................................... (1,159,163) (863,000)
Issuance costs for common stock.................... -- (725,000)
Proceeds from issuance of notes payable............ 3,000,000 --
Proceeds from issuance of Gomez common stock....... -- 36,840
Proceeds from issuance of preferred stock.......... 4,930,000 6,275,000
Proceeds from issuance of common stock............. -- 7,250,000
----------- ------------
Net cash provided by financing activities....... 6,770,837 11,654,778
----------- ------------
Net Increase/(Decrease) in Cash and Cash
Equivalents....................................... 754,839 1,851,667
Cash and cash equivalents, beginning of year....... 60,841 815,680
----------- ------------
Cash and cash equivalents, end of year............. $ 815,680 $ 2,667,347
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest............ $ 364,938 $ 147,388
Cash paid during the year for taxes............... $ 20,198 $ 6,619
Supplemental schedule of noncash investing and
financing activities:
Purchase of PHLX seat and VWAP.com................. -- $ 255,463
Exchange of UTTC(TM) notes for Ashton preferred
stock............................................ $ 2,975,000 --
Forgiveness of note payable in connection with
the sale of CSI(R)............................... $ 500,000 --
Receipt of note receivable in connection with
sale of CSI(R)................................... $ 594,125 --
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Significant Accounting Policies
The accompanying consolidated financial statements for the years ended March
31, 1998 and 1999 include the accounts of The Ashton Technology Group, Inc.
("ATG(TM)") and its subsidiaries, Universal Trading Technologies Corporation
("UTTC(TM)"), Gomez Advisors, Inc. ("Gomez"), ATG(TM) International
("International"), Electronic Market Center, Inc. ("EMC"), and UTTC(TM)'s
subsidiaries, collectively the "Company".
Gomez was formed in May 1997, REB was formed in April 1998, EMC was formed
in June 1998, and International was formed in July 1998. ATG(TM) owns 94% of
the voting equity of UTTC(TM) and 70% of the voting equity of Gomez.
UTTC(TM)'s subsidiaries, Croix Securities, Inc. and Next Exchange, Inc. were
formed in February 1999 and are wholly owned subsidiaries of UTTC(TM). The
results of operations for each of these subsidiaries are included from the
date of formation. All significant intercompany accounts and transactions have
been eliminated.
The Company is engaged in the development and commercialization of on-line
transaction systems for participants in the U.S. and international financial
markets. The Company was founded in 1994 to take advantage of commercial
opportunities through the application of advanced telecommunication and
computing technologies to the area of financial and electronic commerce ("e-
commerce"). The Company is currently organized as a parent company with four
subsidiaries.
Revenue Recognition
Consulting revenues are recognized when the services are completed and the
client has been billed for the services rendered. Advertising and sponsorship
revenues are recognized in the period in which the advertisement or
sponsorship is displayed, provided that no significant obligations remain and
either the Company has already been paid or collection of the receivable is
probable.
Cash and Cash Equivalents
The Company considers all cash and highly liquid investments with a maturity
of three months or less to be cash equivalents. Cash equivalents, which
consist primary of money market accounts, are carried at cost, which
approximates market value.
Accounts Receivable and Concentration of Credit Risk
Accounts receivable and prepayments are primarily attributable to Gomez and
consist of billed receivables arising from recognized revenues. One customer
contributed approximately $185,000, or 13% of total revenues, for the year
ended March 31, 1999. Three customers contributed approximately $86,250 (28%),
$37,500 (17%), and $37,500 (12%) of total revenue, for the year ended March
31, 1998. Three customers account for approximately 30%, 18%, and 16% of
Gomez's total accounts receivable at March 31, 1999. As of March 31, 1998,
three customers accounted for approximately 41%, 29%, and 23% of Gomez's
accounts receivable. Accounts receivable includes accrued interest of $34,083
on the note receivable from The Dover Group, Inc. ("Dover") (see "Note 3.
Certain Transactions").
Capitalized Software Development Costs
The costs of software developed for internal use incurred during the
preliminary project stage are expensed as incurred. Direct costs incurred
during the application development stage are capitalized. Costs incurred
during the post implementation/operation stage are expensed as incurred. No
internal-use software costs have been capitalized at March 31, 1998 and 1999.
25
<PAGE>
The Company accounts for the costs of software to be marketed in compliance
with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. The Company capitalizes software development
costs where technological feasibility of the product has been established. The
technological feasibility of a computer software product is established when
the enterprise has completed all planning, designing, coding, and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications including functions, features, and technical
performance requirements. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgement by management.
At each balance sheet date, the capitalized computer software costs are
compared to the net realizable value of the related product. The net realized
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 exceed the net realizable value of the related product, such excess amount
is to be written off.
Capitalized software development costs related to the volume weighted
average price ("VWAP(R)") trading system ("VTS(TM)") amounted to $224,686 and
$61,375 for the years ended December 31, 1998 and 1999, respectively, of
which, $224,686 and $95,354 are included on the consolidated balance sheets at
March 31, 1998 and 1999, respectively.
Advertising Expenses
All advertising costs are expensed as incurred. Advertising expenses for the
years ended March 31, 1998 and 1999 amounted to approximately $245,000 and
$385,992, respectively.
Property and Equipment
Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets (generally three to seven years).
Leasehold improvements are amortized over the term of the lease, which is
shorter than the estimated useful life of the leasehold improvements.
Fair Value of Notes Receivable
Based on rates of return currently available to the Company for investments
with similar terms and maturities, the fair value of the notes receivable
approximates the carrying amount.
Deferred Stock Issuance Costs
Stock issuance costs of $282,117, representing costs incurred in connection
with the Gomez Series B Preferred Stock Offering (see "Note 14 "Subsequent
Events") completed in April 1999, have been deferred and will be netted
against the proceeds received from the offering. This amount is included in
other assets at March 31, 1999.
Restatement of Financial Statements
The presentation of the operations and sale of Computer Science Innovations,
Inc. ("CSI(R)") has been reclassified and presented as discounted operations
in accordance with APB Opinion No. 30, Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment, and Extraordinary, Unusual and
Infrequently Occuring Events and Transactions. This accounting treatment does
not change the reported loss for the year ended March 31, 1998. The Company
believes such presentation simplifies the comparison of the financial
statements.
Intangible Assets
Intangible assets consist entirely of the purchase of the rights to
www.VWAP.com in March 1999 and represents the fair market value of stock
options paid in consideration for such rights. The fair market value of the
stock options was calculated using a Black-Scholes option-pricing model.
Amortization of intangible assets is provided on a straight-line basis over
the estimated useful life of the asset, which is estimated at 18 months. No
amortization expense was recognized during the year ended March 31, 1999. The
Company identifies and records impairment losses on intangible assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has occurred.
26
<PAGE>
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at March 31, 1999 consist entirely of
accrued professional fees and other expenses. At March 31, 1998, accounts
payable and accrued expenses included accrued litigation settlement of
$760,000, accrued compensation expenses of $115,500, trade accounts payable of
$47,786, and accrued professional fees and other expenses of $813,161.
Other non-current liabilities are comprised of accrued dividends of
approximately $320,000 and deferred revenue of approximately $197,525.
Earnings Per Share
Net loss per share is computed using the weighted average number of shares
outstanding. Incremental shares to be issued upon the exercising of options
and warrants and upon the conversion of convertible preferred stock have not
been included, because the effect would be anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior year's amounts to conform
to the current year's presentation.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, also requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities; the
disclosure of contingent assets and liabilities at the date of the financial
statements; and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Recently Adopted Accounting Standards
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The Company will
adopt SOP No. 98-1 beginning April 1, 1999. Adoption of this Statement is not
expected to have a material impact on the Company's consolidated financial
position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires all costs associated with pre-
opening and pre-operating organization activities to be expensed as incurred.
The Company will adopt SOP No. 98-5 beginning April 1, 1999. Adoption of this
Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
3. Certain Transactions
The Company and Raymond T. Tate ("Tate"), formerly Chairman of the Board of
Directors, 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 the CSI(R) for the period from
October 22, 1996 to December 31, 1998. As compensation for such services, the
Company agreed to pay Raymond Tate Associates and Tate $120,000 per annum and
certain other expenses. 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.
For the years ended March 31, 1998 and 1999, the Company paid Raymond Tate
Associates and Tate $101,423 and $91,692, respectively. As of December 31,
1998, all payments to Raymond Tate Associates and Tate pursuant to the
Consulting Agreement were completed. The total cost of the Consulting
Agreement was accrued during the year ended March 31, 1997 when the Company
determined no value would be derived from the Consulting Agreement.
On May 1, 1997, David N. Rosensaft ("Rosensaft") commenced an action in the
U.S. District Court for the Southern District of New York captioned Rosensaft
v. The Ashton Technology Group, Inc., et al, No. 97 Civ.
27
<PAGE>
3138 ("the Rosensaft lawsuit"). On January 14, 1998, the Company entered into
an agreement with Dover and Fredric W. Rittereiser (the Company's President,
Chief Executive Officer and a director of the Company), whereby Dover and Mr.
Rittereiser agreed to reimburse $413,980 in legal costs associated with the
Rosensaft lawsuit to the Company to the extent such costs were not covered by
the Company's directors' and officers' liability insurance carrier. Dover and
Mr. Rittereiser pledged 333,334 shares of UTTC(TM) stock as collateral in
support of their agreement to pay the legal costs. The Company has submitted a
claim to its insurance carrier in the full amount of such legal costs. To
date, the Company and its insurance carrier have not reached agreement as to
whether the legal costs are covered by the Company's directors' and officers'
liability insurance policy. On March 4, 1998, the U.S. District Court entered
an order awarding damages against Dover and Mr. Rittereiser in the amount of
approximately $1,200,000. Mr. Rittereiser is the sole shareholder, director
and officer of Dover. On April 7, 1998, the Company's Board of Directors,
after due deliberation, concluded that the Company and its UTTC(TM) subsidiary
derived mutual benefit from the Rosensaft settlement by Dover and Mr.
Rittereiser. The Board resolved to fund one-third of the $1.2 million
settlement amount. Separately, UTTC(TM) agreed to fund one-third of the
Rosensaft settlement amount. On April 8, 1998, the Company loaned $380,000 to
Dover and Mr. Rittereiser at an annual rate of 9%, for thirty months. The loan
is included in notes receivable on the consolidated sheets at March 31, 1999.
In exchange for the loan to satisfy the Rosensaft settlement, Dover pledged
300,000 shares of the Company's common stock ("Common Stock") under its
control and entered into a Promissory Note in favor of the Company.
Since 1996, the Company has utilized Dover for various services including
advising the Company on its acquisitions of UTTC(TM) and CSI(R) and consulting
services related to the Company's financings and product development efforts.
Mr. Rittereiser, is the Chairman of Dover. For the years ended March 31, 1998
and 1999, the Company paid consulting fees to Dover amounting to $125,000
compared to $235,000, respectively.
During 1998, the Company retained Richard Butler, a member of the Company's
Board of Directors, to provide strategic marketing services. For the years
ended March 31, 1998 and 1999, the Company paid consulting fees to Richard
Butler amounting to $7,500 and $90,000, respectively.
During 1997, the Company retained Adirondack Capital, L.L.C. ("Adirondack")
to provide investment banking and financial advisory services. K. Ivan F.
Gothner, a member of the Company's Board of Directors, is the Managing
Director of Adirondack. For the year ended March 31, 1999, the Company paid
consulting fees to Adirondack amounting to $120,000 compared to $115,000 for
the same period of 1998. The Company has received an independent opinion
stating that the fees paid to Adirondack are comparable to fees that it would
have been required to pay, if it had obtained such services from an
unaffiliated third party.
Additionally, the Company has paid Adirondack $300,000 (an amount equal to
5% of the proceeds from the sale of the Series C Preferred, the Series D
Preferred and the Series E Preferred) and an option to purchase 600,000 shares
of Common Stock at $1.875 per share. Pursuant to the Private Equity Line of
Credit Agreement (the "Private Equity Agreement" or "Agreement"), the Company
has also agreed to pay Adirondack an amount equal to 5% of the proceeds from
the sale of Common Stock (each such sale a "Put"). As of March 31, 1999,
Adirondack has been paid $362,500 pursuant to the Private Equity Agreement.
4. Property and Equipment
Property and equipment, at cost, consist of the following as of March 31,
1998 and 1999:
28
<PAGE>
<TABLE>
<CAPTION>
March 31,
---------------------- Estimated
1998 1999 Useful Life
---------- ---------- -------------
<S> <C> <C> <C>
Office equipment....................... $ 165,250 $ 196,999 3-5 years
Computer equipment..................... 923,907 1,466,306 3 years
Furniture and fixtures................. 134,835 216,757 7 years
Leasehold improvements................. 112,332 100,665 Term of lease
---------- ----------
1,336,324 1,980,727
Less accumulated depreciation.......... (486,525) (963,548)
---------- ----------
Property and equipment, net.......... $ 849,799 $1,017,179
========== ==========
</TABLE>
Depreciation and amortization expense for the years ended March 31, 1998 and
1999 was approximately $327,000 and $477,000, respectively.
5. Investments and Exchange Membership
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 is 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. 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.
On October 2, 1998, E.Com filed a Current Report on Form 8-K stating E.Com
is exploring various alternative financing strategies, including private and
public financing, selling assets and bank borrowings. Absent successful
completion of such a financing, E.Com has indicated it will not have
sufficient liquid assets to continue operations as currently conducted. Since
E.Com has made no subsequent filings to update its situation, the Company has
elected to write off the carrying value of its investment in E.Com in the
amount of $105,000.
On March 19, 1999, the Company purchased PHLX membership seat privileges for
REB. The Company issued 100,000 restricted shares of Common Stock in
consideration of the PHLX seat. Based upon the market value of the Common
Stock on March 19, 1999, the Company recorded the total $196,900 acquisition
price of the PHLX as an asset. The acquisition cost approximates the bid/offer
price range of a PHLX membership seat at the time of purchase.
6. Stockholders' Equity
On September 18, 1997, the Company commenced a private offering and exchange
offer pursuant to which it offered to certain investors (i) shares of its
Series A Convertible PIK Preferred Stock (with a liquidation preference of
$10.00 per share) (the "Series A Preferred"); (ii) 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 cash or
additional shares of Series A Preferred until February 15, 2000. Each holder
of shares of Series A Preferred has 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. 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 250,000 shares of its Series A Preferred at $10.00 per
share, 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 sold 290,000 shares of its Series B Preferred Stock at
29
<PAGE>
$10 per share. The sale of Series B Preferred Stock closed on May 6, 1998. The
Company realized gross proceeds of $2,900,000.
Over the past two fiscal years the Company realized gross proceeds of
$9,425,000 from the sale of the Series A Preferred, the Series B Preferred,
and the Series C Preferred. After deducting issue costs of approximately
$1,445,000, the Company received net proceeds of $7,980,000.
As of March 31, 1999, dividends in arrears amounted to $7,252 for the Series
A Preferred and $26,235 for the Series B Preferred. As of March 31, 1999, the
Company had 125,219 shares of Series A and 417,500 shares of Series B
Preferred outstanding. Upon conversion of these shares of Series A Preferred
and Series B Preferred, the Company would be obligated to issue 3,757,190
shares of Common 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 $10.00 per share (the
"Series C Preferred"), for an aggregate purchase price of $1,000,000. Holders
of shares of Series C Preferred had the right to convert each share of Series
C Preferred into one share of Common Stock at the defined floating conversion
price which amounted to $1.51 per share. In addition, the Series C Investors
received warrants exercisable into an aggregate of 100,000 shares of Common
Stock at an exercise price of $1.70 for a period of five years. As of March
31, 1998, 50,000 shares of the Series C Shares were converted into 281,071
shares of Common Stock. Between March 31 and April 21, 1998, the remainder of
the shares 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 Market Price to Settondown Capital International Ltd. (the "Placement
Agent"). In addition, the Company paid $50,000 and granted an option to
purchase 150,000 shares of Common Stock at $1.875 per share to Adirondack, for
services in structuring the offering.
On April 3, 1998 (the "Subscription Date"), the Company entered into the
Private Equity Agreement with a group of accredited investors (the "Private
Equity Investors") which provided for an aggregate commitment of $18,000,000
to the Company of which $12,250,000 has been drawn down as described below. 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. The Company also agreed to promptly file a registration
statement with the Securities and Exchange Commission ("SEC") 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 and it became effective on August 13, 1998.
The Agreement provided that the Private Equity Investors would be obligated to
purchase 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. The Private Equity Investors purchased such shares of
Series E Preferred on July 15, 1998.
In addition, 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 received additional Warrants to purchase up to an
aggregate of 100,000 of such shares on July 15, 1998. The Warrants are
exercisable for five years at an exercise price of $4.58 per share. The fair
value of the Warrants amounting to $230,800 has been recorded as a dividend to
the holders of the Series D and Series E Preferred.
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)
attorneys fees of $30,000. On July 15, 1998, the Company paid the Placement
Agent, $100,000 and 0.1 share of Series E Preferred and a Warrant to purchase
up to 60,000 shares of Common Stock, on the same terms as the Warrant issued
on the Subscription Date. In addition, on the completion of each Put by the
Company pursuant to the Private Equity Agreement, the Company has agreed to
pay the Placement Agent an amount equal to 5% of the proceeds of each such
Put.
30
<PAGE>
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 share 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. Between August 20, 1998 and
March 31, 1999, 3.174 shares of the Series D Preferred were converted into
2,863,521 shares of Common Stock. Between December 1, 1998 and March 31, 1999,
2.1 shares of the Series E Preferred were converted into 1,567,058 shares of
Common Stock.
At the time of issuance, the Series A, Series B, Series C, Series D, and
Series E Preferred Stock was convertible at prices below the market value 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 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, 1999, the beneficial conversion feature amounted to $1,643,900,
$2,695,436, $349,943, $1,180,549, and $607,087 for the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred, and Series E
Preferred, respectively. At March 31, 1998, the beneficial conversion feature
amounted to $1,643,900, $212,637, and $343,943 for the Series A Preferred,
Series B Preferred, and Series C Preferred, respectively.
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 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. The Private Equity Investors are not obligated
to purchase any Put shares unless, among other things, (i) the Registration
Statement is effective, (ii) the Company is listed and its Common Stock is
trading on a national exchange or quotation system, (iii) the closing bid
price of the Common Stock on the day immediately preceding such purchase is at
least $1.50 per share, and (iv) 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.
Between August 20, 1998 and March 31, 1999, the Company exercised six Puts
to the Private Equity Investors in the aggregate amount of $7,250,000. The
Company has issued 4,810,788 shares of Common Stock to the Private Equity
Investors in connection with the Puts.
