<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File #1-11747
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THE ASHTON TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1900 Market Street, Suite 701
Philadelphia, Pennsylvania 19103
(Address of Principal Executive Offices) (Zip Code)
(215) 751-1900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the last practical date.
Common stock $.01 par value 27,800,760
(Title of Class) (No. of Shares Outstanding
as of January 31, 2000)
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THE ASHTON TECHNOLOGY GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1999 and December 31, 1999.... 4
Consolidated Statements of Operations -
For the Three and Nine Months Ended December 31, 1998 and 1999........ 5
Consolidated Statements of Cash Flows -
For the Nine Months Ended December 31, 1998 and 1999.................. 6
Notes to Unaudited Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 13
Item 3. Quantitative and Qualitative Disclosure of Market Risk.................. 20
Part II - Other Information
Item 1. Legal Proceedings....................................................... 20
Item 2. Changes in Securities and Use of Proceeds............................... 20
Item 3. Default Upon Senior Securities.......................................... 20
Item 4. Submission of Matters to a Vote of Security Holders..................... 20
Item 5. Other Information....................................................... 20
Item 6. Exhibits and Reports on Form 8-K........................................ 20
Signatures...................................................................... 21
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), 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; ability to successfully
deploy the Company's volume-weighted average price trading system ("eVWAP");
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-Q. Such forward-
looking statements speak only as of the date of this Form 10-Q. For discussion
of the factors that might cause performance of the Company to differ with actual
results, see Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Company's other periodic reports and
registration statements filed with the Securities Exchange Commission (the "SEC"
or "Commission"). 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.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
(Audited) (Unaudited)
-------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 2,667,347 $ 14,904,873
Investments available for sale................................................... --- 9,912,120
Accounts receivable and prepayments.............................................. 308,249 372,740
Current portion of notes receivable.............................................. 112,499 119,654
--------------- ---------------
Total current assets........................................................ 3,088,095 25,309,387
Notes receivable, net of current portion......................................... 717,284 626,628
Property and equipment, net of accumulated depreciation.......................... 1,017,179 551,139
Exchange memberships............................................................. 196,900 196,900
Capitalized software development costs........................................... 95,354 ---
Intangible assets, net of accumulated amortization............................... 58,563 29,282
Other assets..................................................................... 480,362 301,023
--------------- ---------------
Total Assets........................................................... $ 5,653,737 $ 27,014,359
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses............................................ $ 675,841 $ 294,365
Other liabilities................................................................ 532,918 ---
--------------- ---------------
Total current liabilities.................................................... 1,208,759 294,365
Minority interest................................................................ --- 2,000,000
Stockholders' equity:
Preferred stock - shares authorized: 3,000,000
250,000 shares designated as Series A - (liquidation preference $10 per share);
shares issued and outstanding; 125,219 and none................................. 1,252,188 ---
590,000 shares designated as Series B - (liquidation preference $10 per share);
shares issued and outstanding; 417,500 and 129,200.............................. 4,175,000 1,292,000
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 - (liquidation preference
$1,000,000 per share); shares issued and outstanding; none...................... --- ---
20,000 shares designated as Series F $.01 par value - (liquidation preference
equals stated value of $1,000 per share); shares issued and outstanding; none
and 14,000...................................................................... --- 14,000,000
Common stock - par value: $.01; shares authorized: 60,000,000;
Shares issued and outstanding; 20,569,172 and 26,397,069....................... 205,692 263,970
Additional paid-in capital........................................................ 39,133,830 57,083,075
Deferred consulting expense....................................................... (285,208) ---
Accumulated deficit............................................................... (40,036,524) (47,856,504)
Accumulated other comprehensive loss.............................................. --- (62,547)
-------------- ---------------
Total stockholders' equity................................................... 4,444,978 24,719,994
-------------- ---------------
Total Liabilities and Stockholders' Equity $ 5,653,737 $ 27,014,359
============== ===============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
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The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 427,884 $ 2,012,693 $ 1,079,836 $ 3,868,566
----------- ----------- ------------ ------------
Costs and expenses:
Costs of revenues........................................... 56,250 513,880 146,250 644,510
Development costs........................................... 47,677 --- 143,031 95,354
Depreciation and amortization............................... 92,499 218,327 279,128 631,411
Non-cash compensation charges............................... 220,313 --- 5,135,511 285,208
Selling, general and administrative......................... 2,314,868 6,154,085 6,797,989 14,492,494
----------- ----------- ------------ ------------
Total costs and expenses 2,731,607 6,886,292 12,501,909 16,148,977
----------- ----------- ------------ ------------
Loss from operations......................................... (2,303,723) (4,873,599) (11,422,073) (12,280,411)
Interest income............................................. 35,640 420,416 111,081 773,312
Gain on deconsolidation of Gomez............................ --- 5,568,475 --- 5,568,475
Other income (expense)...................................... 290,080 --- 290,080 (416,632)
----------- ----------- ------------ ------------
Net (loss) income............................................ $(1,978,003) $ 1,115,292 $(11,020,912) $ (6,355,256)
=========== =========== ============ ============