On September 1, 1998, the Company entered into an agreement with the Private
Equity Investors to amend the Private Equity Agreement. The amendment
clarifies that each of the Private Equity Investors may not beneficially own
more than 4.99 percent of the Company's Common Stock at one time, including
Common Stock underlying convertible securities that would be deemed to be
beneficially owned pursuant to section 13(d) of the Securities Exchange Act of
1934 and Rule 13d-3 promulgated thereunder.
In February 1998, the Company entered into a consulting agreement with
Continental Capital & Equity Corporation ("Continental") whereby the Company
issued 300,000 shares of Common Stock, with a fair value of $475,125, in
exchange for promotional services through February 1999. In August 1998, the
Company amended the consulting agreement with Continental whereby the Company
issued 250,000 additional shares of Common Stock, with a fair market value of
$416,657, in exchange for additional promotional services and a reduction in
cash payments required pursuant to a previous consulting agreement. During the
year ended March 31, 1999, the Company recorded a deferred consulting expense
of $416,657 as a reduction to stockholders' equity as a result of amending the
consulting agreement. The consulting cost will be amortized over the revised
term of the agreement, which is one year. For the year ended March 31, 1999,
the Company charged $569,730 to operations for the amortization of deferred
consulting expenses related to the consulting agreement and the amended
consulting agreement. The Company recognized deferred consulting expenses of
$39,844 during the year ended March 31, 1998.
31
<PAGE>
7. Employee Stock Option Plan
Stock options are granted to officers, directors, employees and others who
provide services to the Company at the discretion of the Board of Directors.
During the quarter ended September 30, 1998, the Company issued non-qualified
options to purchase 4,760,000 shares of the Company's Common Stock to
officers, directors and employees of the Company pursuant to the Company's
plan to grant 6,000,000 shares of Common Stock at $1.875 to employees,
officers, directors, and third parties. Stock options granted to officers and
directors pursuant to this plan vest on July 15, 1999 and expire on July 15,
2003.
On November 11, 1998, the Board of Directors authorized the adoption of a
non-qualified stock plan for one million shares of Common Stock to officers,
directors, employees, and third parties. During the year ended March 31, 1999,
options to purchase 970,000 shares of the Company's common stock were issued
to officers and employees pursuant to this plan. These options have an
exercise price equal to the fair market value of Common Stock at the date of
grant. The options vest over a period of three years and expire five years
after the date of grant.
All stock options granted by the Company include provisions for: (i)
forfeiture in the event the employee dies or ceases to be in the employment of
ATG(TM), or one of its subsidiaries, during the first year of employment; and
(ii) immediate vesting upon a merger, consolidation or change of control of
the Company. The Company has not registered the Common Stock underlying the
stock options.
A summary of the status of the Company's employee stock options outstanding
as of March 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
----------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.... 450,000 $6.28 450,000 $6.28
Forfeited during the year........... -- -- (2,500) 1.88
Granted during the year............. -- -- 5,730,000 1.94
------- ----- --------- -----
Outstanding at end of year.......... 450,000 $6.28 6,177,500 $2.25
======= ===== ========= =====
</TABLE>
The following table summarizes information about employee stock options
outstanding and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
Number Weighted-Average
Range of Outstanding and Remaining Contractual
Exercise Price Exercisable Life Exercise Price
-------------- --------------- --------------------- --------------
<S> <C> <C> <C>
$1.50-2.00 5,337,500 4.4 years $ 1.88
$3.00-4.00 740,000 5.7 years $ 3.39
14.25 100,000 7.0 years $14.25
</TABLE>
Of the total 6,177,500 stock options outstanding at March 31, 1999, 219,000
stock options were exercisable at an average price of $5.50 per share.
The Company also grants stock options to third parties in consideration for
services rendered to the Company. During the year ended March 31, 1999,
525,000 options to purchase Common Stock were issued to consultants providing
marketing services to the Company and in consideration for the rights to
www.VWAP.com. A summary of the status of the stock options issued to third
parties as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
------------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year... -- $ -- 1,090,000 $1.88
Granted during the year............ 1,090,000 1.88 525,000 2.06
--------- ----- --------- -----
Outstanding at end of year......... 1,090,000 $1.88 1,615,000 $1.93
========= ===== ========= =====
</TABLE>
32
<PAGE>
The following table summarizes information about third party stock options
outstanding and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
Number Weighted-Average
Range of Outstanding and Remaining Contractual
Exercise Price Exercisable Life Exercise Price
-------------- --------------- --------------------- --------------
<S> <C> <C> <C>
$1.50-$2.50 1,615,000 4.2 years $1.93
</TABLE>
Of the total 1,615,000 stock options outstanding at March 31, 1999,
1,515,000 stock options were exercisable at an average price of $1.93 per
share.
Stock options granted to third parties generally vest immediately and have a
maximum exercise term of five years. The Company has not registered the Common
Stock underlying the stock options. The Company recognizes a non-cash
compensation charge for options granted to third parties in compliance with
SFAS No. 123, Accounting for Stock-Based Compensation. The Company's
assumptions used to calculate the fair values of options issued to third
parties include: (i) a risk-free interest rate of 6%, (ii) an expected life of
five years, (iii) expected stock volatility of 20%, and (iv) expected stock
dividends of zero. During the years ended March 31, 1998 and 1999, the Company
recognized a noncash compensatory expense of $1,804,917 and $497,876,
respectively, for options granted to third parties, including non-employee
directors.
Gomez established a 1998 Employee Stock Option Plan to grant incentive and
non-qualified stock options to employees. As of of March 31, 1999, 445,000
options to purchase shares of Gomez common stock have been granted to
employees. Gomez also established a 1999 Long-Term Incentive Plan, which was
approved by the Gomez Board of Directors in January 1999. Under this plan,
Gomez may grant stock, stock options, stock grants, stock appreciation rights,
restricted shares, performance-based awards or other stock-based awards
(collectively, "stock awards"). As of March 31, 1999, a total of 4,189,000
shares of Gomez common stock have been reserved for issuance under this plan,
and no shares had been issued pursuant to stock awards granted under this
stock plan, 3,437,500 shares were subject to outstanding options and 751,500
shares were available for future grant.
A summary of the status of the Gomez stock options outstanding as of March
31, 1999 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year........................... -- $ -- 5,000,000 $0.41
Forfeited during the year....... -- -- (6,500,000) 0.31
Granted during the year......... 5,000,000 0.41 5,382,500 0.52
--------- ----- ---------- -----
Outstanding at end of year...... 5,000,000 $0.41 3,882,500 $0.71
========= ===== ========== =====
</TABLE>
The following table summarizes information about Gomez stock options
outstanding and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
Number Weighted-Average
Range of Outstanding and Remaining Contractual
Exercise Price Exercisable Life Exercise Price
-------------- --------------- --------------------- --------------
<S> <C> <C> <C>
$.01 3,003,000 4.8 years $ .01
$1.00-5.00 879,500 4.8 years $3.10
</TABLE>
Of the total 3,882,500 stock options outstanding at March 31, 1999,
1,501,500 stock options were exercisable at an average price of $.01 per
share.
33
<PAGE>
On January 22, 1999, an Exchange Agreement was entered into by and between
Gomez, ATG(TM), certain persons affiliated with Gomez, and certain persons
affiliated with ATG(TM). Pursuant to the Exchange Agreement:
. ATG(TM) exchanged all of its rights and interest in the $1,475,000 of
loans made by ATG(TM) to Gomez for an additional 59,000 shares of Gomez
common stock and subsequently exchanged all 60,000 shares of Gomez
common stock that it held for 4,905 shares of Gomez Series A Preferred
Stock;
. Julio Gomez, John Robb, and Dr. Alexander Stein (collectively "The Gomez
Founders") exchanged options to purchase 3,000,000 shares of Gomez
common stock and paid $.01 per share for 2,103,000 shares of Gomez
common stock;
. The Gomez Founders exchanged options to purchase 2,000,000 shares of
Gomez common stock for options to purchase 3,003,000 shares of Gomez
common stock at $.011 per share pursuant to the Gomez 1999 Long-Term
Incentive Plan; and
. Certain officers and directors of ATG(TM) exchanged options to purchase
1,500,000 shares of Gomez's common stock and paid $.01 per share for
1,631,000 shares of restricted Gomez common stock.
During the year ended March 31, 1999, Gomez and the Company recognized a
noncash compensation charge of $4,864,860 to reflect the difference between
the estimated fair market value of the vested Gomez stock options at the date
of grant and the exercise price of the related options issued to the Gomez
Founders. Gomez issued 3,003,000 options at an average price of $.01 per
share, all of which were granted at less than the deemed fair value at the
date of grant. Gomez expects to recognize noncash compensation charges of
$2,432,430 and $6,744,870 for the years ended March 31, 2000 and 2001,
respectively, as the stock options vest. However, the full amount of such
charges would be recognized upon the closing of an initial public offering or
upon a change in control as a result of an automatic acceleration clause
contained in the Exchange Agreement.
In addition, UTTC(TM) issued stock options to employees and third parties. A
summary of the status of the employee UTTC(TM) stock options outstanding as of
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
----------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... -- $ -- 400,000 $1.50
Forfeited during the year............ -- -- -- --
Granted during the year.............. 400,000 1.50 1,000,000 1.00
------- ----- --------- -----
Outstanding at end of year........... 400,000 $1.50 1,400,000 $1.14
======= ===== ========= =====
</TABLE>
The following table summarizes information about UTTC(TM) employee stock
options outstanding and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
Number Weighted-Average
Range of Outstanding and Remaining Contractual
Exercise Price Exercisable Life Exercise Price
-------------- --------------- --------------------- --------------
<S> <C> <C> <C>
$1.00-1.50 1,400,000 3.8 years $1.14
</TABLE>
Of the total 1,400,000 employee stock options outstanding at March 31, 1999,
100,000 stock options were exercisable at an average price of $1.50 per share.
34
<PAGE>
A summary of the status of the third party UTTC(TM) stock options
outstanding as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1999
----------------- -----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year....... -- $ -- -- $ --
Forfeited during the year.............. -- -- -- --
Granted during the year................ -- -- 835,000 1.00
--- ----- ------- -----
Outstanding at end of year............. -- $ -- 835,000 $1.00
=== ===== ======= =====
</TABLE>
The following table summarizes information about UTTC(TM) third-party stock
options outstanding and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
Number Weighted-Average
Range of Outstanding and Remaining Contractual
Exercise Price Exercisable Life Exercise Price
-------------- --------------- --------------------- --------------
<S> <C> <C> <C>
$1.00 835,000 4.0 years $1.00
</TABLE>
All 835,000 third-party stock options outstanding at March 31, 1999 were
exercisable at an average price of $1.00 per share.
Net loss and loss per share for the year ended March 31, 1998 would not have
materially changed because the UTTC(TM) options issued had no value at the
grant date based on an independent valuation of the Company.
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 stock options issued to employees and has
adopted the disclosure-only provisions of SFAS No. 123.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted to directors and employees at the grant date as
prescribed by SFAS No. 123, net loss per share would have been adjusted to the
pro forma amounts indicated in the table below. The Company's assumptions used
to calculate the fair values of options issued to employees include: (i) a
risk-free interest rate of 6%, (ii) an expected life of five years, (iii)
expected stock volatility of 20%, and (iv) expected stock dividends of zero.
<TABLE>
<CAPTION>
As Reported Pro Forma
------------------------- -------------------------
For the year ended March For the year ended March
31, 31,
------------------------- -------------------------
1998 1999 1998 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net loss.............. $(8,674,902) $(14,276,485) $(8,674,902) $(21,755,046)
Loss per share........ $ (1.46) $ (1.80) $ (1.46) $ (2.48)
</TABLE>
8. Benefit Plans
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, 1998 and 1999.
35
<PAGE>
The Company maintains life insurance policies on its key officers and
employees in the aggregate amount of $4,600,000.
9. Segment Information
The Company's continuing operations are classified in two primary business
segments: (i) trading systems and (ii) Gomez.
Gomez Advisors, Inc. ("Gomez") was formed in May 1997 as a subsidiary of the
Company together with Julio Gomez, John Robb, and Dr. Alex Stein to provide
independent advice with respect to online investing and provide 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. Gomez is a provider
of Internet-based products and services to consumers and businesses in select
e-commerce industries. Gomez delivers interactive content that provides
decision support for consumers and businesses to more efficiently engage in e-
commerce.
Summarized financial information, excluding intercompany transactions, by
business segment is as follows:
<TABLE>
<CAPTION>
For the year March 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues:
Gomez.......................................... $ 313,659 $ 1,434,438
Trading systems................................ -- --
----------- -----------
313,659 1,434,438
Loss from operations:
Gomez.......................................... (189,978) (5,842,921)
Trading systems................................ (8,155,464) (8,474,567)
----------- -----------
(8,345,442) (14,317,488)
Net interest (expense) income:
Gomez.......................................... -- --
Trading Systems................................ (342,731) 146,816
----------- -----------
(342,731) 146,818
Depreciation and amortization:
Gomez.......................................... 10,282 89,676
Trading Systems................................ 316,454 425,561
----------- -----------
326,736 515,240
Noncash compensation charges:
Gomez.......................................... -- 4,864,860
Trading Systems................................ 1,844,761 1,067,606
----------- -----------
1,844,761 5,932,466
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
March 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Balance Sheet:
Current assets
Gomez.............................................. 265,306 290,849
Trading systems.................................... 1,029,836 2,797,246
--------- ---------
1,295,142 3,088,095
Total assets
Gomez.............................................. 355,725 1,090,761
Trading systems.................................... 2,642,295 4,562,976
--------- ---------
2,998,020 5,653,737
Preferred stock
Gomez.............................................. -- --
Trading systems.................................... 6,238,875 5,427,188
--------- ---------
6,238,875 5,427,188
Total stockholders equity
Gomez.............................................. (164,978) 388,801
Trading systems.................................... 1,401,551 4,056,177
--------- ---------
1,236,573 4,444,978
</TABLE>
10. Discontinued Operations
On November 4, 1997, ATG(TM) sold CSI(R) to a trust created by the CSI(R)
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. As of March 31, 1998 and 1999 the
outstanding balance of the note is $561,659 and $449,783, respectively.
Prior period amounts in the consolidated financial statements have been
reclassified to reflect CSI(R)'s operations as discontinued operations in
accordance with APB Opinion No. 30. The $385,930 loss from the sale CSI(R) has
been reflected as a loss from the disposal of discontinued operations.
11. Income Taxes
The Company has net operating loss carryforwards at March 31, 1999 of
approximately $18,100,000, which will expire between 2011 and 2019, available
to reduce future federal taxable income. Additionally, the income tax basis of
intangibles exceeds the basis for financial reporting purposes by
approximately $1,400,000 and $8,532,000, respectively. Additionally, the
timing of expense recognition for certain options and warrants granted to non-
employees differs for income tax and financial reporting purposes by
approximately $8,532,000. The carryforwards and the temporary differences
result in a deferred tax asset of approximately $6,260,000 and $11,114,000 at
March 31, 1998 and 1999, respectively, for which the Company has provided a
full valuation allowance due to the uncertainty about the future realization
of this tax benefit.
<TABLE>
<S> <C> <C>
The components of the deferred tax assets are as
follows:
<CAPTION>
March 31, 1998 March 31, 1999
-------------- --------------
<S> <C> <C>
Net operating loss carryforward................. $ 4,695,000 $ 7,247,000
Basis of intangible asset....................... 540,000 540,000
Grant of non-qualified options.................. 1,025,000 3,327,000
Valuation allowance............................. (6,260,000) (11,114,000)
----------- ------------
Deferred tax asset.............................. $ -- $ --
=========== ============
</TABLE>
37
<PAGE>
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,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Tax benefit computed at the federal statutory
rate of 34%.................................... $(2,885,000) $(4,854,000)
Change in valuation allowance................... 2,885,000 4,854,000
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
ATG(TM), UTTC(TM), International, EMC and REB file a consolidated federal
income tax return. Gomez files a federal tax return on its own. In 1997,
Ashton entered into an agreement with 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.
12. 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,
2000...................... $ 215,345
2001...................... 215,345
2002...................... 153,400
2003...................... 153,400
2004...................... 153,400
Thereafter................ 197,925
----------
Total...................... $1,088,815
</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, 1998 and 1999 totaled approximately $253,000 and $265,000,
respectively.
The Company has employment agreements, which require the Company to pay
approximately $392,500 through July 2001.
In September 1995, UTTC entered into an agreement with the Philadelphia
Stock Exchange ("PHLX") whereby the PHLX has agreed to employ UTTC(TM)'s
VTS(TM) on its equity-trading floor. In connection with this agreement,
UTTC(TM) is required to reimburse the PHLX up to $100,000 for the first year
of the agreement for marketing costs incurred by the PHLX. UTTC(TM) is also
required to assume up to $200,000 of the PHLX's initial technology development
costs in implementing the VTS(TM). UTTC(TM) is required to contribute to a
PHLX administered "claim fund" for potential claims relating to the VTS(TM)
operations. UTTC(TM) is required to contribute $100,000 after commencement of
the VTS(TM) trading and, if necessary, to make additional contributions of up
to $100,000 per year to such claim fund. The PHLX is also entitled to receive
an annual royalty from UTTC(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.
Alliant with whom the Company had a contract for the production of certain
ATED Encryption Devices ("ATEDs") had demanded payment of approximately
$292,000, under the contract between Alliant and the Company, which the
Company was contesting. On October 22, 1997, the Company filed a Compliant
against Alliant in the Courts of Common Pleas, County of Philadelphia,
Pennsylvania ("PA") for damages and failure of Alliant to perform its
obligations under its contract with the Company. On December 15, 1997, Alliant
filed its Answer and Counterclaims totaling $292,000. Since the filing of this
original lawsuit on October 22, 1997,
38
<PAGE>
the Company encountered warranty-related problems while testing the ATEDs.
Alliant had failed to address the reported problems. As a result, the Company
filed a second Compliant against Alliant for breach of warranty. The second
was commenced on July 20, 1998 and sought damages in excess of $50,000.
On November 16, 1998, a non-jury civil trial commenced related to the
Company's first Complaint as well as Alliant's Counterclaim. On November 23,
1998, judgements were rendered in favor of the Company in the amount of
$316,000 (plus interest of approximately $28,000) that resolved both pending
Complaints by the Company against Alliant. Additionally, a judgement for
Company was rendered which dismissed Alliant's Counterclaims against the
Company.
On May 29, 1998, Rosensaft served ATG(TM) with a complaint in the U.S.
District Court for the Southern District of New York, entitled Rosensaft vs.