Dividends attributed to preferred stock...................... (129,471) (122,794) (489,170) (987,041)
Beneficial conversion feature of preferred stock............. --- --- (5,083,484) ---
Dividends in arrears on preferred stock...................... (98,507) (347,795) (312,467) (515,738)
----------- ----------- ------------ ------------
Net (loss) income applicable to common stock................. $(2,205,981) $ 644,703 $(16,906,033) $ (7,858,035)
=========== =========== ============ ============
Basic net (loss) income per common share..................... $(.20) $.03 $(1.63) $(.33)
=========== =========== ============ ============
Diluted net (loss) income per common share................... $(.20) $.02 $(1.63) $(.33)
=========== =========== ============ ============
Weighted average number of common shares outstanding:
Basic........................................................ 10,907,910 25,305,923 10,350,524 23,969,241
=========== =========== ============ ============
Diluted...................................................... 10,907,910 30,852,564 10,350,524 23,969,241
=========== =========== ============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
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The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Net loss........................................................................................... $(11,020,912) $ (6,355,256)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................................... 422,159 726,765
Non-cash compensation charges..................................................................... 4,626,136 ---
Common stock issued for consulting services....................................................... 509,375 285,208
Common stock issued in connection with termination agreement...................................... --- 416,632
Gain on deconsolidation of Gomez.................................................................. --- (5,568,475)
Changes in operating assets and liabilities (excluding effect of deconsolidation of Gomez)
Increase in accounts receivable and prepayments................................................... (585,066) (2,097,509)
Increase in notes receivable...................................................................... (380,000) ---
Decrease in stock subscriptions receivable........................................................ 245,000 ---
(Increase)/ decrease in other assets.............................................................. (34,809) 111,349
(Decrease)/ increase in accounts payable and accrued expenses..................................... (1,558,826) 1,094,874
Increase/ (decrease) in other liabilities......................................................... 141,049 (432,532)
------------ ------------
Net cash used in operating activities............................................................ (7,635,894) (11,818,944)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments available for sale........................................................ --- (9,968,771)
Purchase of fixed assets.......................................................................... (481,237) (2,113,570)
Cash received from notes receivable............................................................... 85,266 83,501
Capitalized software development costs............................................................ (61,375) ---
Effect of deconsolidation of Gomez................................................................ --- 2,554,511
------------ ------------
Net cash used in investing activities............................................................ (457,346) (9,444,329)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid in cash............................................................ (319,062) (156,655)
Issuance costs for common stock................................................................... (300,000) (575,000)
Proceeds from issuance of common stock............................................................ 3,000,000 5,750,000
Proceeds from exercise of stock options and warrants to purchase common stock..................... --- 2,288,088
Issuance costs for preferred stock................................................................ (864,628) (682,563)
Proceeds from issuance of preferred stock......................................................... 6,275,000 20,000,000
Issuance costs for Gomez preferred stock.......................................................... --- (611,898)
Proceeds from issuance of Gomez preferred stock................................................... --- 5,500,000
Proceeds from issuance of Gomez common stock...................................................... --- 500
Issuance costs for UTTC preferred stock........................................................... --- (11,673)
Proceeds from issuance of UTTC preferred stock.................................................... --- 2,000,000
------------ ------------
Net cash provided by financing activities........................................................ 7,791,310 33,500,799
------------ ------------
NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS.............................................. $ (301,930) $ 12,237,526
Cash and cash equivalents, beginning of period..................................................... 815,680 2,667,347
------------ ------------
Cash and cash equivalents, end of period........................................................... $ 513,750 $ 14,904,873
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
6
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC" or "Commission"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The accompanying consolidated financial statements
reflect all adjustments that are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. Certain amounts in prior periods
have been reclassified for comparative purposes.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
These consolidated financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the registrant's
Annual Report on Form 10-KSB for the year ended March 31, 1999. The results for
the three months ended December 31, 1999 and the nine months ended December 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended March 31, 2000.
The consolidated financial statements include the accounts of The Ashton
Technology Group, Inc. ("ATG(TM)", "Ashton", or the "Company") and its wholly-
owned and majority-owned subsidiaries which, at December 31, 1999, include
Universal Trading Technologies Corporation ("UTTC(TM)"), ATG(TM) International
("International"), and Electronic Market Center, Inc. ("EMC"). ATG(TM) owns 100%
of the voting equity of International and EMC, and approximately 93% of the
voting equity of UTTC(TM). Also included in the consolidated financial
statements are the accounts of UTTC(TM)'s wholly-owned subsidiaries, REB
Securities, Inc. ("REB"), Croix Securities, Inc. ("Croix"), and NextExchange,
Inc. ("NextExchange"). Croix Securities and NextExchange were formed in February
1999. The results of operations for these subsidiaries are included from the
dates of formation. All significant intercompany accounts and transactions have
been eliminated.
In December 1999, ATG(TM) entered into agreements to create two joint venture
companies, Kingsway ATG Asia, Ltd. ("Asia") and Ashton Technology Canada, Inc.
("Canada"). The Company accounts for investments in businesses which it owns
between 20% and 50% using the equity method, and those which are majority-owned
using the consolidation method. As of December 31, 1999, ATG(TM) had not yet
funded its investment in Asia.
On December 20, 1999, ATG(TM) funded Canada with $333,400 in cash for equity in
the Class A common shares of Canada, and has agreed to provide an additional
$666,600 as and when required, by way of either equity or debt. ATG(TM) owns 51%
of the voting equity of Canada, and accordingly, the accounts of Canada are
consolidated with those of ATG(TM) in the December 31, 1999 unaudited
consolidated balance sheet. Also in connection with the agreement with Canada,
the Company issued warrants to purchase 500,000 shares of ATG(TM) common stock
at $2.50 per share to holders of the UTTC(TM) Series TK Convertible Preferred
Stock. The warrants are exercisable for a period of two years beginning on June
4, 2000. The fair value of the warrants will be recorded as a dividend to the
holders of the Series TK Preferred as of the vesting dates of the warrants. Such
vesting will begin during the fiscal year ended March 31, 2001.
2. Deconsolidation of Gomez
In September 1999, Gomez commenced the private placement of its Series C
Convertible Preferred Stock ("Gomez Series C Preferred Stock"). Two closings of
the Gomez Series C Preferred Stock sale were completed in November and December
1999, resulting in total gross proceeds of approximately $18,946,000. The
private placement is expected to be completed during the Company's fourth
quarter. During the first two quarters of the fiscal year, the Company owned in
excess of 50% of the voting equity of Gomez and accounted for its investment
under the consolidation method. As a result of Gomez's sale of a portion of its
Series C Convertible Preferred Stock on
7
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December 30, 1999, the Company's ownership percentage in Gomez was reduced to
below 50%. At December 31, 1999, ATG(TM) owned 39.9% of the voting equity and
36.6% of the total equity of Gomez in the form of 4,905 shares of the Gomez
Series A Preferred Stock (which is convertible into 4.9 million shares of Gomez
common stock). As such, the Company began accounting for its remaining
investment in Gomez under the equity method of accounting rather than the
consolidation method. In prior periods, the operating results of Gomez were
consolidated within the operating results of the Company and the assets and
liabilities of Gomez were consolidated with those of ATG(TM)'s other majority-
owned subsidiaries in the consolidated balance sheets. As a result of the
deconsolidation, the Company consolidated Gomez's operating results only through
the date of deconsolidation. Pursuant to the equity method of accounting, the
Company has increased the carrying amount of its remaining investment in Gomez
to zero, and recorded a gain of $5,568,475 equal to the amount of the increase.
The Company will not provide for any future losses of Gomez which would reduce
the carrying amount to below zero, and in the event Gomez has future earnings,
the Company will recognize its share of those earnings only after it exceeds its
share of net losses not recognized.
3. Certain Transactions
Series F Convertible Preferred Stock
On August 18, 1999 (the "Issue Date"), the Company completed a private placement
for the sale of 20,000 shares of Series F Convertible Preferred Stock (the
"Series F Preferred") with a par value of $.01 and a stated value of $1,000 per
share, and warrants to purchase an aggregate of 200,000 shares of the Company's
common stock (the "Warrants") for gross proceeds of $20,000,000. Each share of
the Series F Preferred is convertible into a number of shares of the Company's
common stock equal to the stated value plus a premium of up to 9% per annum,
divided by a conversion price. The conversion price of the Series F Preferred is
the lesser of $10.79 or the average of the five lowest closing bid prices during
the 22 trading days preceding conversion. Prior to February 17, 2000, if any
conversions take place on days where the common stock trades below $7.85 (the
"Floor Price"), then the conversion price will equal the Floor Price. Beginning
on February 18, 2000, the Series F Preferred is subject to redemption, at the
Company's option, if the market price of the common stock is below $7.35 on the
conversion date. During the three months ended December 31, 1999, 6,000 shares
of the Series F Preferred were converted into 1,093,721 shares of ATG(TM) common
stock, including 32,957 shares deemed as dividends. The Company also accrued
dividends in arrears of $468,089 to reflect the premium on the remaining Series
F Preferred from the Issue Date through December 31, 1999.
The Warrants are immediately exercisable for a period of five years, ending
August 18, 2004, at an exercise price of $12.26 per share. The fair value of the
Warrants, or $645,000, was recorded as a dividend to the holders of the Series F
Preferred on the Issue Date.