ATG and UTTC, No. 98 Civ 3681, alleging claims against ATG(TM) and its
subsidiary, UTTC(TM), for breach of fiduciary duty to Rosensaft as a minority
shareholder of UTTC(TM), for invalid amendments to the certificates of
incorporation of UTTC(TM) and ATG(TM) and invalid issuance of UTTC(TM) common
stock to ATG(TM) and improper issuance of additional shares of UTTC(TM) common
stock to ATG(TM). The relief sought by Rosensaft was: (i) 450,000 shares of
UTTC(TM) common stock or damages to be determined at trial, but not less than
$2,000,000; (ii) an order revoking or canceling the issuance of additional
shares of UTTC(TM) common stock in excess of the 10 million shares authorized
by UTTC(TM)'s original Certificate of Incorporation; and (iii) an order
revoking or canceling the issuance of approximately 19,000,000 additional
shares of UTTC(TM) common stock to the Company; and (iv) other damages to be
determined at trial.
On March 22, 1999, the Company and Rosensaft entered into a settlement
agreement whereby the Company agreed to, among other considerations, issue
416,667 additional shares of UTTC(TM) common stock to Rosensaft and to
reimburse Rosensaft $47,500 for legal expenses. The parties also executed
comprehensive mutual releases as between each other. While the Company
believes Rosensaft's claims are without merit and that the Company would have
prevailed at trial, the Board of Directors of ATG(TM) and UTTC(TM) believe the
cost of litigation would have significantly exceeded the costs associated with
the settlement. Therefore, the Board of Directors of ATG(TM) and UTTC(TM)
agreed to the settlement to avoid significant additional legal costs and the
management distraction associated with such litigation.
13. Net Capital Requirements
REB, as a registered broker-dealer and NASD member firm, is subject to the
SEC's Uniform Net Capital Rule (the "Rule") which requires the maintenance of
minimum net capital. REB has elected the basic method, permitted by the Rule,
which requires that it maintain net capital equal to $5,000.
At March 31, 1999, REB had net capital of $84,688, which was $79,688 in
excess of its required net capital of $5,000.
14. Subsequent Events
In April 1999, Gomez completed a private placement of 6% Series B
Convertible Preferred Stock, par value $.01 per share, to accredited investors
at a price of $5 per share. Gross proceeds received by Gomez from the sale
amounted to $5,500,000. Gomez intends to use the net proceeds from the
issuance for staffing increases, capital expenditures related to the upgrading
and marketing of its existing products and services, the development and
marketing of new products and services, and for general corporate purposes,
including working capital.
In June 1999, UTTC(TM) completed a private placement of Series TK
Convertible Preferred Stock, par value $.01 per share. Gross proceeds received
by UTTC(TM) from the sale amounted to $2,000,000. The proceeds will be used
for general corporate purposes, including working capital.
39
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item will be contained in the Proxy
Statement for the 1999 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to this item will be contained in the Proxy
Statement for the 1999 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will be contained in the Proxy
Statement for the 1999 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will be contained in the Proxy
Statement for the 1999 Annual Meeting of Stockholders, which is incorporated
herein by reference.
40
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND 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 Amendment to Bylaws of Ashton, dated November 11, 1998.(11)
3.6 Certificate of Designation for Series A Convertible PIK Preferred
Stock.(1)
3.7 Certificate of Designation for Series B Convertible Preferred
Stock.(1)
3.8 Certificate of Designation for Series C Convertible Preferred
Stock.(9)
3.9 Certificate of Designation for Series D Convertible Preferred
Stock.(9)
3.10 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)
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 22, 1996, between UTTC and
Eprile.(1)
10.2 Agreement, dated as of January 19, 1996, among Ashton, UTTC(TM) and
Rosensaft.(1)
10.3 Escrow Agreement, dated as of January 19, 1996, among Ashton,
Rosensaft and First United Equities Corporation.(1)
10.4 Stock Purchase Agreement, dated as of January 19, 1996, between Ashton
and Rosensaft.(1)
10.5 Assignment and Termination Agreement, dated as of January 19, 1996,
among Dover, Ashton, Eprile and Rosensaft.(1)
10.6 Common Stock Purchase Warrant of Ashton, dated June 27, 1995, held by
Dover.(1)
10.7 Common Stock Purchase Option of Ashton, dated January 30, 1996, held
by John A. Blohm.(1)
10.8 Option to Purchase Common Stock, dated as of March 15, 1996, between
Rosensaft and Dover.(1)
10.9 Option to Purchase Common Stock, dated as of March 15, 1996, between
Eprile and Dover.(1)
10.10 Employment Agreement between Fred S. Weingard and UTTC(TM), dated June
21, 1996.(3)
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.11 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.(2)
10.12 License Agreement dated October 22, 1996, between the Company and
Tate.(2)
10.13 Consulting Agreement dated October 22, 1996, between the Company and
Tate.(2)
10.14 Settlement Agreement by and among Ashton, UTTC(TM), Rittereiser, Dover
and Rosensaft, dated January 30, 1997.(4)(6)
10.15 Stock Purchase Agreement by and among Ashton, Dover, Rittereiser, and
Rosensaft, dated January 30, 1997.(4)
10.16 Memorandum of Understanding between Ashton and E.Com International,
Inc., dated October 31, 1997.
10.17 Network Services Agreement between Ashton 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.
10.18 Form of Nonqualified Employee Stock Option Agreement.(8)
10.19 Form of Nonqualified Deferred Stock Option Agreement.(8)
10.20 Form of Nonqualified Stock Option Agreement.(8)
10.21 Private Equity Line of Credit Agreement dated April 3, 1998.
10.22 Client Service Agreement with Continental Capital and Equity
Corporation dated February 24, 1998.
10.23 Letter of Understanding--Amendment of Client Service Agreement with
Continental Capital and Equity Corporation dated August 13, 1998.
10.24 Settlement Agreement by and Among Ashton, UTTC(TM) and Rosensaft,
dated March 19, 1999.
10.25 Employment Agreement, dated as of July 13, 1998, between Arthur J.
Bacci and Ashton.(9)
10.26 Employment Agreement, dated as of July 27, 1998, between Dr. Mark
Turner and Ashton.(10)
10.27 Employment Agreement, dated as of August 4, 1998, between Julio Gomez
and Gomez Advisors.(10)
10.28 Employment Agreement, dated as of August 4, 1998, John Robb and Gomez
Advisors.(10)
10.29 Employment Agreement, dated as of August 4, 1998 Dr. Alexander Stein
and Gomez Advisors.(10)
10.30 Employment Agreement, dated as of September 23, 1998, between Scott
vonKleeck and Ashton.(10)
21 Subsidiaries of Ashton.
27 Financial Data Schedule.
</TABLE>
- --------
* 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 October 22, 1996.
(3) Incorporated by reference to Form 10-QSB, for the period ended September
30, 1996.
(4) Incorporated by reference to Form 10-QSB, for the period ended December
31, 1996.
(5) Incorporated by reference to Form 8-K, dated April 15, 1997.
(6) Incorporated by reference to Amendment No. 1 to Form 10-QSB for the
period ended December 31, 1996, filed April 18, 1997.
(7) Incorporated by reference to Registration Statement on Form S-3 filed
June 29, 1998.
(8) Incorporated by reference to Form 10-KSB, for the period ended March 31,
1998.
42
<PAGE>
(9) Incorporated by reference to Form 10-QSB, for the period ended June 30,
1998.
(10) Incorporated by reference to Form 10-QSB, for the period ended September
30, 1998.
(11) Incorporated by reference to Form 10-QSB, for the period ended December
31, 1998.
(b) Reports on Form 8-K
(1) Form 8-K, dated March 31, 1999 was filed pursuant to Item 5.
(2) Form 8-K, dated December 10, 1998 was filed pursuant to Item 5.
(3) Form 8-K, dated September 1, 1998 was filed pursuant to Item 5.
(4) Form 8-K, dated April 9, 1998 was filed pursuant to Item 5.
(5) Form 8-K, dated January 27, 1998 was filed pursuant to Item 5.
43
<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 as of June 29, 1999.
The Ashton Technology Group, Inc.
/s/ Fredric W. Rittereiser
By: _________________________________
Fredric W. Rittereiser
Chief Executive Officer
/s/ Arthur J. Bacci
By: _________________________________
Arthur J. Bacci
President and Chief Financial
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Fredric W. Rittereiser Director and Chief June 29, 1999
______________________________________ Executive Officer
Fredric W. Rittereiser (Principal Executive
Officer)
/s/ Arthur J. Bacci President and Chief June 29, 1999
______________________________________ Financial Officer
Arthur J. Bacci (Principal Financial
Officer)
/s/ Fred Weingard Director and Executive June 29, 1999
______________________________________ Vice President
Fred Weingard
/s/ William Uchimoto Director and Executive June 29, 1999
______________________________________ Vice President
William Uchimoto
/s/ K. Ivan F. Gothner Director June 29, 1999
______________________________________
K. Ivan F. Gothner
/s/ Richard Butler Director June 29, 1999
______________________________________
Richard Butler
/s/ John A, Blohm Director June 29, 1999
______________________________________
John A. Blohm
Director June , 1999
______________________________________
Robert A. Eprile
</TABLE>
44
<PAGE>
EXHIBIT 10.21
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 2, 1998 (the
"Agreement"), between the entities listed on Schedule A attached hereto
(collectively referred to as the "Investor"), SETTONDOWN CAPITAL INTERNATIONAL
LTD. (the "Placement Agent") located at Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas,
and THE ASHTON TECHNOLOGY GROUP, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase up to (a)
$3,000,000 aggregate principal amount of the Company's Series D Convertible
Preferred Stock, (b) $2,000,000 aggregate principal amount of the Company's
Series E Convertible Preferred Stock, and (c) pursuant to the equity line of
credit established herein whereby the Company has the option of exercising its
"Put" rights upon the Investor for the purchase and sale of up to an additional
$13,000,000 of the Common Stock for a total aggregate purchase price of
$18,000,000 (the "Aggregate Purchase Price"); and
WHEREAS, the Company shall issue to the Placement Agent, in return for
services rendered, from time to time as provided herein, up to .15 of one share
of Series D Convertible Preferred Stock, .1 of one share of Series E Convertible
Preferred Stock, a Warrant to purchase 190,000 shares of Common Stock, and
20,000 shares of Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder; and
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
---------
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
--------------
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
<PAGE>
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
--------------------------
rights, or obligations that are convertible into, exchangeable for, or have any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any
security convertible into, or exchangeable for Capital Shares.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
-------
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing: Date" shall mean with respect to a Closing for
-------------
(i) the Initial Shares shall be deemed the Subscription Date; (ii) the Secondary
Shares shall be the Fifth Trading Day following the satisfaction of the
conditions set forth in Section 2.9; and (iii) the Put Shares shall be the fifth
Trading Day following the Put Date related to such Closing; provided all
conditions to such Closing have been satisfied on or before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the $18,000,000 up to which
-----------------
the Investor has agreed to provide to the Company in order to purchase the
Initial Shares, Secondary Shares, and Put Shares pursuant to the terms and
conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
-----------------
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price of
$13,000,000, (y) the date this Agreement is terminated pursuant to Section 2.4,
or (z) the date occurring two years from the date of commencement of the
Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
------------
value $.01 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
---------------------------
forth in Section 7.2.
Section 1.10 "Damages" shall mean any loss, claim, damage, liability,
-------
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.11 "Effective Date" shall mean the date on which the SEC
--------------
first declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.12 "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.13 "Floor Price" shall mean a Bid Price of One Dollar and
-----------
Fifty Cents ($1.50) per share of Common Stock.
2
<PAGE>
Section 1.14 "Initial Shares" shall have the meaning set forth in
--------------
Section 2.8.
Section 1.15 "Initial Shares Investment Amount" shall mean Three
--------------------------------
Million ($3,000,000) Dollars.
Section 1.16 "Investment Amount" shall mean the dollar amount to be
-----------------
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.17 "Legend" See Section 8.1.
------
Section 1.18 "Market Price" on any given date shall mean the average of
------------
the two lowest closing Bid Prices (as reported by Bloomberg L.P.) of the Common
Stock during the Valuation Period.
Section 1.19 "Material Adverse Effect" shall mean any effect on the
-----------------------
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Escrow Agreement, or the Warrant in any
material respect.
Section 1.20 "Maximum Put Amount" on any Put Date shall mean the amount
------------------
indicated opposite the range in which the Closing Price is on such Put Date and
below the 30 Day Average Daily trading Volume on such Put Date, as set forth in
the Table below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Closing Price 30-Day Avg. Daily 30-Day Avg. Daily 30-Day Avg. Daily 30-Day Avg. Daily
- ------------- ------------------ ------------------ ------------------ -----------------
Trading Volume Trading Volume Trading Volume Trading Volume
--------------- --------------- --------------- --------------
25,000-50,000 50,001-75,000 75,001-100,000 100,001-Above
------------- ------------- -------------- -------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.50-$2.99 $200,000 $300,000 $400,000 $400,000
- ------------------------------------------------------------------------------------------------
$3.00-$6.00 $600,000 $750,000 $1,000,000 $1,250,000
- ------------------------------------------------------------------------------------------------
$6.01-$8.00 $750,000 $1,000,000 $1,250,000 $1,500,000
- ------------------------------------------------------------------------------------------------
$8.01-$10.00 $1,000,000 $1,250,000 $1,500,000 $1,750,000
- ------------------------------------------------------------------------------------------------
$10.01-$12.00 $1,250,000 $1,500,000 $1,750,000 $2,000,000
- ------------------------------------------------------------------------------------------------
$12.01-$14.00 $1,500,000 $1,750,000 $2,000,000 $2,000,000
- ------------------------------------------------------------------------------------------------
$14.01-Above $1,750,000 $2,000,000 $2,000,000 $2,000,000
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Section 1.21 "NASD" shall mean the National Association of Securities
----
Dealers, Inc.
Section 1.22 "Outstanding" when used with reference to shares of Common
-----------
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
-------- -------
then directly or indirectly owned or held by or for the account of the Company.
Section 1.23 "Person" shall mean an individual, a corporation, a
------
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.24 "Principal Market" shall mean the Nasdaq National Market,
----------------
the Nasdaq Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.
Section 1.25 "Purchase Price" shall mean (a) with respect to the
--------------
Initial Shares, an amount equal to the "Liquidation Preference" of each Initial
Share, as set forth in the Series D Convertible Preferred Stock Certificate of
Designation attached hereto as Exhibit A, (b) with respect to the Secondary
Shares, an amount equal to the "Liquidation Preference" of each Secondary Share,
as set forth in the Series E Convertible Preferred Stock Certificate of
Designation attached hereto as Exhibit B, and (c) with respect to Put Shares,
eighty five (85%) percent (the "Purchase Price Percentage") of the Market Price
upon a Put Date (or such other date on which the Purchase Price is calculated in
accordance with the terms and conditions of this Agreement).
Section 1.26 "Put" shall mean each occasion the Company elects to
---
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.27 "Put Date" shall mean the Trading Day during the
--------
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.28 "Put Notice" shall mean a written notice to the Investor
----------
setting forth the Investment Amount that the Company intends to sell to the
Investor and Compliance Certification from the Company as attached hereto as
Exhibit C.
Section 1.29 "Put Shares" shall mean all shares of Common Stock or
----------
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
4
<PAGE>
Section 1.30 "Registrable Securities" shall mean any of the Initial
----------------------
Shares, Secondary Shares, Put Shares, and the Warrant Shares (i) in respect of
which the Registration Statement has not been declared effective by the SEC,
(ii) which have not been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) which have not been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(iv) the sales of which, in the opinion of counsel to the Company, are subject
to any time, volume or manner limitations pursuant to Rule 144(k) (or any
similar provision then in effect) under the Securities Act.
Section 1.31 "Registration Rights Agreement" shall mean the agreement
-----------------------------
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor on the
Subscription Date annexed hereto as Exhibit D.
Section 1.32 "Registration Statement" shall mean a registration
----------------------
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the Warrant
and in accordance with the intended method of distribution of such securities),
for the registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
Section 1.33 "Regulation D" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.34 "SEC" shall mean the Securities and Exchange Commission.
---
Section 1.35 "Secondary Shares" shall have the meaning set forth in
----------------
Section 2.9.
Section 1.36 "Secondary Shares Investment Amount" shall mean Two
----------------------------------
Million ($2,000,000) Dollars.
Section 1.37 "Section 4(2)" shall have the meaning set forth in the
------------
recitals of this Agreement.
Section 1.38 "Securities Act" shall have the meaning set forth in the
--------------
recitals of this Agreement.
Section 1.39 "SEC Documents" shall mean the Form 10-KSB, Form 10-QSB's,
-------------
Form 8-K's, Proxy Statements or the Confidential Private Placement Memorandum
dated September 18, 1997 of the Company as supplemented to the date hereof,
filed by the Company for a period of at twelve (12) months immediately preceding
the date hereof until such time the Company no
5
<PAGE>
longer has an obligation to maintain the effectiveness of a Registration
Statement as set forth in the Registration Rights Agreement.
Section 1.40 "Series D Convertible Preferred Stock" shall mean the
------------------------------------
Series D Convertible Preferred Stock, $0.01 par value, of the Company with all
of the rights and preferences contained in the Series D Convertible Preferred
Stock Certificate of Designation, and this Agreement.
Section 1.41 "Series E Convertible Preferred Stock" shall mean the
------------------------------------
Series E Convertible Preferred Stock, $0.01 par value, of the Company with all
of the rights and preferences contained in the Series E Convertible Preferred
Stock Certificate of Designation, and this Agreement.
Section 1.42 "Subscription Date" shall mean the date on which this
-----------------
Agreement is executed and delivered by the parties hereto.
Section 1.43 "Trading Cushion" shall mean the mandatory fifteen (15)
---------------
Trading Days between Put Dates.
Section 1.44 "Trading Day" shall mean any day during which the New York
-----------
Stock Exchange shall be open for business.
Section 1.45 "Valuation Event" shall mean an event in which the Company
---------------
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares; issues any additional Capital Shares
("Additional Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration;
(c) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(d) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance;
6
<PAGE>
(e) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
subsections (a) through (e); or
(f) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put or exercise of the Warrant.
Section 1.46 "Valuation Period" shall mean with respect to the Purchase
----------------
Price on any Put Date, the three (3) Trading Days immediately preceding and the
three (3) Trading Days following the Trading Day on which an Put Notice is
deemed to be delivered, as well as the Trading Day on which such notice is
deemed to be delivered; provided, however, that if a Valuation Event occurs
during a Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the seventh
Trading Day thereafter.
Section 1.47 "Warrant" shall have the meaning set forth in Section 2.5
-------
and be substantially in the form of Exhibit E.