UTTC(TM) Series TK Convertible Preferred Stock
On June 4, 1999, UTTC(TM) completed a private placement of 145,700 shares of
Series TK Convertible Preferred Stock ("UTTC(TM) Series TK Preferred Stock") and
warrants to purchase 200,000 shares of ATG(TM) common stock at $10.00 per share.
The fair value of the warrants will be recorded as a dividend to the holders of
the Series TK Preferred as of the vesting dates of the warrants. Such vesting
will begin during the fiscal year ended March 31, 2001. Gross proceeds received
by UTTC(TM) from the sale of the Series TK Preferred Stock and the warrants
amounted to $2,000,000. Between May 2001 and April 2004, each share of UTTC(TM)
Series TK Preferred Stock is convertible into ten shares of UTTC(TM) common
stock. Additionally, between May 1, 2001 and June 1, 2001, holders of the
UTTC(TM) Series TK Preferred Stock may exchange each share of Series TK
Preferred for 1.83 shares of ATG(TM) common stock. The UTTC(TM) Series TK
Preferred Stock is presented as a minority interest on the December 31, 1999
unaudited consolidated balance sheet at its liquidation preference of
$2,000,000. As a result of the UTTC(TM) Series TK Preferred stockholders'
liquidation preference, the balance has not been reduced by any portion of the
losses of UTTC(TM).
8
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4. 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 paid cumulative dividends semi-annually at an annual rate of $0.50
per share and was payable in cash or additional shares of Series A Preferred
until February 15, 2000. Each holder of shares of Series A Preferred had the
right to convert each share of Series A Preferred into: (i) ten shares of
ATG(TM) common stock; and (ii) one warrant to purchase three shares of the
common stock of UTTC(TM), par value $0.01 per share (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 ATG(TM) common
stock; and (ii) one warrant to purchase two shares of UTTC(TM) common stock,
with an exercise price of $0.75 per share, subject to adjustment. During the
nine months ended December 31, 1999, 125,219 shares of Series A Preferred and
288,300 shares of Series B Preferred were converted into 2,980,736 shares of
ATG(TM) common stock. As of December 31, 1999, all shares of Series A Preferred
Stock have been converted into common stock.
On April 3, 1998 (the "Subscription Date"), the Company entered into the Private
Equity Line of Credit Agreement (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. 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. On July 15,
1998, the Private Equity Investors also 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. The conversion price of the Series D Preferred was 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 was equal to 80% of the Market Price. Each share of the Series D
Preferred and Series E Preferred (i) ranked pari passu with the other authorized
preferred stock of the Company and (ii) was entitled to a cumulative dividend of
8% per annum on its respective liquidation preference. During the fiscal year
ended March 31, 1999 all of the outstanding 3.174 shares of the Series D
Preferred were converted into 2,863,521 shares of common stock, and the
outstanding 2.1 shares of the Series E Preferred were converted into 1,567,058
shares of common stock.
Also on the Subscription Date, the Private Equity Investors received warrants to
purchase up to an aggregate of 250,000 shares of common stock and on July 15,
1998, received additional warrants to purchase up to an aggregate of 100,000
shares of common stock. The warrants, which were exercisable for a period of
five years, were exercised in May 1999. As a result of the exercise, the Company
received gross proceeds of $1,601,450 and issued 350,000 shares of common stock.
Following the purchase of the Series E Preferred and subject to the satisfaction
of certain other conditions, the Company was entitled to 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 was 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 gave notice of a Put. During
the fiscal year ended March 31, 1999, the Company exercised six Puts in the
aggregate amount of $7,250,000, and issued 4,810,788 shares of common stock in
connection with the Puts. During the six months ended September 30, 1999, the
Private Equity Investors fulfilled their remaining commitment to the Company
under the Private Equity Agreement when the Company exercised four Puts in the
aggregate amount of $5,750,000, and issued 696,570 shares of common stock.
In April 1999, 100,000 warrants that were issued in January 1998 to investors in
the Series C Convertible Preferred Stock ("Series C Preferred") were exercised.
As a result of this exercise, the Company received gross proceeds of $171,282
and issued 100,000 shares of common stock. Warrants that were issued to the
underwriters of the Company's initial public offering in May 1996 were exercised
on a cashless basis during June 1999, and 100,555 shares of common stock were
issued. Of the 350,000 warrants issued to the placement agent for the Series C,
Series D, and
9
<PAGE>
Series E Preferred Stock offerings, a total of 130,000 warrants were exercised
during July and August, 1999, resulting in gross proceeds of $308,687 and the
issuance of 130,000 shares of common stock.
At the time of issuance, the Series A, Series B, Series C, Series D, and Series
E Preferred Stocks were 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 was fully
recognized as a return to the preferred stockholders when the shares became
convertible, or at the time of issuance. The accumulated beneficial conversion
feature amounted to $1,643,900, $2,695,436, $349,943, $1,180,549, and $607,087
for the Series A, Series B, Series C, Series D, and Series E Preferred,
respectively, and is included as a component of the accumulated deficit on the
consolidated balance sheets at March 31, 1999 and December 31, 1999.
5. Related Party Transactions
The Company utilizes the Dover Group, Inc. ("Dover") for consulting services
related to the Company's financings and product development efforts. Fredric W.
Rittereiser, the Company's Chairman and Chief Executive Officer, is the sole
shareholder, director and officer of Dover. The Company paid consulting fees to
Dover amounting to $135,000 in each of the nine-month periods ended December 31,
1999 and 1998.
In 1997, the Company retained Adirondack Capital, LLC ("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. The
Company paid consulting fees to Adirondack amounting to $90,000 in each of the
nine-month periods ended December 31, 1999 and 1998. In April 1999, Gomez paid a
fee of $50,000 to Adirondack for its assistance in structuring the private
placement of the Gomez Series B Preferred Stock. Additionally, the Company paid
Adirondack $287,500 in the nine months ended December 31, 1999 pursuant to the
Private Equity Line of Credit Agreement, and $450,000 in the nine months ended
December 31, 1998 pursuant to the Private Equity Line of Credit Agreement and in
connection with the sale of the Series C Preferred, the Series D Preferred and
the Series E Preferred. Effective April 1, 1999, Mr. Gothner began receiving a
monthly board retainer.
During 1998, the Company retained Richard Butler, a member of the Company's
Board of Directors, to provide strategic marketing services. For the nine months
ended December 31, 1998 the Company paid $67,500 in consulting fees to Richard
Butler under that arrangement. Effective April 1, 1999, the arrangement was
terminated, and Mr. Butler began receiving a monthly board retainer.
In 1997, the Company retained Wyndham Capital Corporation ("Wyndham") to provide
investment banking and financial advisory services. Thomas G. Brown, a member of
the Company's Board of Directors, is the President and Managing Director of
Wyndham. The Company paid $25,000 in consulting fees to Wyndham during the nine
months ended December 31, 1999, and $45,000 in consulting fees and $140,000
pursuant to the sale of equity in the nine months ended December 31, 1998 under
this agreement. Effective September 1, 1999, Wyndham's consulting fees were
terminated and Mr. Brown began receiving a monthly board retainer upon his
election to the Board.
6. Investments Available for Sale and Accumulated Other Comprehensive Income
The Company classifies its marketable securities as available for sale.
Investments available for sale are recorded at fair value with unrealized gains
and losses reported as a component of accumulated other comprehensive loss. As
of December 31, 1999, the Company's investments available for sale consist of
government agency and corporate debt securities with remaining maturities not
exceeding 18 months.
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7. Segment Information
Summarized financial information, excluding intercompany transactions, by
business segment is as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------------------------------------------------------------------
1998 1999 1998 1999
----------------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Gomez......................... $ 427,884 $1,993,793 $ 1,079,836 $ 3,836,949
Trading systems............... --- 18,900 --- 31,617
--------------- --------------- ------------------- -------------
427,884 2,012,693 1,079,836 3,868,566
Loss from operations:
Gomez......................... 263,927 2,534,406 4,946,600 5,372,315
Trading systems............... 1,714,076 1,918,777 6,074,312 6,551,416
--------------- --------------- ------------------- -------------
1,978,003 4,453,183 11,020,912 11,923,731
Interest income:
Gomez......................... --- 32,707 --- 94,816
Trading systems............... 35,640 387,709 111,081 678,496
--------------- --------------- ------------------- -------------
35,640 420,416 111,081 773,312
Depreciation and amortization:
Gomez......................... 27,330 151,690 61,492 334,171
Trading systems............... 112,846 66,637 360,667 392,594
--------------- --------------- ------------------- -------------
140,176 218,327 422,159 726,765
Non-cash compensation charges
Gomez......................... --- --- 4,626,136 ---
Trading systems............... 220,313 --- 509,375 285,208
--------------- --------------- ------------------- -------------
220,313 --- 5,135,511 285,208
</TABLE>
8. Recently Adopted Accounting Standards
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No.98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The Company has adopted SOP No.
98-1 effective April 1, 1999. Adoption of this Statement has not had 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, which requires all costs associated with pre-opening, pre-operating,
organization activities to be expensed as incurred. The Company has adopted SOP
No. 98-5 beginning April 1, 1999. Adoption of this Statement has not had a
material impact on the Company's consolidated financial position or results of
operations.
9. Net (Loss) Income per Share
Net (loss) income per share is computed in accordance with SFAS No 128, Earnings
per Share. SFAS 128 requires companies to present basic and diluted earnings per
share. Basic earnings per share excludes the dilutive effect of outstanding
stock options, warrants and convertible securities, whereas diluted earnings per
share includes the effect of such items. For the nine months ended December 31,
1999, and the three and nine months ended December 31, 1998, the Company is in a
net loss position. For those periods, the effect of the Company's common share
equivalents would be anti-dilutive, and therefore, there is no difference
between basic and diluted net loss per share. For the three months ended
December 31, 1999, the Company is in a net income position, and has included in
its diluted earnings per share an additional 5,546,642 shares related to the
Company's outstanding options and warrants. No shares were included in the
calculation of diluted earnings per share for the Company's convertible
preferred stock for the three months ended December 31, 1999, as their effect
would be anti-dilutive.