Section 1.48 "Warrant Shares" shall mean all shares of Common Stock or
--------------
other securities issued or issuable pursuant to exercise of the Warrant.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
-----------
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date the
Company may make a Put by the delivery of a Put Notice in the form attached
hereto as Exhibit C. The number of Put Shares that the Investor shall receive
pursuant to such Put shall be determined by dividing the Investment Amount
specified in the Put Notice by the Purchase Price on such Put Date, which number
of shares shall not exceed the Maximum Put Amount on such date.
(b) Maximum Aggregate Purchase of Common Stock. Unless the Company
obtains Shareholder approval pursuant to the applicable corporate governance
rules of the Nasdaq Stock Market, the Investor may not be compelled to make a
purchase which results in the issuance to the Investor of more than 19.99% of
the shares of Common Stock (measured at the time of such
7
<PAGE>
purchase) as a result of the transactions contemplated by this Agreement,
including the conversion of the Series D and Series E Convertible Preferred
Stock, the exercise of any Puts.
(c) Restrictions. In the event of any merger, reorganization,
acquisition, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, or any one time charge the Company expects
to incur for any reason, the Trading Cushion shall be adjusted to mean the
mandatory ten Trading Days between Put Dates, and the Purchase Price Percentage
shall be reduced to eighty (80%) percent.
Section 2.2 Mechanics.
---------
(a) Put Notice. At any time during the Commitment Period, the Company
may deliver a Put Notice to the Investor, subject to the conditions set forth in
Section 2.4, provided, however, the Investment Amount for each Put as designated
by the Company in the applicable Put Notice shall not be less than $50,000 nor
more than the Maximum Put Amount on the Put Date.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 Closings. On each Closing Date for a Put (i) the Company
--------
shall deliver to the Escrow Agent one or more certificates, at the Investor's
option, representing the Put Shares to be purchased by the Investor pursuant to
Section 2.1 herein, registered in the name of the Investor or, at the Investor's
option, and (ii) the Investor shall deliver to escrow the Investment Amount
specified in the Put Notice by wire transfer of immediately available funds to
the Escrow Agent on or before the Closing Date. In addition, on or prior to the
Closing Date, each of the Company and the Investor shall deliver to the Escrow
Agent all documents, instruments and writings required to be delivered or
reasonably requested by either of them pursuant to this Agreement in order to
implement and effect the transactions contemplated herein. Payment of funds to
the Company and delivery of the certificates to the Investor shall occur out of
escrow in accordance with the conditions set forth above and those contained in
the Escrow Agreement referred to in Section 7.2(n); provided, however, that to
the extent the Company has not paid the fees, expenses, and disbursements of the
Investor's counsel in accordance with Section 13.7, the amount of such fees,
expenses, and disbursements shall be paid in immediately available funds, at the
direction of the Investor, to Investor's counsel with no reduction in the number
of Put Shares issuable to the Investor on such Closing Date.
Section 2.4 Termination of Investment Obligation. The obligation of the
------------------------------------
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or
8
<PAGE>
suspension of the effectiveness of the Registration Statement for an aggregate
of twenty (20) Trading Days during the Commitment Period, for any reason other
than deferrals or suspensions in accordance with the Registration Rights
Agreement as a result of corporate developments subsequent to the Subscription
Date that would require such Registration Statement to be amended to reflect
such event in order to maintain its compliance with the disclosure requirements
of the Securities Act or (ii) the Company shall at any time fail to comply with
the requirements of Section 6.3, 6.4 or 6.6.
Section 2.5 The Warrant.
-----------
(a) On the Subscription Date, the Company will issue to the Investor a
warrant exercisable beginning on the Subscription Date and then exercisable any
time over the five-year period thereafter, to purchase an aggregate of 250,000
Warrant Shares at the Exercise Price (as defined in the Warrant). The Warrant
shall be delivered by the Company to the Escrow Agent, and delivered to the
Investor pursuant to the terms of this Agreement and the Escrow Agreement. The
Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.
(b) On the Closing Date for the Secondary Shares the Company will
issue to the Investor a Warrant exercisable beginning on the Closing Date for
the Secondary Shares and then exercisable any time over the five-year period
thereafter, to purchase 50,000 Warrant Shares at the Exercise Price (as defined
in the Warrant) per $1,000,000 funded. The Warrant shall be delivered by the
Company to the Escrow Agent, and delivered to the Investor pursuant to the terms
of this Agreement and the Escrow Agreement. The Warrant Shares shall be
registered for resale pursuant to the Registration Rights Agreement.
Section 2.6 Additional Shares. In the event that (a) the Investor has
-----------------
shares of Common Stock which are salable through the use of a prospectus, or
within five Trading Days of any Put Notice or Conversion Notice, the Company
gives notice to the Investor of an impending blackout or suspension of the
Registration Statement, and (b) the Bid Price on the Trading Day immediately
preceding such "blackout period" (the "Old Bid Price") is greater than the Bid
Price on the first Trading Day following such blackout or suspension period (the
"New Bid Price"), the Investor may sell its Registrable Securities at the New
Bid Price pursuant to an effective Registration Statement, the Company shall
issue to the Investor a number of additional shares equal to the difference
between (y) the product of the number of Registrable Securities held by the
Investor during such blackout or suspension period that are not otherwise freely
tradable and the Old Bid Price, divided by the New Bid Price, less the number of
Registrable Securities held by the Investor during such blackout or suspension
period that are not otherwise freely tradable.
Section 2.7 Liquidated Damages.
------------------
(a) In the event the Company does not deliver unlegended Common Stock
as set forth in Article IX below, within five (5) calendar days of surrender by
the Investor of the
9
<PAGE>
Common Stock certificate as is set forth in Article IV below, (such date of
receipt is referred to as the "Receipt Date"), the Company shall pay to the
Investor, in immediately available funds, upon demand, as liquidated damages for
such failure and not as a penalty, for each 500 shares of Common Stock to be so
delivered by the Investor as set forth above, $500 for each of the first ten
(10) days and $1,000 per day thereafter that the unlegended shares of Common
Stock are not delivered, which liquidated damages shall run from the sixth
calendar day after the Receipt Date. Any and all payments required pursuant to
this paragraph shall be payable only in cash. The parties hereto acknowledge and
agree that the sum payable pursuant to the Registration Rights Agreement and as
set forth above, and the obligation to issue Registrable Securities under
Section 2.6 above shall constitute liquidated damages and not penalties.
(b) In the event the Company fails to deliver shares of Common Stock
upon conversion of the Series D or E Convertible Preferred Stock the Company
will be subject to liquidated damages as set forth in Section 4.19 below. The
parties further acknowledge that (a) the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, and (b) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
(c) The parties agree that the payment of liquidated damages pursuant
to the terms forth herein, and in the two Certificate of Designations, shall not
relieve the Company of the necessity to perform its duties as set forth in this
Agreement and all related documents.
Section 2.8 Initial Shares Purchase.
-----------------------
(a) The Company agrees to sell and the Investor agrees to purchase
$3,000,000 aggregate principal amount of Series D Convertible Preferred Stock on
the Subscription Date (the "Initial Shares"). The number of shares of Common
Stock issuable upon conversion of the Initial Shares shall be determined by
dividing $3,000,000 by the conversion formula contained in the Series D
Convertible Preferred Stock Certificate of Designation. This Section 2.8(a) is
specifically subject to the covenants set forth in Section 6.14 herein.
(b) The Initial Shares shall be purchased by the Investors upon the
completion of each of the following conditions:
(i) the execution and delivery by the Company, and the Investor,
of this Agreement, and all Exhibits and Attachments hereto;
(ii) delivery into escrow by the Company, on the Subscription
Date, of the Warrant;
(iii) delivery into escrow by the Company of the original
Series D Convertible Preferred Stock Certificate, as more fully set
forth in the Escrow Agreement;
10
<PAGE>
(iv) delivery into escrow by Investor of good cleared funds
as payment for the Initial Shares, as more fully set forth in the
Escrow Agreement attached hereto as Exhibit F;
(v) all representations and warranties of the Investor and
of the Company contained herein being true and correct as of the
Subscription Date;
(vi) receipt of opinion of counsel of the Company as set
forth in this Agreement;
(vii) the filing of a Certificate of Designation for the
Series D Convertible Preferred Stock, and any amendments thereto;
(viii) payment of fees as set forth in Section 13.7 below; and
(ix) letter from Company counsel detailing conversation with
Nasdaq representative concerning interpretation of the "20% Rule"
substantially in the form of Exhibit G attached hereto.
Section 2.9 Secondary Shares Purchase.
-------------------------
(a) The Company agrees to sell and the Investor agrees to purchase
$2,000,000 aggregate principal amount of Series E Convertible Preferred Stock
(the "Secondary Shares"). The number of shares of Common Stock issuable upon
conversion of the Secondary Shares shall be determined by dividing $2,000,000 by
the conversion formula contained in the Series E Convertible Preferred Stock
Certificate of Designation.
(b) The Secondary Shares shall be purchased by the Investors within
five Trading Days after the completion of each of the following conditions:
(i) the Investor shall have received certification that the
Company has obtained shareholder approval for the Company's issuance of
more than twenty (20%) percent of its Common Stock in connection with
the transactions contemplated hereby;
(ii) the execution and delivery by the Company, and the
Investor, of this Agreement, and all Exhibits and Attachments hereto;
(iii) delivery into escrow by the Company of the original
Series E Convertible Preferred Stock, as more fully set forth in the
Escrow Agreement attached hereto as Exhibit F;
(iv) delivery into escrow by Investor of good cleared funds
as payment for the Secondary Shares, as more fully set forth in the
Escrow Agreement attached hereto as Exhibit F;
11
<PAGE>
(vi) the Investor shall have received an opinion of counsel of the
Company as set forth in this Agreement;
(vii) the Investor shall have received a copy of the filed Certificate of
Designation for the Series E Convertible Preferred Stock, and any amendments
thereto;
(viii) the Investor shall have received a letter from Company counsel
detailing conversation with Nasdaq representative concerning interpretation of
the "20% Rule", substantially in the form of Exhibit G attached hereto;
(ix) The Company shall have filed with the SEC a Registration Statement
with respect to the resale of the Registrable Securities in accordance with the
terms of the Registration Rights Agreement;
(x) The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Secondary Shares, or shall
have the availability of exemptions therefrom. The sale and issuance of the
Secondary Shares shall be legally permitted by all laws and regulations to which
the Company is subject;
(xi) The representations and warranties of the Company shall be true and
correct in all material respects as of the Closing Date for the Secondary Shares
as though made at each such time (except for representations and warranties
specifically made as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and including the
Closing Date for the Secondary Shares, except for any conditions which have
temporarily caused any representations or warranties herein to be incorrect and
which have been corrected with no continuing impairment to the Company or the
Investor;
(xii) The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement and the Warrant to be performed,
satisfied or complied with by the Company at or prior to the Closing Date for
the Secondary Shares;
(xiii) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement;
(xiv) Since the date of filing of the Company's most recent SEC Document,
no event that had or is reasonably likely to have a Material Adverse Effect has
occurred;
12
<PAGE>
(xv) The trading of the Common Stock is not suspended by the SEC or the
Principal Market, and the Common Stock shall have been approved for listing or
quotation on and shall not have been delisted from the Principal Market. The
issuance of shares of Common Stock with respect to the Closing for the Secondary
Shares, shall not violate the shareholder approval requirements of the Principal
Market. The Company shall not have received any notice threatening the listing
of the Common Stock on the Principal Market;
(xvi) On the Closing Date for the Secondary Shares, the number of
Secondary Shares then to be purchased by the Investor will not exceed the number
of such shares which, when aggregated with all other shares of Common Stock then
owned by the Investor beneficially or deemed beneficially owned by the Investor,
would result in the Investor owning more than 4.99% of all of such Common Stock
as would be outstanding on such Closing Date, as determined in accordance with
Rule 13d-3 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section, in the event that the amount of Common Stock
outstanding as determined in accordance with Rule 13d-3 of the Exchange Act and
the regulations promulgated thereunder is greater on the Closing Date for the
Secondary Shares than on the Subscription Date, the amount of Common Stock
outstanding on the Subscription Date shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant Shares, would own more than
4.99% of the Common Stock following such Closing. Then, in such event, the
Company would reduce that number of Secondary Shares so issuable so that it
would not exceed the aforementioned 4.99% limitation. Investor shall notify the
Company as soon as possible, but in any event within three (3) business days of
receiving a notice of the aforementioned conditions, if Investor believes
Investor's purchase of the Secondary Shares would result in Investor exceeding
the 4.99% limitation described above;
(xvii) The Bid Price equals or exceeds the Floor Price on the Trading Day
immediately preceding the completion of all the conditions set forth in this
Section 2.9(b) (as adjusted for stock splits, stock dividends, reverse stock
splits, and similar events);
(xviii) The average trading volume for the Common Stock over the previous
thirty (30) Trading Days exceeds 25,000 shares per Trading Day;
(xix) Payment offers as set forth in Section 13.7 below; and
(xx) On the Closing Date for the Secondary Shares, the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section, including, without limitation, a certificate in substantially
the form and substance of Exhibit C hereto, executed in either case by an
executive officer of the Company and to the effect that all
13
<PAGE>
the conditions to such Closing shall have been satisfied as at the date of
each such certificate.
ARTICLE III
Representations and Warranties of Investor
The Investor represents and warrants to the Company that:
Section 3.1 Organization and Authorization. Investors are duly incorporated
------------------------------
or organized and validly existing in the country of their incorporation or
organization and have all requisite power and authority to purchase and hold the
securities issuable hereunder. The decision to invest and the execution and
delivery of this Agreement by the Investors, the performance by the Investors of
their obligations hereunder and the consummation by the Investors of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Investors. The undersigned has all right, power
and authority to execute and deliver this Agreement on behalf of the Investors.
This Agreement has been duly executed and delivered by the Investors and,
assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligations of the
Investors, enforceable against the Investors in accordance with its terms.
Section 3.2 Evaluation of Risks. Investors have such knowledge and
-------------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. It recognizes that its investment in the Company involves a high
degree of risk.
Section 3.3 Independent Counsel. Investors acknowledge that they have
-------------------
been advised to consult with their own attorney regarding legal matters
concerning the Company and to consult with its tax advisor regarding the tax
consequences of acquiring the securities issuable hereunder.
Section 3.4 No Registration. The Investor understands that the securities
---------------
issuable hereunder have not been registered under the Act or any other
securities laws but are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of Federal and State securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Investors set forth herein in order to determine the applicability of such
exemptions and the suitability of Investors to acquire the securities hereunder.
Section 3.5 Investment Intent. The Investor is entering into this Agreement
-----------------
solely for its own account and the Investor has no present arrangement (whether
or not legally binding) at any time to sell the Initial Shares, Secondary
Shares, or Put Shares to or through any person or entity. Investors understand
and agree that they may bear the economic risk of its investment in the
Securities for an indefinite period of time.
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Section 3.6 Conversion Holding Period/Conversion Limits.
-------------------------------------------
(a) The Investor agrees that it shall not exercise its conversion rights
granted in the Certificate of Designation for the Series D Convertible Preferred
Stock (the "Holding Period") until the earlier of (i) sixty (60) days after the
Subscription Date; or (ii) upon the effectiveness of the Registration Statement.
(b) The Investor agrees that the Series D and Series E Convertible
Preferred Stock is convertible in minimum increments of $50,000 principal face
value.
Section 3.7 Transfer Restrictions Regarding the Series D or E Convertible
-------------------------------------------------------------
Preferred Stock. Upon conversion of any part or all of the Series D Convertible
- ---------------
Preferred Stock at any time after the Holding Period, or upon conversion of any
part or all of the Series E Convertible Preferred Stock at any time after the
Closing Date for the Secondary Shares, if the holder of the Series D or E
Convertible Preferred Stock being converted makes the certification, pursuant to
the Notice of Conversion attached hereto as Exhibit H, that such holder has
complied with all of the requirements as set forth herein, then the Company
shall cause the Transfer Agent to deliver the underlying Common Stock (the
"Underlying Shares") upon such conversion without a restrictive legend or stop
transfer instructions, otherwise the Underlying Shares shall be considered
restricted securities and certificates representing such shares shall contain
restrictive legends and stop transfer instructions will be placed with the
Company's transfer agent regarding such shares.
Section 3.8 Registration Rights. The parties have entered into a
-------------------
Registration Rights Agreement (Exhibit D).
Section 3.9 No Advertisements. The Investor is not entering into this
-----------------
Agreement as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3.10 Sophisticated Investor. The Investor is a sophisticated
----------------------
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.11 Not an Affiliate. The Investor is not an officer, director
----------------
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
ARTICLE IV
Representations and Warranties of the Company
15
<PAGE>
Except as stated on the Disclosure Schedule attached hereto as Schedule
B (the "Disclosure Schedule"), the Company hereby represents and warrants to,
and covenants with, the Investors that the following are true and correct as of
the date hereof and as of the Closing Date:
Section 4.1 Organization; Qualification. The Company is a corporation
---------------------------
duly organized and validly existing under the laws of the State of Delaware and
is in good standing under such laws. The Company has all requisite corporate
power and authority to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction in which the ownership of
its property or the nature of its business requires such qualification, except
where failure to so qualify would not have a material adverse effect on the
Company.
Section 4.2 Capitalization. The authorized capital stock of the Company
--------------
consists of 20,000,000 shares of Common Stock, $0.01 par value per share, of
which 8,843,571 are outstanding, 1,000,000 shares of non-voting Preferred Stock,
$0.01 par value, of which 250,000 have been designated Series A Convertible PIK
Preferred Stock (all of which are outstanding), 550,000 have been designated
Series B Convertible Preferred Stock (460,000 of which are outstanding), 55,000
have been designated Series C Convertible Preferred Stock (all of which are
outstanding) and pursuant to the transactions contemplated by this Agreement,
ten of which will be designated Series D Preferred Stock (3 of which will be
outstanding upon the consummation of the Closing for the Initial Shares) and ten
of which will be designated Series E Preferred Stock. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. On February 11, 1997, the Board of Directors of
the Company rescinded an earlier resolution authorizing an increase of the
number of authorized shares of Common Stock from 20,000,000 to 40,000,000 and
the number of the authorized shares of Preferred Stock from 1,000,000 to
2,000,000, and authorized, subject to the approval of the stockholders of the
Company, the increase of the number of authorized shares of Common Stock from
20,000,000 to 60,000,000 and the number of the authorized shares of Preferred
Stock from 1,000,000 to 3,000,000.
Section 4.3 Authorization. The Company has all requisite corporate
-------------
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the securities
issuable hereunder and the performance of the Company's obligations hereunder
have been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy as they may apply to the indemnification
provisions set forth in of this Agreement. Upon their issuance and delivery
pursuant to this Agreement, the securities will be validly issued, fully paid
and nonassessable and will be free of any liens or encumbrances other than those
created hereunder or by the actions of the Investors; provided, however, that
-------- -------
the
16
<PAGE>
securities are subject to restrictions on transfer under state and/or federal
securities laws. The issuance and sale of the securities hereunder will not give
rise to any preemptive right or right of first refusal or right of participation
on behalf of any person.
Section 4.4 No Conflict. The execution and delivery of this Agreement
-----------
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
Section 4.5 No Undisclosed Liabilities or Events. The Company has no
------------------------------------
liabilities or obligations other than those disclosed in (i) the Form 10 KSB,
Form 10 QSBs, Form 8-Ks, or Proxy Statement filed by the Company for a period of
at twelve (12) months immediately preceding the date hereof (the "SEC Filings"),
(ii) the Confidential Private Placement Memorandum dated September 18, 1997 of
the Company as supplemented to the date hereof (the "Private Placement
Documents," together with the SEC Filings are referred to as the "Reports"),
(iii) this Agreement or (iv) those incurred in the ordinary course of the
Company's business since October 1, 1997, and, in each case, which individually
or in the aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), results of operations
or prospects of the Company. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), results of operations or prospects, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
Section 4.6 No Default. The Company is not in default in the
----------
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or any of the
Exhibits or attachments hereto, including the conversion provision of the Series
D or E Convertible Preferred Stock, will conflict with or result in the breach
or violation of any of the terms or provisions of, or constitute a default or
result in the creation or imposition of any lien or charge on any assets or
properties of the Company under, any material indenture, mortgage, deed of trust
or other material agreement applicable to the Company or instrument to which the
Company is a party or by which it is bound or any statute or the Memorandum or
Articles of the Company, or any decree, judgment, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Company or
its properties, or the Company's listing agreement for its Common Stock, in each
case which default, lien or charge is likely to cause a material adverse effect
on the Company's business and financial condition.
17
<PAGE>
Section 4.7 Absence of Events of Default. Except as set forth in the
----------------------------
Reports, the Disclosure Schedule and this Agreement, no Event of Default, as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (as so defined), has occurred and is continuing,
which would have a material adverse effect on the Company's business,
properties, prospects, financial condition or results of operations.
Section 4.8 Governmental Consent, etc. Except as set forth in the
-------------------------
Disclosure Schedule, no consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the securities hereunder, or the
consummation of any other transaction contemplated hereby.
Section 4.9 Intellectual Property Rights. Except as disclosed in the
----------------------------
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports, except where failure to have any such intellectual property would not
cause a material adverse effect on the business and financial condition of the
Company. To the Company's knowledge, neither the Company nor its products is
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a material adverse effect on the business or
financial condition of the Company.
Section 4.10 Material Contracts. Except as set forth in the Reports and
------------------
the Disclosure Schedule, the agreements to which the Company is a party
described in the Reports are valid agreements, in full force and effect the
Company is not in material breach or material default under any of such
agreements, except where such breach or default would not cause a material
adverse effect on the business and financial condition of the Company.
Section 4.11 Litigation. Except as disclosed in the Reports and the
----------
Disclosure Schedule, there is no action, proceeding or investigation pending, or
to the Company's knowledge threatened, against the Company which might result,
either individually or in the aggregate, in any material adverse change in the
business, prospects, financial conditions or operations of the Company. The
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
Section 4.12 Title to Assets. Except as set forth in Reports, the
---------------
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
18
<PAGE>
Section 4.13 Subsidiaries. Except as disclosed in the Reports, the
------------
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
Section 4.14 Required Governmental Permits. Except as set forth in the
-----------------------------
Reports, the Company is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect.
Section 4.15 Listing. The Company's Common Stock is listed on the
-------
NASDAQ Small Cap Stock Market or other organized United States market or
Quotation system. Except as set forth in the Reports and the Disclosure
Schedule, the Company has not received any notice, oral or written, regarding
continued listing and, as long as the Securities are outstanding, the Company
will take no action which would impact their continued listing or eligibility of
the Company for such listing.
Section 4.16 Other Outstanding Securities/Financing Restrictions. Other
---------------------------------------------------
than warrants and options to acquire shares of Common Stock as disclosed in the
Reports, there are no other outstanding securities, debt or equity presently
convertible into Common Stock. Except as disclosed in the Reports, the Company
has no outstanding restricted shares, or shares of Common Stock sold under
Regulation S, Regulation D or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
Section 4.17 Restrictions on Future Financings. The Company agrees that
---------------------------------
it will not enter into any other equity financing transaction which would (i)
cause the Common Stock of the Company, other than that issued pursuant to this
Agreement to become registered and freely tradeable before at least one hundred
and eighty (180) days following the Subscription Date, or (ii) until the earlier
of (x) 85% of the Series D and E Convertible Preferred Stock has been converted,
or (y) Investor gives written approval for such additional financing, which
approval shall not be unreasonably withheld.
Section 4.18 Use of Proceeds. The Company represents that the net
---------------
proceeds from this offering will be used for working capital purposes and/or
general corporate purposes. However, in no event shall the net proceeds from
this offering be used by the Company for the payment (or loaned to any such
person for the payment) of any judgment, or other liability, incurred by any
executive officer, officer, director, or employee of the Company.
Section 4.19 Further Representations and Warranties of the Company. For
-----------------------------------------------------
so long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
19
<PAGE>
(i) It will use its best efforts to maintain the listing of
its Common Stock on the NASDAQ Small Cap Stock Market or other
organized United States market or quotron systems.
(ii) It will permit the Investor to exercise its right to
convert the Series D or E Convertible Preferred Stock by telecopying an
executed and completed Notice of Conversion to the Company and
delivering the original Notice of Conversion and the certificate
representing the Series D or E Convertible Preferred Stock to the
Company by express courier. Each business date on which a Notice of
Conversion is telecopied to and received by the Company in accordance
with the provisions hereof shall be deemed a conversion date (the
"Conversion Date"). The Company will transmit the certificates
representing shares of Common Stock issuable upon conversion of any
Series D or E Convertible Preferred Stock (together with the
certificates representing the Series D or E Convertible Preferred Stock
not so converted) to the Investor via express courier, by electronic
transfer or otherwise within five business days after the conversion
date if the Company has received the original Notice of Conversion and
Series D or E Convertible Preferred Stock certificate being so
converted by such date. In addition to any other remedies which may be
available to the Investor, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within such
three business day period, the Investor will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to
the Company whereupon the Company and the Investor shall be restored to
their respective positions immediately prior to delivery of such Notice
of Conversion. The Notice of Conversion and Series D or E Convertible
Preferred Stock representing the portion so converted shall be
delivered as follows:
To the Company:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: John A. Blohm
Fax: (215) 636-3560
In the event that the Common Stock issuable upon conversion of the
Series D or E Convertible Preferred Stock is not delivered within five (5)
business days of receipt by the Company of a valid Conversion Notice and the
Series D or E Convertible Preferred Stock to be converted, the Company shall pay
to the Investor, in immediately available funds, upon demand, as liquidated
damages for such failure and not as a penalty, for each $100,000 of Series D or
E Convertible Preferred Stock sought to be converted, $500 for each of the first
ten (10) days and $1,000 per day thereafter that the Conversion Shares are not
delivered, which liquidated damages shall run from the sixth (6th) business day
after the Conversion Date up until the time that either the Notice of Conversion
is revoked or the Common Stock has been delivered, at which time liquidated
damages shall cease. Any and all payments required pursuant to this paragraph
shall be payable only in cash immediately.
20
<PAGE>
Section 4.20 SEC Filings/Full Disclosure. For a period of at least
---------------------------
twelve (12) months immediately preceding this offer and sale, none of the
Company's filings with the Securities and Exchange Commission (as they may have
been amended or supplemented as provided in the Reports) contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading as of the date of such
filing (or in such amendment or supplement, as the case may be). The Company has
timely, subject to permitted extensions, filed all requisite forms, reports and
exhibits thereto with the Securities and Exchange Commission.
Section 4.21 Full Disclosure. There is no fact known to the Company
---------------
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Investor that (i) could reasonably be
expected to have a material adverse effect on the financial condition or in the
earnings, business affairs, business prospects, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
Section 4.22 Opinion of Counsel. Investor shall receive an opinion
------------------
letter from counsel to the Company (updated where applicable) prior to each
Closing for the Initial Shares and Secondary Shares, and prior to the Closing
Date of the first Put by the Company to the effect that:
(i) The Company is incorporated and validly existing in the
jurisdiction of its incorporation. The Company and/or its subsidiaries
are duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions where, to such counsel's knowledge,
the Company and/or its subsidiaries owns or leases properties,
maintains employees or conducts business, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company, and has all requisite corporate power and
authority to own its properties and conducts its business.
(ii) To such counsel's knowledge, there is no action,
proceeding or investigation pending, or threatened against the Company
which might result, either individually or in the aggregate, in any
material adverse change in the business or financial condition of the
Company, except as has been described in the Reports.
(iii) To such counsel's knowledge, the Company is not a party
to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality, except as has been described in the Reports.
(iv) To such counsel's knowledge, there is no action, suit,
proceeding or investigation by the Company currently pending, except as
has been described in the Reports.
21
<PAGE>
(v) The Initial Shares and Secondary Shares which shall be
issued, have been duly authorized and, when the Series D or E
Convertible Preferred Stock Certificate has been duly executed and
delivered in the manner provided in this Agreement and paid for in
accordance with this Agreement, will be validly issued under the laws
of the Company's state of incorporation.
(vi) This Agreement, the issuance of the securities hereunder,
and upon conversion and exercise of the Series D or E Convertible
Preferred Stock, have been duly approved by all required corporate
action and that all such securities, upon execution and delivery of the
certificate evidencing such security in the manner provided in the
Private Equity Line Of Credit Agreement or the certificate evidencing
the Warrant (the "Warrant Certificate") and payment therefor in the
accordance with the Private Equity Line Of Credit Agreement or the
Warrant Certificate, shall be validly issued and outstanding, fully
paid and nonassessable.
(vii) The issuance of the Initial Shares, Secondary Shares,
and Put Shares will not violate the applicable listing agreement
between the Company and any securities exchange or market on which the
Company's securities are listed.
(viii) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, $0.01 par value per share, of which
8,843,571 are outstanding, 1,000,000 shares of non-voting Preferred
Stock, $0.01 par value, of which 250,000 have been designated Series A
Convertible PIK Preferred Stock (all of which are outstanding), 550,000
have been designated Series B Convertible Preferred Stock (460,000 of
which are outstanding), 55,000 have been designated Series C
Convertible Preferred Stock (all of which are outstanding) and pursuant
to the transactions contemplated by this Agreement, ten of which will
be designated Series D Preferred Stock (3 of which will be outstanding
upon the consummation of the Closing for the Initial Shares) and ten of
which will be designated Series E Preferred Stock. All issued and
outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. On February 11,
1997, the Board of Directors of the Company rescinded an earlier
resolution authorizing an increase of the number of authorized shares
of Common Stock from 20,000,000 to 40,000,000 and the number of the
authorized shares of Preferred Stock from 1,000,000 to 2,000,000, and
authorized, subject to the approval of the stockholders of the Company,
the increase of the number of authorized shares of Common Stock from
20,000,000 to 60,000,000 and the number of the authorized shares of
Preferred Stock from 1,000,000 to 3,000,000.
(ix) The Common Stock is registered pursuant to Section 12(b)
or Section 12(g) of the Securities Exchange Act of 1934, as amended,
and, to such counsel's knowledge, the Company has timely, subject to
permitted extensions, filed all the reports (without confirming as to
the completeness or accuracy of such reports) required to be filed
pursuant to Sections 13(a) or 15(d) of such Act for a period of at
least twelve months preceding the date hereof.
22
<PAGE>
(x) The Company has the requisite corporate power and
authority to enter into the Agreement, Registration Rights Agreement,
the Escrow Agreement and the Warrant Certificate and to sell and
deliver the Initial Shares, Secondary Shares, and Put Shares and the
Common Stock to be issued upon the conversion or exercise, as the case
may be, as described in the Agreement, the applicable Certificate of
Designation, or the Warrant Certificate; each of the Agreement,
Registration Rights Agreement, the Escrow Agreement and the Warrant
Certificate has been duly and validly authorized by all necessary
corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery
of each of the Agreement, Registration Rights Agreement, the Escrow
Agreement or the Warrant Certificate by the Company or the consummation
of the transactions contemplated thereby; each of the Agreement,
Registration Rights Agreement, the Escrow Agreement and the Warrant
Certificate has been duly and validly executed and delivered by and on
behalf of the Company, and is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as (i)
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other laws affecting creditors rights generally, (ii) to
compliance with federal, state and foreign securities laws and (iii) to
provisions providing for indemnification or contribution, in each case,
as to which no opinion is expressed.
(xi) To such counsel's knowledge, the execution, delivery and
performance of the Agreement, the Registration Rights Agreement, the
Escrow Agreement and the Warrant Certificate by the Company and the
performance of its obligations thereunder do not and will not
constitute a breach or violation of any of the terms and provisions of,
or constitute a default under or conflict with or violate any provision
of (i) the Company's Certificate of Incorporation or By-Laws, (ii) any
indenture, mortgage, deed of trust, agreement or other instrument to
which the Company is a party or by which it or any of its property is
bound, (iii) any applicable statute or regulation, (iv) or any
judgment, decree or other order of any court or governmental body
having jurisdiction over the Company or any of its property.
It is expressly understood and confirmed with the Investors that
counsel has relied on the certificates of officers of the Company with respect
to the disclosure regarding the Company. The Investor shall only be entitled to
receive this opinion of counsel on one occasion during each ninety (90) day
period following the Closing Date of the first Put. For example, the Investor
shall not be entitled to receive an opinion of Company counsel in the event the
Closing Date for a subsequent Put is within ninety (90) days after the Closing
Date for the preceding Put. However, the Investor is entitled to an opinion of
Company counsel in the event the Closing Date for the second Put is more than
ninety (90) days after the first Put.
Section 4.23 Opinion of Counsel. The Company will obtain for the
------------------
Investor, at the Company's expense, any and all opinions of counsel which may be
required in order to convert, exercise or sell the securities issuable
hereunder, including, but not limited to, obtaining for the
23
<PAGE>
Investors, at the Company's expense an opinion of counsel, subject only to
receipt of a Notice of Conversion in the Form of Exhibit H, duly executed by the
Investor which shall be satisfactory to the Transfer Agent, directing the
Transfer Agent to remove the self-liquidating legend. Such draft of opinion of
counsel shall be received by the Investor on or before the Subscription Date.
Section 4.24 Mandatory Conversion. In the event the Series D or E
--------------------
Convertible Preferred Stock has not been converted two (2) years from the
applicable date of issuance, the Series D or E Convertible Preferred Stock shall
automatically be converted as if the Investor voluntarily elected such
conversion in accordance with the procedure, terms and conditions set forth in
this Agreement.
Section 4.25 Dilution. The Company is aware and acknowledges that
--------
conversion of the Series D or E Convertible Preferred Stock, issuance of Common
Stock hereunder, and the exercise of the Warrants could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.
ARTICLE V
Representations and Warranties of the Company and Investor
Each of the Investor and the Company represent to the other the
following with respect to itself:
Section 5.1 Private Equity Line Of Credit Agreement. This Agreement has
---------------------------------------
been duly authorized, validly executed and delivered on behalf of the Company
and each of the Investors and is a valid and binding agreement in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally.
Section 5.2 Non-contravention. The execution and delivery of this
-----------------
Agreement along with all Exhibits and Attachments, and the consummation of the
issuance of the securities and the transactions contemplated by this Agreement
do not and will not conflict with or result in a breach by the Company or
Investor of any of the terms or provisions of, or constitute a default under,
the articles of incorporation or by-laws of the Company or Investor, or any
indenture, mortgage, deed of trust of other material agreement or instrument to
which the Company or Investor is a party or by which it or any of its properties
or assets are bound, or any existing applicable law, rule or regulation or any
applicable decree, judgment or order of any court, Federal or State regulatory
body, administrative agency or other governmental body having jurisdiction over
the Company or Investor or any of its properties or assets.
Section 5.3 Approvals. Neither the Company nor Investor is aware of any
---------
authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the securities.
Section 5.4 Indemnification. Each of the Company and the Investors
---------------
agree to indemnify the other and to hold the other harmless from and against any
and all losses, damages,
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liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this Agreement.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
-------------------
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
---------------------------
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to issue
the Initial Shares, Secondary Shares, and the Warrant Shares, such amount of
shares of Common Stock to be reserved shall be calculated based upon the minimum
Purchase Price therefor under the terms of this Agreement and the Warrant
respectively. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder and the number of shares so reserved shall
be increased or decreased to reflect potential increases or decreases in the
Common Stock that the Company may thereafter be so obligated to issue by reason
of adjustments to the Warrant. The Company represents that it presently does not
have a sufficient number of authorized shares of Common Stock for the purpose of
enabling the Company to satisfy the obligation to issue the Put Shares but
represents that it has filed a preliminary proxy statement with the SEC seeking
shareholder approval seeking to increase the number of authorized shares of
Common Stock to 60,000,000. The Company agrees that it will file a final proxy
statement with the SEC within fifteen (15) days after the Subscription Date, and
present same to its shareholders within thirty (30) days after the execution of
this Agreement.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
-----------------------
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Initial Shares, Secondary Shares, Put Shares and the Warrant
Shares. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Put Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the investor to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will take all action to continue the listing and trading of its Common Stock on
the Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
Section 6.4 Exchange Act Registration. The Company will cause its
-------------------------
Common Stock to continue to be registered under Section 12(b) of the Exchange
Act, will use its best efforts to
25
<PAGE>
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
-------
sold by the Investor pursuant to Section 9.1 shall be free of legends, except as
set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps
-------------------
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
------------------------
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Notice of Certain Events Affecting Registration; Suspension
-----------------------------------------------------------
of Right to Make a Put. The Company will immediately notify the Investor upon
- ----------------------
the occurrence of any of the following events in respect of a registration
statement or related prospectus relating to an offering of Registrable
Securities, (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
registration statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events.
Section 6.9 Expectations Regarding Put Notices. Within ten (10) days
----------------------------------
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable
26
<PAGE>
expectations as to the dollar amount it intends to raise during such calendar
quarter, if any, through the issuance of Put Notices. Such notification shall
constitute only the Company's good faith estimate and shall in no way obligate
the Company to raise such amount, or any amount, or otherwise limit its ability
to deliver Put Notices. The failure by the Company to comply with this provision
can be cured by the Company's notifying the Investor, in writing, at any time as
to its reasonable expectations with respect to the current calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
---------------------
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.11 Issuance of Put Shares and Warrant Shares. The sale of the
-----------------------------------------
Put Shares and the issuance of the Warrant Shares pursuant to exercise of the
Warrant shall be made in accordance with the provisions and requirements of
Section 4(2) of the Securities Act, or Regulation D and any applicable state
securities law. Issuance of the Warrant Shares pursuant to exercise of the
Warrant shall be made in accordance with the provisions and requirements under
the Securities Act and any applicable state securities law.