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10. Subsequent Events
On January 12, 2000, UTTC(TM) completed a private placement of 123,240 shares of
its Series KW Convertible Preferred Stock ("Series KW Preferred"), resulting in
gross proceeds of $3,000,000. The Series KW Preferred has a liquidation value of
$24.34275 per share, or $3,000,000. Upon the completion of an initial public
offering of the common stock of UTTC(TM) or upon a change in control, and until
December 2004, each share of Series KW Preferred is convertible into ten shares
of UTTC(TM) common stock. If UTTC(TM) has not completed an initial public
offering by December 31, 2001, holders of the Series KW Preferred may exchange
up to 41,080 shares of Series KW Preferred, each for 3.477 shares of ATG(TM)
common stock, and up to 41,080 shares of Series KW Preferred at an exchange
ratio equal to the liquidation value per share divided by the average closing
price of the ATG(TM) common stock for the twenty trading days preceding such
conversion. Additionally, ATG(TM), UTTC(TM), and the holders of the Series KW
Preferred agreed that if, within thirty days of Asia completing an initial
public offering of its securities, UTTC(TM) has not filed to register UTTC(TM)'s
common stock to engage in an underwritten initial public offering, the holders
of the Series KW Preferred may then, and at any time thereafter for so long as
UTTC(TM) has not filed to register UTTC(TM)'s common stock to engage in an
underwritten initial public offering of its securities, exchange up to 41,080
shares of Series KW Preferred for shares of ATG(TM) common stock at an exchange
ratio equal to the liquidation value per share of the Series KW Preferred
divided by the average closing price of the ATG(TM) common stock for the twenty
trading days preceding such conversion.
On January 13, 2000, ATG(TM) contributed $1 million to Asia in exchange for 47
million shares of Asia voting common stock. ATG(TM) owns 47% of the voting
equity of Asia. Such investment will be accounted for using the equity method,
and will be presented as an investment in affiliates.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is engaged in the development and commercialization of intelligent
matching systems and 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"). At December 31, 1999, the Company is
organized as a parent company, which has four subsidiaries:
. Universal Trading Technologies Corporation ("UTTC(TM)") and its three
subsidiaries:
REB Securities, Inc. ("REB")
Croix Securities, Inc. ("Croix")
NextExchange, Inc. ("NextExchange")
. Ashton Technology Canada, Inc. ("Canada")
. Electronic Market Center, Inc. ("EMC")
. ATG(TM) International, Inc. ("International")
In December 1999, ATG(TM) entered into agreements to create two joint venture
companies, Kingsway ATG Asia, Ltd. ("Asia") and Ashton Technology Canada, Inc.
("Canada"). The Company accounts for investments in businesses which it owns
between 20% and 50% using the equity method, and those which are majority-owned
using the consolidation method. ATG(TM) has agreed to invest $1,000,000 for 47%
of the voting equity of Asia, however, that investment had not been funded as of
December 31, 1999. Upon its funding, the Company's investment in Asia will be
accounted for using the equity method. On December 20, 1999, ATG(TM) funded
Canada with $333,400 in cash for equity in the Class A common shares of Canada,
and has agreed to provide an additional $666,600 as and when required, by way of
either equity or debt. ATG(TM) owns 51% of the voting equity of Canada, and
accordingly, the accounts of Canada are consolidated with those of ATG(TM) in
the December 31, 1999 unaudited consolidated balance sheet.
During the first two quarters of the fiscal year, ATG(TM) owned in excess of 50%
of the voting equity of Gomez Advisors, Inc. ("Gomez"), and accounted for its
investment under the consolidation method. In September 1999, Gomez commenced
the private placement of its Series C Convertible Preferred Stock. As a result
of Gomez's sale of a portion of its Series C Convertible Preferred Stock on
December 30, 1999, the Company's ownership percentage in Gomez was reduced to
below 50%. As such, the Company began accounting for its remaining investment in
Gomez under the equity method of accounting rather than the consolidation
method. In prior periods, the operating results of Gomez were consolidated
within the operating results of the Company and the assets and liabilities of
Gomez were consolidated with those of ATG(TM)'s other majority owned
subsidiaries in the consolidated balance sheets. In the current period, the
operating results of Gomez were consolidated within the operating results of the
Company only through the date of deconsolidation, or December 30, 1999. The
carrying amount of the Company's remaining investment in Gomez was increased to
zero, and the increase of $5,568,475 was reported on the unaudited consolidated
statements of operations for the three and nine months ended December 31, 1999
as a gain on deconsolidation of Gomez. For the periods ended December 31, 1999
and 1998, Gomez generated substantially all of the Company's revenues. As a
result of the deconsolidation, the Company anticipates its revenues will
decrease materially during the quarter ended March 31, 2000, and the revenues
reported for the nine months ended December 31, 1999 will constitute virtually
all of the Company's revenues for the year ended March 31, 2000.