Section 6.12 Legal Opinion on Subscription Date. The Company's
----------------------------------
independent counsel shall deliver to the Investor upon execution of this
Agreement an opinion in the form of Exhibit I annexed hereto.
Section 6.13 Exercise of Series D or Series E Convertible Preferred
------------------------------------------------------
Stock. The Company agrees that it will permit the Investors to exercise their
- -----
right to convert the Series D or Series E Convertible Preferred Stock by
telecopying an executed and completed Notice of Conversion to the Company and
delivering the original Notice of Conversion and the certificate representing
the Series D or E Convertible Preferred Stock to the Company by express courier.
Each business date on which a Notice of Conversion is telecopied to and received
by the Company in accordance with the provisions hereof shall be deemed a
conversion date (the "Conversion Date"). The Company will transmit the
certificates representing shares of Common Stock issuable upon conversion of any
Series D or E Convertible Preferred Stock (together with the certificates
representing the Convertible Preferred Stock not so converted) to the Investor
via express courier, by electronic transfer or otherwise within three business
days after the conversion date if the Company has received the original Notice
of Conversion and Series D or E Convertible Preferred Stock certificate being so
converted by such date. In addition to any other remedies which may be available
to the Investors, in the event that the Company fails for any reason to effect
delivery of such shares of Common Stock within such three business day period,
the Investors will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and the
Investors shall each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion.
27
<PAGE>
The Notice of Conversion and Series D or E Convertible Preferred Stock
representing the portion of the shares converted shall be delivered as follows:
To the Company:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: John A. Blohm
Fax: (215) 636-3560
In the event that the Common Stock issuable upon conversion of the
Series D or E Convertible Preferred Stock is not delivered within five (5)
business days of receipt by the Company of a valid Conversion Notice and the
Series D or E Convertible Preferred Stock to be converted, the Company shall pay
to the Investors, in immediately available funds, upon demand, as liquidated
damages for such failure and not as a penalty, for each $100,000 of Series D or
E Convertible Preferred Stock sought to be converted, $500 for each of the first
ten (10) days and $1,000 per day thereafter that the Conversion Shares are not
delivered, which liquidated damages shall run from the sixth (6th) business day
after the Conversion Date up until the time that either the Notice of Conversion
is revoked or the Common Stock has been delivered, at which time liquidated
damages shall cease. Any and all payments required pursuant to this paragraph
shall be payable only in cash immediately.
Section 6.14 Reserve. The Company agrees to reserve One Million
-------
($1,000,000) Dollars of the Initial Shares Investment Amount in the form of cash
or short term government securities until the earlier of (a) the Company
receives shareholder approval for the issuance of more than twenty (20%) percent
of the outstanding Common Stock in connection with the transactions contemplated
hereby, or (b) the Company is able to increase the currently issued and
outstanding Common Stock by a minimum of 4,000,000 shares via the conversion
into Common Stock of any currently outstanding Convertible Preferred Stock
(except those issuable hereunder). In the event the conditions set forth in
Section 6.14(a) or (b) are not fulfilled by the Company within ninety (90) days
after the Subscription Date, and not waived by the Investor in writing, the
Company shall immediately thereafter wire transfer the One Million Dollars, plus
a premium of ten (10%) and any and all interest due and owing, to the Investor.
In the event the Company fails to wire transfer this amount to the Investor by
the end of business on the ninety fifth day following the Subscription Date, the
Company shall pay to the Investor, in immediately available funds, upon demand,
as liquidated damages for such failure, and not as a penalty, $5,000 for each of
the first ten days late, and $10,000 for every day late thereafter, which
liquidated damages shall run from the ninety sixth day following the
Subscription Date.
ARTICLE VII
Conditions to Delivery of Puts and Conditions to Closing
28
<PAGE>
Section 7.1 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
- ---------------------------
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, or waiver by the Company, at or before each such Closing, of
each of the conditions set forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
-----------------------------------------------------------
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
- ----------------------------------------------------------------------
right of the Company to deliver a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction or waiver by the Investor, on (i) the date of delivery of
such Put Notice and (ii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. The Company shall
have filed with the SEC a Registration Statement with respect to the resale of
the Registrable Securities in accordance with the terms of the Registration
Rights Agreement. As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date and (i) neither the Company nor
the Investor shall have received notice that the SEC has issued or intends to
issue a stop order with respect to the Registration Statement or that the SEC
otherwise has suspended or withdrawn the effectiveness of the Registration
Statement, either temporarily or permanently, or intends or has threatened to do
so (unless the SEC's concerns have been addressed and the Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such action),
and (ii) no other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first Put
Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Put Shares,
or shall have the availability of exemptions therefrom. The sale and issuance of
the Put Shares shall be legally permitted by all laws and regulations to which
the Company is subject.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all
29
<PAGE>
events and circumstances occurring or existing to and including each Condition
Satisfaction Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights Agreement and
the Warrant to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice threatening the
listing of the Common Stock on the Principal Market.
(h) 4.99% Percent Limitation. On each Closing Date, the number of Put
Shares then to be purchased by the Investor will not exceed the number of such
shares which, when aggregated with all other shares of Common Stock then owned
by the Investor beneficially or deemed beneficially owned by the Investor, would
result in the Investor owning more than 4.99% of all of such Common Stock as
would be outstanding on such Closing Date, as determined in accordance with Rule
13d-3 of the Exchange Act and the regulations promulgated thereunder. For
purposes of this Section 7.2(j), in the event that the amount of Common Stock
outstanding as determined in accordance with Rule 13d-3 of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing Date than on the
date upon which the Put Notice associated with such Closing Date is given, the
amount of Common Stock outstanding on such Closing Date shall govern for
purposes of determining whether the Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and, if any, Warrant Shares, would
own more than 4.99% of the Common Stock following such Closing. Then, in such
event, the Company would reduce that number of Put Shares so issuable so that it
30
<PAGE>
would not exceed the aforementioned 4.99% limitation. Investor shall notify the
Company as soon as possible, but in any event within three (3) business days of
receiving a Put Notice, if Investor believes Investor's purchase of the Put
Shares specified in the Put Notice would result in Investor exceeding the 4.99%
limitation described above.
(i) Minimum Bid Price. The Bid Price equals or exceeds the Floor Price
during the applicable Valuation Period (as adjusted for stock splits, stock
dividends, reverse stock splits, and similar events).
(j) Minimum Average Trading Volume. The average trading volume for the
Common Stock over the previous thirty (30) Trading Days exceeds 25,000 shares
per Trading Day.
(k) No Knowledge. The Company has no knowledge of any event more likely
than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is more likely than not to occur
within the fifteen Trading Days following the Trading Day on which such Notice
is deemed delivered).
(l) Trading Cushion. The Trading Cushion shall have elapsed since the
next preceding Put Date.
(m) Escrow Agreement. The parties hereto shall have entered into a
mutually acceptable escrow agreement for the Purchase Prices due hereunder.
(n) Other. On each Condition Satisfaction Date, the Investor shall have
received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2, including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 8.1 Due Diligence Review. The Company shall make available for
--------------------
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably
31
<PAGE>
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information
----------------------------------------
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor (including, without
limitation, in connection with the giving of the Adjustment Period Notice
pursuant to Section 2.4) unless prior to disclosure of such information the
Company identifies such information as being non-public information and provides
the Investor, such advisors and representatives with the opportunity to accept
or refuse to accept such non-public information for review. The Company may, as
a condition to disclosing any non-public information hereunder, require the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and the Company
represents that it does not disseminate non-public information to any investors
who purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in-light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE IX
Legends
32
<PAGE>
Section 9.1 Legends. Unless otherwise provided below, each certificate
-------
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit J hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) at any time after the Effective Date, upon surrender of one or more
certificates evidencing Common Stock that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered, provided that (i) the Registration
Statement shall then be effective, (ii) the Investor confirms to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor
confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirement. The requirements set forth in subsection
9.1(a)(ii) and 9.1(a)(iii) shall only apply in the event the Company registers
the Common Stock pursuant to a Form S-3 registration statement pursuant to the
Registration Rights Agreement. In the event the Company registers the Common
Stock by means of a registration statement other than a Form S-3 registration
statement, than only the condition in subsection 9.1 (a)(i) herein shall apply.
33
<PAGE>
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such Registrable Securities in a
manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities.
Any of the notices referred to above in this Section 9.1 may be sent by
facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
----------------------------------------------
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
---------------------
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
ARTICLE X
Choice of Law/Jurisdiction
Section 10.1 Choice of Law; Venue; Jurisdiction. This Agreement will be
----------------------------------
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the U. S. District Court sitting in the Southern District of the State of New
York or the state courts of the State of New York sitting in Manhattan in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
ARTICLE XI
Assignment; Termination
34
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Section 11.1 Assignment. Neither this Agreement nor any rights of the
----------
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) upon the prior written consent of
the Company, which consent shall not unreasonably be withheld, the Investor's
interest in this Agreement may be assigned at any time, in whole or in part, to
any other person or entity (including any affiliate of the Investor) who agrees
to make the representations and warranties contained in Article III and who
agrees to be bound by the covenants of Article V.
Section 11.2 Termination. This Agreement shall terminate five and
-----------
one-half (5-1/2) years after the Subscription Date; provided, however, that the
provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI, and XII shall
survive the termination of this Agreement.
ARTICLE XII
Notices
Section 12.1 Notices. All notices, demands, requests, consents,
-------
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to The Ashton Technology Group, Inc.:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: John A. Blohm
Fax: (215) 636-3560
Tele:
If to the Investor, at the address listed on Schedule A.
35
<PAGE>
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
ARTICLE XIII
Miscellaneous
Section 13.1 Counterparts/Facsimile/Amendments. This Agreement may be
---------------------------------
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 Entire Agreement. This Agreement, the Exhibits or
----------------
Attachments hereto, which include, but are not limited to the Warrant, the
Escrow Agreement, and the Registration Rights Agreement set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Attachments
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
Section 13.3 Survival; Severability. The representations, warranties,
----------------------
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision, provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting
-------------------------------------
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form
36
<PAGE>
and amount to the Company or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the parties shall pay its own
-----------------
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company shall pay on the
Subscription Date (i) the sum of Thirty Thousand ($30,000) Dollars out of the
proceeds received by the Company on the Subscription Date to Goldstein,
Goldstein & Reis, LLP for legal, administrative, and escrow fees, and (ii) to
the Placement Agent (A) One Hundred Fifty Thousand ($150,000) Dollars, (B) .15
of a share of Series D Preferred Stock, (C) a Warrant to purchase one hundred
ninety thousand (190,000) shares of Common Stock upon the same terms as the
Warrants issued pursuant to this Subscription Agreement and (D) 20,000 shares of
Common Stock to be included in the Registration Statement, for Placement Agent
fees, provided that the Company provides the Placement Agent with a copy of its
instructions (along with proof that same was sent to the transfer agent within
twenty four hours after the Subscription Date) to its transfer agent authorizing
the issuance of the Common Stock certificates, in which case the such
certificates of Common Stock shall be delivered to the Placement Agent as
promptly following the Subscription Date as possible, but in no event later than
five (5) business days following the Subscription Date. On the Closing Date for
the Secondary Shares the Company shall pay to the Placement Agent (i) five (5%)
percent of the proceeds, (ii) .1 of a share of Series E Preferred Stock, and
(iii) a Warrant to purchase sixty thousand (60,000) shares of Common Stock upon
the same terms as the Warrants issued pursuant to this Agreement. On each
Closing Date for a Put, the Company shall pay (i) one-half of one (.5%) percent
of the proceeds to Goldstein, Goldstein & Reis, LLP for legal, administrative,
and escrow agent fees, and (ii) five (5%) percent of the proceeds to the
Placement Agent.
Section 13.8 Brokerage. Each of the parties hereto represents that it
---------
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9 Confidentiality. If for any reason the transactions
---------------
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly
37
<PAGE>
return to the other parties all schedules, documents, instruments, work papers
or other written information, without retaining copies thereof, previously
furnished by it as a result of this Agreement or in connection herewith.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
Agreed to and Accepted on
this 2nd day of April, 1998
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ John A. Blohm
------------------------------
John A. Blohm
Executive Vice President
SETTONDOWN CAPITAL INTERNATIONAL LTD.
By: /s/ Dawn Davies
--------------------------------
Dawn Davies
DOMINION CAPITAL FUND, LTD.
By: /s/ Mark Valentine
--------------------------------
Mark Valentine, Agent
CANADIAN ADVANTAGE LIMITED PARTNERSHIP
By: /s/ Mark Valentine
--------------------------------
Mark Valentine, General Partner
EXCALIBUR LIMITED PARTNER
By: /s/ Mark Valentine
--------------------------------
Mark Valentine, Agent
39
<PAGE>
SOVEREIGN PARTNERS LIMITED PARTNERSHIP
By: /s/ Mark Valentine
--------------------------------
Mark Valentine, Agent
40
<PAGE>
EX10.22
==================
CONTINENTAL
CAPITAL
& EQUITY
CORPORATION
==================
195 Wekiva Springs Road
Suite 200
Longwood, Florida 32779
PHONE
(407) 682-2001
FAX
(407) 682-2544
CLIENT SERVICE AGREEMENT
THIS AGREEMENT is made and entered into this 20th day of February, 1998 between
CONTINENTAL CAPITAL & EQUITY CORPORATION, located at 195 Wekiva Springs Road,
Suite 200, Longwood, FL 32779, hereinafter sometimes referred to as (CCEC) and
ASHTON TECHNOLOGY GROUP, INC., located at 1900 Market Street, Suite 701,
Philadelphia, PA 19103, hereinafter sometimes referred to as (the "Company").
WITNESSETH:
WHEREAS, CCEC is a public relations and direct marketing advertising firm
specializing in the dissemination of information about publicly traded
companies, and
WHEREAS, the Company is publicly held with its common stock trading on one or
more stock exchanges and/or over the counter or on NASDAQ, and
WHEREAS, the Company desires to publicize itself with the intention of making
its name and business better known to its shareholders, investors, and brokerage
houses, and
WHEREAS, CCEC is willing to accept the Company as a client.
NOW THEREFORE, in consideration of the mutual covenants herein contained, it is
agreed:
1. ENGAGEMENT: The Company hereby engages CCEC to publicize the Company to
brokers, prospective investors and shareholders described in Section 2 of this
agreement, and subject to the further provisions of this Agreement. CCEC hereby
accepts the Company as a client and agrees to publicize it as described in
Section 2 of this agreement, but subject to the further provisions of this
Agreement.
2. MARKETING PROGRAM: Consists of the following components:
(A) CCEC will review and analyze all aspects of the Company's goals and
make recommendations on feasibility and achievement of desired goals.
(B) CCEC will review all the general information and recent filings from
the Company and produce and mail a 100,000 piece direct mail package to
include an 11" X 17" self mailer and an ample number of corporate
profiles so as to allow for one profile for each respondent to the
original mailing. Profiles will be prepared in brokerage style format,
both items to be approved by the Company prior to circulation.
(C) CCEC will provide through their Broker Relations Department, firms
and brokers interested in participating and schedule and conduct the
necessary due diligence and obtain the required approvals for those
firms to participate. CCEC will also interview and make determinations on
any firms or brokers referred by the Company with regard to their
participation.
(D) CCEC will create a due diligence package for dissemination to the
investment community, including those brokerage firms, analysts and
PAGE ONE OF SIX
<PAGE>
fund managers within CCEC's network. All information disseminated by CCEC
on behalf of the Company will be approved in writing by the Company prior
to its dissemination.
(E) CCEC will use its fax broadcast network, composed of brokers, analysts,
fund managers and accredited investors, to deliver news and pertinent
information about the Company.
(F) CCEC will provide Internet exposure for the Company on CCEC's website,
www.insidewallstreet.com, and handle all associated e-mail requests and
responses.
(G) CCEC will handle investor call-ins which are referred by the Company or
directed to CCEC by the financial media.
(H) CCEC will coordinate tele-conference(s) with the brokerage community.
(I) CCEC will arrange due diligence meetings with various broker-dealers
and, if requested, attend said meeting at the Company's expense.
(J) CCEC will use its best efforts to distribute information to the
financial media.
(K) CCEC will assist in the release and distribution of all Company press
releases.
(L) CCEC will facilitate the Company's invitation to attend various
financial conferences at the Company's expense.
(M) CCEC will publicize the Company in CCEC's quarterly newsletter, which
features multiple client companies.
3. TIME OF PERFORMANCE: Services to be performed under this Agreement shall
commence upon execution of this Agreement and shall continue for not less than
12 months. This Agreement may be renewed by mutual consent of CCEC and the
Company upon written notice by CCEC to the Company and accepted by the Company
thirty (30) days prior to the end of the initial 12 month period. The Company
may terminate this Agreement at anytime following the initial 12 month period
upon thirty (30) days written notice.
4. FEES AND EXPENSES: In consideration of the services to be performed by CCEC,
the Company agrees to pay compensation to CCEC as follows:
(A) Fifty Thousand US Dollars ($50,000.00), payable in cash, and due upon
execution of this Agreement.
(B) In further consideration for its services hereunder, the Company will
pay Fifteen Thousand US Dollars ($15,000.00) in cash, due monthly for
twelve (12) months or until such time that the Company becomes listed on
the AMEX. Upon becoming listed on the AMEX, the monthly amount payable to
CCEC by the Company will be reduced to Ten Thousand US Dollars ($10,000.00)
per month. The first payment of $15,000 by the Company to CCEC is due March
1, 1998.
PAGE TWO OF SIX
<PAGE>
(C) Upon becoming listed on the AMEX, the Company agrees to pay CCEC One
Hundred Thousand US Dollars ($100,000.00).
(D) In further consideration for its services hereunder, the Company will
issue to CCEC 300,000 shares of the Common Stock (the "CCEC Shares"). It is
understood that the CCEC Shares will initially be unregistered, however,
the Company will endeavor to register the CCEC Shares at such time as other
shares are registered on any appropriate Registration Statement.
Notwithstanding the foregoing, CCEC agrees to keep the CCEC Shares "locked
up" as follows:
(1) 200,000 Shares until October 17, 1998, and
(2) 100,000 Shares until February 18, 1999.