On March 24, 1999, the SEC approved the Philadelphia Stock Exchange's ("PHLX")
proposed rule change relating to the Company's eVWAP(TM) trading system. On
August 27, 1999, UTTC and the PHLX began a controlled, live trading period of
the eVWAP(TM) with a group of PHLX floor specialists and "upstairs" customers
involving twenty listed equity securities. This initial trading period
successfully met management's expectations for the first phase rollout of the
eVWAP(TM) trading system.
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The second phase of the eVWAP(TM) trading system commenced in November 1999 with
the Company working with certain major clearing firms to clear and settle trades
through the eVWAP(TM) trading system. The second phase is intended to solidify
the electronic integration of geographically diverse customers through their
clearing agents, which is a prerequisite for effective electronic straight-
through processing of eVWAP(TM) trades. On January 3, 2000, ATG(TM) announced
that eight national brokerage firms had agreed to clear and settle trades by
institutions, pension funds, and money managers utilizing ATG(TM)'s eVWAP(TM)
trading system directly or through ATG(TM)'s subsidiary, Croix. The Company has
been working with these firms to integrate systems and refine business processes
to effectively perform straight-through processing of eVWAP(TM) trades and to
reduce potential errors and risks associated with improper integration.
Upon completion of clearing firm integration, it is expected that approximately
60 institutions and broker-dealers will be able to execute trades in the
eVWAP(TM) trading system. This event is forecasted to occur in mid-March, 2000
and will be accompanied by an increase in eligible securities. The third stage
of the rollout, which is expected to commence shortly thereafter, is planned to
provide the connectivity to the larger institutions and brokers-dealers, who
aggregate orders from multiple locations, and is projected to demonstrate
eVWAP(TM) volume growth and liquidity.
The Company's limited operating history and dependence upon the operation of its
eVWAP(TM) make the prediction of future operating results difficult. Although
the Company has activated its eVWAP(TM) and attempted to develop additional
sources of revenue, there can be no assurance that the Company will generate the
anticipated revenues from the operation of the eVWAP(TM) or other sources.
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
eVWAP(TM), success in hiring the appropriate personnel, successful development
of new products and services, regulatory approval of its products and services,
market acceptance of the Company's products and services, and development of a
revenue stream from the Company's products and services. Due to such anticipated
increases in the Company's operating expenses, the Company's operating results
may be materially and adversely affected.
The Company is currently in various stages of developing additional eVWAP(TM)
enhancements, features, and products to be integrated into the existing
eVWAP(TM) trading system. The Company also continues to refine design
requirements, evaluate market acceptance and assess implementation strategies in
the development of other intelligent matching systems, its electronic Market
Center (`eMC(TM)"), electronic Options Exchange System ("eOX(TM)"), electronic
Auction System ("eAS(TM)"), and electronic Public Limit Order Book
("ePLOB(TM)"). The Company has met with potential business partners, including
national stock exchanges, to discuss the concepts and initial designs underlying
these systems.
In addition, the Company is continuing to evaluate and assess alternatives for
the development and implementation of its NextExchange concept, a fully
electronic, national securities exchange offering screen-based trading systems.
It is envisioned that the eOX(TM), eAS(TM) and ePLOB(TM) could form the
technical backbone of the NextExchange concept. The Company does not anticipate
generating revenue from these systems or concepts during its fiscal year ended
March 31, 2000.
Results of Operations
For the Three Months Ended December 31, 1999 and 1998
The net income applicable to common stock totaled $644,703 or $.02 per share on
a diluted basis for the three months ended December 31, 1999, compared to a net
(loss) of $(2,205,981) or $(.20) per share for the three months ended December
31, 1998. The Company recorded net income before preferred dividends of
$1,115,292, or $.04 per share on a diluted basis for the three months ended
December 31, 1999, compared to a net loss of $1,978,003, or $.18 per share for
the three months ended December 31, 1998.
The Company's revenues totaled $2,012,693 for the three months ended December
31, 1999, and $427,884 for the three months ended December 31, 1998. UTTC(TM)
generated $18,900 from the operation of eVWAP(TM) during the
14
<PAGE>
three months ended December 31, 1999 and Gomez generated the balance of the
revenues. The revenues in the three months ended December 31, 1998 were
generated entirely by Gomez.