(E) An option to purchase 200,000 shares of the Company's Common Stock at
an exercise price of $1.87 per share. This stock purchase option shall vest
with CCEC at such time that the Company becomes listed on the AMEX. CCEC's
right to purchase shares of the Company's Common Stock pursuant to this
option will expire one (1) year after this option vests with CCEC. CCEC may
exercise its right to purchase shares of the Company's common stock
pursuant to this option in whole or in part, in minimum increments of
20,000 shares, at any time after this option vests with CCEC. It is
understood that the shares of Common Stock underlying this option will
initially be unregistered. However, the Company agrees to register these
shares at such time as other shares are registered on any appropriate
Registration Statement.
(F) The Company agrees to reimburse CCEC for any and all expenses actually
incurred. Such expenses include but are not necessarily limited to travel,
hotel, conference fees, press release fees, website development, graphics,
copying charges, tele-conference call charges, overnight delivery costs,
and other such expenses incurred in the execution of this Agreement. The
Company has the right to pre-approve all CCEC expenses which exceed two
hundred dollars ($200.00) in advance. CCEC shall use its best efforts to
give advance notice to the Company of anticipated charges and receive
approval of the same.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY: The Company represents and
warrants to CCEC, each such representation and warranty being deemed to be
material that:
(A) The Company will cooperate fully and timely with CCEC to enable CCEC to
perform its obligations under this Agreement.
(B) The execution and performance of this Agreement by the Company has been
duly authorized by the Board of Directors of the Company in accordance with
applicable law, and, to the extent required, by the requisite number of
shareholders of the Company;
(C) The performance by the Company of this Agreement will not violate any
applicable court decree, law or regulation, nor will it violate any
provisions of the organizational documents of the Company or any
contractual obligation by which the Company may be bound.
(D) The Company will promptly deliver to CCEC a complete due diligence
package to include latest 10K, latest 10Q, last 6 months of press releases
and all other relevant materials, including but not limited to corporate
reports, brochures, etc.
(E) The Company will promptly deliver to CCEC a list of names and addresses
of all shareholders of the Company which it is aware.
(F) The Company will promptly deliver to CCEC a list of brokers and mar-
PAGE THREE OF SIX
<PAGE>
ket makers of the Company's securities which have been following the
Company.
(G) Because CCEC will rely on such information to be supplied it by the
Company, all such information shall be true, accurate, complete and not
misleading, in all respects.
(H) The Company will act diligently and promptly in reviewing materials
submitted to it by CCEC to enhance timely distribution of the materials
and will inform CCEC of any inaccuracies contained therein prior to the
projected publication date.
6. DISCLAIMER BY CCEC: CCEC WILL BE THE PREPARER OF CERTAIN PROMOTIONAL
MATERIALS. CCEC MAKES NO REPRESENTATION THAT (A) ITS SERVICE WILL RESULT IN ANY
ENHANCEMENT TO THE COMPANY (B) THE PRICE OF THE COMPANY'S PUBLICLY TRADED
SECURITIES WILL INCREASE, (C) ANY PERSON WILL PURCHASE SECURITIES IN THE
COMPANY, OR (D) ANY INVESTOR WILL LEND MONEY TO OR INVEST IN OR WITH THE
COMPANY.
7. EARLY TERMINATION: If the Company fails to cooperate with CCEC, or fails to
make timely payment of the compensation set forth in section 4 of this agreement
CCEC shall have the right to terminate any further performance under this
Agreement. In such event all compensation shall become immediately due and
payable and/or deliverable, and CCEC shall be entitled to receive and retain the
same as liquidated damages, and not as a penalty, in lieu of all other remedies,
the parties acknowledging and agreeing that it would be too difficult currently
to determine the exact extent of CCEC's damage, but that the receipt and
retention of such compensation is reasonable present estimate of such damage.
8. LIMITATION OF CCEC LIABILITY: If CCEC fails to perform its services
hereunder, its entire liability to the Company shall not exceed the lessor of
(a) the amount of cash compensation CCEC has received from the Company under
Section 4 of this agreement or (b) the actual damage to the Company as a result
of such non-performance. IN NO EVENT WILL CCEC BE LIABLE FOR ANY INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE COMPANY BY ANY
PERSON OR ENTITY ARISING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT, UNLESS
SUCH DAMAGES RESULT FROM THE USE, BY CCEC, OF INFORMATION NOT AUTHORIZED BY THE
COMPANY.
9. OWNERSHIP OF MATERIALS: All right, title and interst in and to materials to
be produced by CCEC in connection with the contract and other services to be
rendered under this Agreement shall be and remain the sole and exclusive
property of CCEC, except that if the Company performs fully and timely its
obligations hereunder, it shall be entitled to receive upon written request, one
hundred (100) copies of all such materials.
10. CONFIDENTIALITY: Until such time as the same may become publicly known, CCEC
agrees that any confidential nature will not be revealed or disclosed to any
person or entity, except in the performance of this Agreement, and upon
completion of its services and upon written request of the Company all
materials, original documentation provided by the Company will be returned to
it. CCEC will, however, require Confidentiality Agreements from its own
employees and from contractors CCEC reasonably believes will come in contact
with confidential material.
PAGE FOUR OF SIX
<PAGE>
11.NOTICES: All notices hereunder shall be in writing and
addressed to the party at the address herein set forth, or at
such other address as to which notice pursuant to this section
may be given, and shall be given by personal delivery, by
certified mail, express mail or by national overnight courier
services. Notices will be deemed given upon the earlier of
actual receipt or three (3) business days after being mailed or
delivered to such courier service.
Notice shall be addressed to CCEC at:
Suite 200
195 Wekiva Springs Road
Longwood, FL 32779
and to the Company at:
Suite 701
1900 Market Street
Philadelphia, PA 19103
Any notices to be given hereunder will be effective if executed
by and sent by the attorneys for the parties giving such notice,
and in connection therewith the parties and their respective
counsel agree that in giving such notice such counsel may
communicate directly in writing with such parties to the extent
necessary to give such notice.
12.SEPARABILITY: If one or more of the provisions of this
Agreement shall be held invalid, illegal, or unenforceable, and
provided that such provision is not essential to the transaction
provided for by this Agreement, shall not affect any other
provision hereof, and the Agreement shall be construed as if
such provision had never been contained herein.
13.ARBITRATION: Any controversy or claim arising out of or
relating to the Agent Agreement, or the breach thereof, shall be
settled by arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association, and
judgement upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
14.MISCELLANEOUS:
(A) EXISTING AGREEMENT: Execution of this Client Service
Agreement, between CCEC and the Company, supersedes the
existing Market Access Program Agreement made and
entered into the 23rd day of October, 1997 between CCEC
and the Company.
(C) GOVERNING LAW: This Agreement shall be governed by
and interpreted under the laws of the State of Florida
where CCEC has been organized and this Agreement has
been accepted by CCEC.
(D) CURRENCY: In all instances, references to dollars
shall be deemed to be United States Dollars.
(E) MULTIPLE COUNTERPARTS: This Agreement may be
executed in multiple counterparts, each of which shall
be deemed an original.
PAGE FIVE OF SIX
<PAGE>
Executed as a sealed instrument as of the last day and year shown hereunder.
CONFIRMED AND AGREED ON THE 24TH DAY OF FEBRUARY, 1998 CONTINENTAL CAPITAL &
EQUITY CORPORATION
By:/s/ Jimmy Holton /s/ John R. Manion
-------------------------- -------------------------
CCEC Representative CCEC Officer
/s/ Pam O'Brien /s/ Wendy Vogt
-------------------------- -------------------------
Witness Witness
CONFIRMED AND AGREED ON THE 23RD DAY OF FEBRUARY, 1998
ASTON TECHNOLOGY GROUP, INC.
By:/s/ Fredric W. Rittereiser /s/ K. Ivan F. Gothner
-------------------------- -------------------------
Duly Authorized Witness
PAGE SIX OF SIX
<PAGE>
EX10.23
================================================================================
CONTINENTAL
CAPITAL
& EQUITY
CORPORATION
================================================================================
195 Wekiva Springs Road
Suite 200
Longwood, Florida 32779
PHONE
(407) 682-2001
FAX
(407) 682-2544
August 13, 1998
Mr. Fredric Rittereiser
ASHTON TECHNOLOGY GROUP, INC.
1900 Market Street
Suite 701
Philadelphia, Pennsylvania
RE: LETTER OF UNDERSTANDING-AMENDMENT OF CLIENT SERVICE AGREEMENT
Dear Fred:
This letter shall serve to amend the Client Service Agreement (CSA), dated
February 20, 1998, between Continental Capital & Equity Corporation (CCEC) and
Ashton Technology Group, Inc. (the "Company"). Specifically, CCEC agrees to
amend fees and expenses due CCEC from the Company, as originally defined in
Section 4 of the CSA, as follows:
In consideration of services performed under the CSA and new consideration
provided to CCE by the Company in accordance with the Letter Agreement between
CCEC and the Company, dated August 13, 1998, CCEC agrees to waive payment of the
monthly retainer fee of $15,000 for the months of September, 1998; October,
1998; November, 1998 and December 1998. Further, the monthly retainer fee due
under the CSA for the months of January, 1999; February 1999 and March 1999
shall be reduced from $15,000 to $5,000.
In addition, CCEC agrees to waive the payment of $100,00 cash bonus due CCEC by
the Company upon the Company achieving a listing of the AMEX.
All other compensation considerations due CCEC by the Company as defined in the
CSA remain unchanged.
If this is also your understanding, please so indicate by signing the space
provided below.
Best Regards,
CONTINENTAL CAPITAL & EQUITY CORPORATION
/s/ Dodi B. Zirkle
Dodi B. Zirkle
Vice President
Agreed and accepted on this 13th day of August, 1998.
/s/ Fredric Rittereiser
- ------------------------
Fredric Rittereiser, Chairman and CEO
Ashton Technology Group, Inc.
<PAGE>
======================
CONTINENTAL
CAPITAL
& EQUITY
CORPORATION
======================
195 Wekiva Springs Road
Suite 200
Longwood, Florida 32779
PHONE
(407) 682-2001
FAX
(407) 682-2544
13 August 1998
Mr. Fredric W. Rittereiser
President & Chief Executive Officer
The Ashton Technology Group, Inc.
1700 Market Street, Suite 701
Philadelphia PA 19103
Dear Fred:
This will confirm the understanding and agreement (the "Agreement") between
Continental Capital & Equity Corporation and its affiliates ("CCEC") and the
Ashton Technology Group, Inc. and its affiliates (the "Company") as follows:
1. The Company hereby engages CCEC as an advisor in connection with the
exploration of certain strategic and financial alternatives available to the
Company's subsidiary, the Electronic Market Center, Inc. ("eMC").
2. CCEC hereby accepts the engagement and in that connection agrees to:
(a) become fully familiar with the business, operations, properties,
financial condition, prospects and management philosophy of the eMC;
(b) advise and assist the management of the Company and eMC in evaluating
certain strategic and financial alternatives available to eMC; and
(c) assist the Company and eMC in establishing the market acceptance of
eMC through identifying and assisting in entering into agreements with
users of eMC.
3. The Company shall furnish, or cause to be furnished, to CCEC all
information requested by CCEC for the purpose of rendering services hereunder
(all such information being "Information"). All Information provided to CCEC
hereunder, to the extent of such information is not available, will be kept
confidential and be subject to a separate Confidentiality Agreement. In
addition, the Company agrees to make available to CCEC upon request from time to
time the Company's officers, directors, accountants counsel and other advisors.
The Company recognizes and confirms that CCEC: (a) will use and rely on the
Information and on information available from generally recognized public
sources in performing the services contemplated by this Letter Agreement without
having independently verified the same; (b) does not assume responsibility for
the accuracy or completeness of the Information and such other information; and
(c) will not make an appraisal of any of the assets or liabilities (contingent
or otherwise) of the Company.
4. The term of CCEC's engagement hereunder as an advisor to the Company shall
extend from the date hereof through August 31, 1999. It is understood that this
engagement is an initial engagement and is renewable with the consent of both
the Company and CCEC. Subject to the provisions of paragraphs 4 and 5 through
11, which shall survive any termination of this Agreement, either party may
terminate CCEC's engagement hereunder at any time, with or without cause, by
giving the other party at least ten (10) days' prior written notice.
5. As compensation for the services to be rendered by CCEC hereunder, the
Company agrees to pay CCEC a retainer of one hundred seventy five thousand
(175,000) shares of its common stock on the date hereof. In addition to this
retainer, the Company will pay CCEC an additional retainer fee of seventy five
thousand (75,000) shares of its common stock at such time that the Company
delivers eMC's business plan to CCEC. This retainer will be CCEC's full and
complete compensation for the services to be rendered hereunder. It is
understood that these shares will not be registered, however, the Company will
endeavor to register these shares at such other time as it may deem appropriate,
or at such time as other shares are registered on any appropriate Registration
Statement. It is further understood and agreed that these shares will be subject
to a "lock up" agreement and will be released from this "lock up" agreement
ratably; 6,9 and 12 months following the completion of a strategic financing of
a minimum of $15 million for eMC. In the
<PAGE>
event the strategic financing does not occur by August 31, 2001, all stock shall
be fully released to CCEC from the lock up agreement.
6. In addition to any fees payable hereunder, the Company shall reimburse CCEC
and its affiliates promptly upon request for their respective out-of-pocket and
incidental expenses, incurred during the term and as a direct result of its
engagement hereunder, including the fees and expenses of legal counsel and those
of any advisor retained by CCEC. CCEC will bill the Company monthly for such
expenses. The Company shall not be obligated to reimburse CCEC for its
out-of-pocket and incidental expenses unless CCEC obtains written approval from
the Company prior to incurring any such expenses hereunder.
7. The Company and CCEC agree to enter into a mutual indemnification agreement
as set forth in the separate letter agreement, dated the date hereof, between
CCEC and the Company.
8. Any advice provided by CCEC under this Agreement shall be treated as
confidential by the Company and shall not be disclosed or made available to
third parties without CCEC's prior written consent.
9. The Company represents and warrants to CCEC that there are no brokers,
agents, representatives or other persons which have an interest in compensation
paid or payable to CCEC hereunder.
10. The benefits of this Agreement shall, together with the separate indemnity
letter, inure to the benefit of respective successors and assigns of the parties
hereto and of the indemnified parties hereunder and their successors and assigns
and representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns.
11. This Agreement may not be amended or modified except in writing executed by
the Company and CCEC and shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
laws.
CCEC is delighted to accept this engagement and looks forward to working with
you on this assignment. Please confirm that the foregoing correctly sets forth
our agreement by signing the enclosed duplicate of this letter in the space
provided and returning it, whereupon this letter shall constitute a binding
agreement as of the date first above written.
CONTINENTAL CAPITAL & EQUITY CORPORATION
By: /s/ Dodi B. Zirkle
--------------------------------------
Title: Vice President
-----------------------------------
Agreed & Accepted:
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
--------------------------------------
Title: President/CEO
-----------------------------------
<PAGE>
Ex 10.24
SETTLEMENT AGREEMENT
--------------------
SETTLEMENT AGREEMENT (this "Agreement"), dated as of March 19, 1999, by and
among THE ASHTON TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company"),
UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a Delaware corporation and a
subsidiary of Ashton ("UTTC"), and DAVID N. ROSENSAFT ("Rosensaft").
WHEREAS, Rosensaft owns beneficially or otherwise 1,000 shares (the "Ashton
Shares") of the outstanding common stock of the Company, par value $.01 per
share;
WHEREAS, Rosensaft owns beneficially or otherwise 333,333 shares of the
outstanding common stock of UTTC, par value $.01 per share ("UTTC Common
Stock"); and
WHEREAS, certain disputes have arisen among Rosensaft, on the one hand, and
the Company and UTTC, on the other, and the parties have agreed to settle and
resolve each and every dispute and to enter into this Agreement on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Definitions. In addition to the terms elsewhere defined in this
-----------
Agreement, the following terms when
<PAGE>
used in this Agreement shall have the following respective meanings;
"Affiliate" means, with respect to a Person, any other Person
---------
controlled by or, as of the date of this Agreement, controlling or under common
control with, such Person. "Control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, the
holding of proxies, by contract or otherwise.
"Ashton Shares" is defined in the Recitals.
-------------
"Person" means any individual, corporation, partnership, limited
------
liability company, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental entity or other entity or
organization.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Subsidiaries" shall mean UTTC and each corporation as to which the
------------
Company, directly or indirectly, owns a majority of the outstanding stock or
other ownership interests having voting power under ordinary circumstances to
elect a majority of directors of such corporation or other Persons performing
similar functions for such entity.
"UTTC Common Stock" is defined in the Recitals.
-----------------
2
<PAGE>
"Rosensaft's Old UTTC Shares" means the 333,333 shares of UTTC Common
---------------------------
Stock already owned by Rosensaft.
"Rosensaft's New UTTC Shares" means the 416,633 shares of UTTC Common
---------------------------
Stock to be issued to Rosensaft pursuant to Section 2.2 of this Agreement.
"Rosensaft's UTTC Shares" means Rosensaft's Old UTTC Shares and
-----------------------
Rosensaft's New UTTC Shares, collectively.
ARTICLE II
TERMS OF AGREEMENT
2.1 Monetary Payment. On or before March 19, 1999, the Company shall
----------------
pay Rosensaft Forty-Seven Thousand Five Hundred Dollars and No Cents ($47,500)
in the form of a certified or bank check.
2.2 Issuance of UTTC Common Stock. On or before March 19, 1999, UTTC
-----------------------------
shall cause 416,633 shares of UTTC Common Stock to be issued to Rosensaft and a
Stock Certificate shall be presented to him reflecting such issuance. On or
before March 19, 1999, UTTC also shall issue a new stock certificate to
Rosensaft with respect to Rosensaft's Old UTTC Shares free of any restrictive
legends.
2.3 Registration Rights. Pursuant to the terms and subject to the
-------------------
conditions set forth in Article III below, Rosensaft is to have piggy-back
registration rights with respect to Rosensaft's New UTTC Shares.
3
<PAGE>
2.4 Release. Effective upon the satisfaction in full of the terms set
-------
forth in Sections 2.1 and 2.2 of this Agreement, each of the parties hereto for
himself and on behalf of itself and each and every one of its present and former
stockholders, officers, directors, employees, agents, parents, Subsidiaries,
Affiliates and predecessors, does hereby release and forever discharge each of
the other parties hereto and each of their respective heirs, executors,
administrators, present and former stockholders, officers, directors, employees,
agents, parents, Subsidiaries, Affiliates and predecessors, of any and all
manner of claims, demands, damages, actions, causes of action or suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialities,
covenants, contracts, controversies, agreements, promises, trespasses, judgments
and executions whatsoever, in law or equity, whether known or unknown, directly
or indirectly, which any of them or any of their heirs, executors,
administrators, present and former stockholders, officers, directors, employees,
agents, parents, Subsidiaries, Affiliates and predecessors can, shall or may
have, or ever had, or might have but for this release, for, upon or by reason of
any matter, cause or thing whatsoever, from the beginning of the world to the
date of this Agreement; provided, however, that nothing herein shall operate to
release or discharge any claims arising from or related to any breach of the
representations, warranties and
4
<PAGE>
agreements contained in this Agreement or otherwise affect the validity and
enforceability of Section 2.5 and Article III of the Settlement Agreement dated
as of January 30, 1997, between the Company, UTTC, Rosensaft, the Dover Group,
Inc., and Frederick W. Rittereiser (the "Prior Settlement Agreement").
2.5 Agreement Not to Sue. At no time shall any party hereto initiate,
--------------------
assert, prosecute or support or cause, or permit any Person under its or his
control to initiate, assert, prosecute or support any claim or demand
whatsoever, against any of the other parties hereto, for, upon or by reason of
any matter, cause or thing whatsoever for which the parties are released and
discharged pursuant to Section 2.4 above, whether known or unknown.
Notwithstanding anything to the contrary contained in this Section 2.5, any
party hereto may initiate, assert, prosecute and support a claim against any
other party hereto arising from or related to any breach of the representations,
warranties and agreements contained in this Agreement or Article III of the
Prior Settlement Agreement.
2.6 Waiver of Derivative Claim. At no time shall any party hereto
--------------------------
initiate, assert, prosecute or support a derivative claim which can be asserted
on behalf of the Company or any of its Subsidiaries in relation to, by reason
of, based upon, or arising out of or in connection with this Agreement or the
claims which are settled and/or released by this Agreement.
5
<PAGE>
ARTICLE III
REGISTRATION RIGHTS
-------------------
3.1 Rosensaft Registration Rights. If UTTC proposes at any time
-----------------------------
following the date hereof to register any shares of the UTTC Common Stock in a
public offering registered under the Securities Act ("an Offering") through an
underwriter or underwriters, UTTC shall promptly give written notice to
Rosensaft of its intention to register the UTTC Common Stock. Such written
notice shall include, without limitation, a list of the jurisdictions in which
UTTC intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws. Upon receipt of UTTC's written notice, Rosensaft
shall have thirty days to provide UTTC with a written request specifying the
total number of Rosensaft's New UTTC Shares to be included in such registration
under the Securities Act. UTTC shall include in the registration statement (and
any related qualification under blue sky laws or other compliance required under
the Securities Act) all shares of Rosensaft's New UTTC Shares requested by
Rosensaft to be included therein; provided, however, that UTTC may at any time
-------- -------
withdraw or cease proceeding with any such registration if it shall at the same
time withdraw or cease proceeding with the registration of all the other shares
of UTTC Common Stock originally proposed to be registered.
6
<PAGE>
Additionally, at any time prior to receiving UTTC's written notice,
Rosensaft shall have the right to provide UTTC with a written request specifying
the total number of shares of UTTC Shares to be registered in connection with
any future public offering of UTTC Common Stock, without regard to whether UTTC
is contemplating at that time any proposal to register any shares of UTTC Common
Stock in any public offering.
Nothing contained in this Agreement is intended to modify, change or
affect in any way Rosensaft's registration and underwriting rights with respect
to Rosensaft's Old UTTC Shares pursuant to Article III of the Prior Settlement
Agreement.
3.2 Underwriting. Rosensaft shall have the right to offer any or all of
------------
Rosensaft's New UTTC Shares in any underwriting of an Offering, provided,
--------
however, that such right shall be conditioned upon Rosensaft's requesting
- -------
inclusion of Rosensaft's New UTTC Shares in the underwriting on the terms and
conditions provided herein. In agreeing to distribute any or all of Rosensaft's
New UTTC Shares through such underwriting, Rosensaft shall (together with UTTC
and the other holders distributing their UTTC Common Stock through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by UTTC. In the event
that the managing underwriter determines that marketing
7
<PAGE>
factors require a limitation or cutback on the number of shares of UTTC Common
Stock to be sold, then UTTC, subject to the Guarantee (as defined below), will
include in such Offering only that number of shares of UTTC Common Stock which
it is so advised by the managing underwriter should be included in such
Offering. In the event of such a limitation or cutback, the UTTC Common Stock
proposed by UTTC to be registered and those shares encompassed in the Guarantee
(as defined below) shall have the first priority and all other shares of UTTC
Common Stock for which registration rights have been requested by Rosensaft and
other selling shareholders (the "Selling Shareholders' Shares") shall be given a
second priority without preference among the relevant holders. If less than all
of the Selling Shareholders' Shares are to be included in the Offering, such
Shares (other than those shares encompassed in the Guarantee (as defined below))
shall be included in the Offering pro rata based on the total number of shares
sought to be offered other than by UTTC. No Person may participate in any
Offering hereunder unless such Person (x) agrees to sell such Person's UTTC
Common Stock (other than Rosensaft's Old UTTC Shares) on the basis provided in
any underwriting arrangements approved by UTTC and (y) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements
(exclusive of any lock-up
8
<PAGE>
provision with respect to any or all of Rosensaft's Old UTTC Shares).
Any shares of Rosensaft's New UTTC Shares that are not included in any
Offering as a result of any limitation or cutback (other than those shares
encompassed in the Guarantee (as defined below)) shall be subject to the same
lock-up provision, if any, as all other Selling Shareholders. Notwithstanding
any other provision in this Agreement, nothing shall require or obligate
Rosensaft to agree to any lock-up provision with respect to Rosensaft's Old UTTC
Shares.
If Rosensaft disapproves of the terms of any such underwriting, he may
elect to withdraw all or any portion of Rosensaft's New UTTC Shares therefrom,
including those shares encompassed in the Guarantee (as defined below), by
written notice to UTTC and the underwriter.
Notwithstanding any other provision of this Section 3.2, UTTC
guarantees Rosensaft that UTTC shall include in any Offering a minimum number of
Rosensaft's New UTTC Shares equivalent to the greater of (a) 100,000 shares of
UTTC Common Stock, or (b) 5% of the total number of shares of UTTC Common Stock
included in such Offering, without regard to any limitation or cutback (the
"Guarantee").
9
<PAGE>
In the event that UTTC is determined by a court after a final
adjudication to have breached the Guarantee, the Company and UTTC agree that, in
addition to any damages for which they may be liable, they shall be jointly and
severally liable for all costs, including reasonable attorney's fees and
expenses, incurred by Rosensaft in any action to enforce the Guarantee or for
breach of the Guarantee; however, the Company and UTTC do not agree to be liable
for any costs, including reasonable attorney's fees and expenses, attributed to
other claims pursued by Rosensaft against the Company or UTTC.
3.3 Expenses of Registration. All expenses incurred in connection with
------------------------
the registration and offering of Rosensaft's New UTTC Shares contemplated by
this Agreement including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, fees and disbursements of accountants and counsel for UTTC,
underwriters and other persons retained by UTTC, messenger and other related
expenses, shall be paid solely by UTTC and, to the extent that they agree, any
holders of shares of UTTC Common Stock other than Rosensaft whose shares are
included in such registration statement. Rosensaft and the Selling Shareholders
shall pay their own legal fees, selling discounts and commissions on shares of
UTTC Common Stock offered at their request.
10
<PAGE>
3.4 Registration Procedures. Upon the filing of a registration
-----------------------
statement under the Securities Act, consistent with this Agreement, UTTC will
keep Rosensaft, if participating therein, advised in writing as to the filing of
such registration statement and as to the completion thereof. UTTC will:
(1) keep such registration statement effective for a period no less
than 180 days or until the distribution or sale of Rosensaft's New
UTTC Shares has been completed, whichever first occurs; and
(2) furnish such number of prospectuses and other documents incident
thereto as Rosensaft from time to time may reasonably request.
3.5 Indemnification. (a) Rosensaft will, if any of Rosensaft's New UTTC
---------------
Shares are included in a registration statement pursuant to Section 3.1,
indemnify UTTC, and each of its directors and officers who sign such
registration statement, each underwriter of the UTTC Common Stock and its
directors and officers, and each Person who controls each underwriter within the
meaning of the Securities Act ("Controlling Person"), against all claims,
losses, damages and liabilities (or actions in respect thereof) solely arising
out of or solely based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus or
other document in reliance upon and in conformity with written information
provided to UTTC by Rosensaft specifically for use therein, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in reliance upon and
in conformity with written
11
<PAGE>
information provided to UTTC by Rosensaft specifically for use therein and will
reimburse UTTC and each of its directors and officers and each underwriter and
its directors, officers, and Controlling Persons, for any legal and other
expenses reasonably incurred in connection with defending any such claim, loss,
damage, liability or action.
(b) With respect to a registration statement filed pursuant to Section
3.1, UTTC will indemnify Rosensaft, each underwriter of the UTTC Common Stock
and its directors and officers, and each Person who controls each underwriter
within the meaning of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus or other document (including any related registration statement,
notification or the like) incident to any such registration statement, or based
on any omission (or alleged omission) to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation (or alleged violation) by UTTC of any rule or regulation
promulgated under the
12
<PAGE>
Securities Act applicable to UTTC and relating to action or inaction required of
UTTC in connection with any such registration statement and will reimburse
Rosensaft and each underwriter and its directors, officers, and Controlling
Person, for any legal and other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that UTTC will not be liable in any such case to the extent
- -------- -------
that any final damage award or fully adjudicated liability is based on any
untrue statement in any registration statement, prospectus or other document
made in reliance upon and in conformity with information furnished to UTTC in
writing by Rosensaft specifically for use therein or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in reliance upon and in conformity with
information furnished to UTTC in writing by Rosensaft specifically for use
therein.
(c) Each party entitled to indemnification under this Section 3.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that,
-------- ----
13
<PAGE>
counsel for the Indemnifying Party who shall conduct the defense of such claim
or litigation shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld or delayed), and the Indemnified Party may
participate in such defense at such Party's expense; provided, further, that the
-------- -------
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 3.5. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
3.6 Information by Rosensaft. If any of Rosensaft's UTTC Shares are
------------------------
included in any registration statement pursuant to Section 3.1, Rosensaft shall
furnish promptly in writing to UTTC such information regarding Rosensaft as UTTC
may request in writing and as shall be reasonably requested in connection with
any such registration statement, and UTTC shall be permitted to use such written
information in any registration statement.
14
<PAGE>
ARTICLE IV
CLOSING
-------
4.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place on March 19, 1999 at 2:00 pm at the
offices of Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New
York, NY 10036.
ARTICLE V
CONDITIONS TO CLOSING
---------------------
Each party's obligation to consummate the Closing is subject to the
satisfaction on or prior to the Closing of all of the following conditions:
5.1 Representations and Warranties: The representations and warranties
------------------------------
of each party contained in this Agreement shall be true in all material respects
on and as of the Closing.
5.2 No Injunction. At or prior to the Closing, there shall be no
-------------
injunction, restraining order or decree of any nature of any court or
governmental agency or body of competent jurisdiction that is in effect that
enjoins, restrains or prohibits the consummation of the transactions
contemplated by this Agreement.
ARTICLE VI
GENERAL PROVISIONS
------------------
6.1 Mutual Representations and Warranties. Each party represents and
-------------------------------------
warrants to the other parties that (i) the
15
<PAGE>
execution, delivery and performance of this Agreement has been duly authorized
and all actions necessary for the due execution, delivery and performance of
this Agreement have been taken, (ii) this Agreement constitutes the legal, valid
and binding obligation of the parties enforceable against each party in
accordance with its terms, (iii) it has been represented by legal counsel of its
choosing, and (iv) this Agreement, when executed, will have been executed and
------------------------
delivered as its own free act and deed and not as the result of duress by any
other party hereto. The representations, warranties and covenants of the parties
set forth in this Section 6.1 shall survive the Closing.
6.2 Rosensaft Representations and Warranties. Rosensaft hereby
----------------------------------------
represents and warrants that he is receiving shares of UTTC Common Stock solely
for the purpose of investment and not with a view to distribution within the
meaning of the Securities Act. Rosensaft recognizes that Rosensaft's New UTTC
Shares have not been and, except as otherwise contemplated and provided for
herein, will not be registered under the Securities Act and acknowledges that he
has been fully advised as to the applicable limitations upon resale of such
Shares, including the need to hold such Shares indefinitely unless they are
subsequently registered under the Securities Act or unless an exemption from
such registration is available. Rosensaft further represents and
16
<PAGE>
warrants that there are no pre-emptive rights with respect to the Ashton Shares
or Rosensaft's UTTC Shares.
6.3 The Company and UTTC Representations and Warranties. The Company
---------------------------------------------------
and UTTC hereby represent and warrant that the 416,633 shares of UTTC Common
Stock issued to Rosensaft pursuant to this Agreement, when added to the 333,333
shares of UTTC Common Stock Rosensaft already owns, totaling 749,966 shares of
UTTC Common Stock, constitutes approximately 3.22 percent of the total issued
and outstanding shares of UTTC Common Stock as of the date of this Agreement.
The Company and UTTC further represent and warrant that prior to the execution
of this Agreement, the Company and UTTC, and their officers and directors have
not taken any steps or devised or implemented any plan or measure to issue
additional shares of UTTC Common Stock or options or warrants that have not been
disclosed to Rosensaft. The Company and UTTC further represent that they have no
present plans to issue additional shares of UTTC Common Stock; however, they
expressly reserve the right to do so if such action is determined to be in the
best interest of UTTC and its shareholders.
6.4 Further Assurances. Each party agrees from time to time, at the
------------------
request of any other party, to execute such documents or ratify such agreements
as may be reasonably necessary to effectuate the agreements contained herein.
17
<PAGE>
6.5 Modification. This Agreement shall not be modified or amended
------------
except by an agreement in writing executed by all parties hereto.
6.6 Applicable Law. This Agreement shall be governed by the law of the
--------------
State of New York without regard to the principles of conflict of law thereof.
6.7 Entire Agreement. This Agreement contains the entire and final
----------------
agreement between the parties with respect to the subject matter hereof, and no
oral statements, assumptions or representations or prior written matter not
contained or referred to in this instrument shall have any force or effect.
6.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be one and the same instrument.
6.9 Severability. If any provision of this Agreement or the application
------------
thereof to any Person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other Persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
6.10 Headings. The headings used in the Agreement are for convenience
--------
only and shall not be deemed part of the agreements of the parties set forth
herein.
18
<PAGE>
6.11 Waiver. No consent or waiver, express or implied, by any party to
------
or of any breach or default by another party of its obligations under this
Agreement shall be deemed or construed to be a consent or waiver to or of any
breach or default by the breaching party of any other obligations of such
breaching party under this Agreement. Failure on the part of any party to object
to or complain of any act or failure to act of any of the other parties or to
declare any of the other parties in default shall not constitute a waiver of any
right or remedy or the ability to object or complain or to declare any default
at any time in the future.
6.12 Submission to Jurisdiction. Any judicial proceeding brought with
--------------------------
respect to this Agreement must be brought in the United States District Court
for the Southern District of New York or, if such court lacks jurisdiction, any
state court sitting in New York City, New York, and by execution and delivery of
this Agreement each signatory hereto (i) hereby submits to and accepts,
generally and unconditionally, the exclusive jurisdiction of such court and any
related appellate court and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement and (ii) irrevocably waives
any objection it may now or hereafter have as to the venue of any such suit,
action or proceeding brought in such a court or that such court is an
inconvenient forum.
19
<PAGE>
6.13 No Admissions. Nothing contained in this Agreement shall be
-------------
considered an admission by either party of any wrongdoing under any Federal,
state or local statute, public policy, tort law, contract law, common law or
otherwise.
6.14 No Third Party Claims. Each party represents and warrants that no
---------------------
other Person has or, to the best knowledge of such party, claims any interest in
any potential claims, demands, causes of action, obligations, damages or suits
released pursuant to this Agreement; that it or he is the owner of all claims,
demands, causes of action, obligations, damages or suits so released; and that
it or he has not sold, assigned, transferred, conveyed or otherwise disposed of
any claim, demand, cause of action, obligation or liability subject to this
Agreement.
6.15 Notice. All notices or requests hereunder shall be sufficiently
------
given for all purposes hereunder if in writing and delivered personally or by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to Rosensaft shall be addressed
to:
David N. Rosensaft
215 East 68th Street, Suite 12-O
New York, New York 10021
-- and --
445 East 86th Street, Apt. 11-H
New York, New York 10028
20
<PAGE>
with a copy to:
--------------
Thomas M. Campbell, Esq.
Leonard Weintraub, Esq.
Smith, Campbell & Paduano
One Whitehall Street
New York, New York 10004
Tel: (212) 344-1500
Fax: (212) 344-5585
or at such other address and to the attention of such other person as Rosensaft
may designate by written notice to the other parties hereto.
Notices to the Company or UTTC shall be addressed to:
The Ashton Technology Group
1900 Market Street, Suite 701
Philadelphia, PA 19103-0012
Attn: Frederic W. Rittereiser
Tel: (215) 988-3400
Fax: (215) 636-3560
Universal Trading Technologies Corporation
1900 Market Street, Suite 701
Philadelphia, PA 19103-0012
Attn: Frederic W. Rittereiser
Tel: (215) 988-3400
Fax: (215) 636-3560
with a copy to:
--------------
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attn: Herbert Kronish, Esq.
Tel: (212) 479-6000
Fax: (212) 479-6275
or at such other address and to the attention of such other person as the
Company or UTTC may designate by written notice to the other parties hereto.
21
<PAGE>
6.16 Expenses. Whether the Closing does or does not occur, all legal
--------
and other costs and expenses incurred in connection with the negotiation and
execution of this Agreement shall be paid by the party incurring such costs and
expenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
THE ASHTON TECHNOLOGY
GROUP, INC.
By: /s/ Fredric W. Rittereiser /s/ David N. Rosensaft
--------------------------- ------------------------------
DAVID N. ROSENSAFT
Name: /s/ Fredric W. Ritterreiser
----------------------------
Title: President
---------------------------
UNIVERSAL TRADING
TECHNOLOGIES CORPORATION
By: /s/ Robert Eprile
--------------------------
Name: Robert Eprile
------------------------
Title: President
-----------------------
22
<PAGE>
EXHIBIT 21
----------
Subsidiaries of The Ashton Technology Group, Inc.
Name State of Incorporation
- ---- ----------------------
Universal Trading Technologies Corporation Delaware
Electronic Market Center Delaware
ATG International Delaware
Gomez Advisors, Inc. Delaware
REB Securities, Inc. Delaware
Croix Securities, Inc. Delaware
NextExchange, Inc. Delaware
45
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
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0
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