In the three months ended December 31, 1999, $703,481 or 35% of Gomez's revenues
were from subscriptions and related data and analysis services from its GomezPro
web site, which it began selling in March 1999. For the same period, Gomez
generated $1,033,112 in advertising, sponsorship, and transaction-based
revenues. Advertising revenue for the three months ended December 31, 1998 was
$246,000. Consulting and advisory service revenues for the three months ended
December 31, 1999 declined as a percentage of total revenues from the same
period in 1998 due to the introduction of the GomezPro web site and Research
Station. Total consulting and advisory service revenues were $257,200 or 13% of
Gomez's revenues in the three months ended December 31, 1999, compared to
$90,000 or 21% of revenues in the three months ended December 31, 1998.
The costs of revenues represent salaries associated with the delivery of Gomez's
consulting and advisory services, and amounts paid in connection with
transaction-based revenues. Costs of revenues for the three months ended
December 31, 1999 were $513,880 or 25.5% of total revenues, compared to $56,250
or 13.1% of revenues for the three months ended December 31, 1998. The increase
as a percent of total revenues is primarily due to the increase in advertising
and sponsorship revenues and the related increase in amounts paid for
transaction-based revenues.
During the three-months ended December 31, 1998, the Company amortized system
development costs related to the eVWAP(TM) totaling $47,677. The Company has not
capitalized computer software costs related to the eVWAP(TM) since the second
quarter of fiscal 1999, when the application development stage of the eVWAP(TM)
was completed. The capitalized computer software asset was completely amortized
during the second quarter of fiscal 2000.
Depreciation and amortization expense includes depreciation of property and
equipment, comprised primarily of computer equipment, and amortization of
intangible assets. Depreciation and amortization for the three months ended
December 31, 1999 increased to $218,327 from $92,499 for the three months ended
December 31, 1998, due to an increase in the computer equipment purchased.
Capital expenditures increased to approximately $653,000 for the three months
ended December 31, 1999 compared to approximately $98,000 in the same period
last year. The increase is primarily due to Gomez's purchase of computer
equipment and software to accommodate additional staff and to support the
increased traffic on their web site and network servers. The level of capital
expenditures is expected to increase as the Company moves to replace hardware
originally purchased in 1996, expand the operation of the eVWAP(TM) trading
system, and to develop additional trading systems.
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 the previous consulting agreement. The
Company recorded the deferred consulting expenses in 1998 and 1999 as a
reduction to stockholders' equity. During the three months ended December 31,
1998, $220,313 was reflected as a non-cash compensation charge for the
amortization of deferred consulting expenses. The deferred consulting expense
relating to this agreement was fully amortized during the second quarter of the
current fiscal year.
Selling, general and administrative expenses ("SG&A") totaled $6,154,085 and
$2,314,868 for the three-month periods ended December 31, 1999 and 1998,
respectively. For the period ended December 31, 1999, Gomez's SG&A totaled
$3,895,336, or 63% of the Company's total SG&A, compared to $444,478 or 19% in
the three months ended December 31, 1998. The increase in Gomez's SG&A was due
primarily to the growth in staff and related expenses incurred in building
Gomez's infrastructure, and increased advertising and marketing costs related to
introduction of new products and services.
Excluding Gomez, the Company's SG&A for the three months ended December 31, 1999
totaled $2,258,749 compared to $1,870,390 during the three months ended December
31, 1998. The increase in SG&A is primarily a result of the growth in staff and
is partially offset by decreases in consulting and professional fees. As of
December 31, 1999, ATG(TM) and UTTC(TM) employed a total of 35 employees
compared to 27 employees at December 31, 1998.
15
<PAGE>
Interest income increased to $420,416 for the three months ended December 31,
1999 from $35,640 for the three months ended December 31, 1998, as a result of
the higher cash and cash equivalents and investments available for sale
balances. (see "Liquidity and Capital Resources"). During the three months ended
December 31, 1999, the Company recorded a gain of $5,568,475 as a result of a
change in the accounting for its investment in Gomez from the consolidation
method to the equity method (see "Notes to Unaudited Consolidated Financial
Statements"). Other income for the three months ended December 31, 1998 relates
to judgments rendered in favor of the Company in connection with its claims
against Alliant Techsystems, Inc.
For the Nine Months Ended December 31, 1999 and 1998
The net loss applicable to common stock totaled $7,858,035 or $.33 per share for
the nine months ended December 31, 1999, and $16,906,033 or $1.63 per share for
the nine months ended December 31, 1998. The Company incurred a net loss before
preferred dividends of $6,355,256, or $.27 per share for the nine months ended
December 31, 1999, compared to a net loss of $11,020,912, or $1.06 per share for
the nine months ended December 31, 1998.
The Company's revenues totaled $3,868,566 and $1,079,836 for the nine months
ended December 31, 1999 and 1998, respectively. UTTC(TM) generated $31,617 from
the operation of eVWAP(TM) during the nine months ended December 31, 1999 and
Gomez generated the balance of the revenues. The revenues in the nine months
ended December 31, 1998 were generated entirely by Gomez.
In the nine months ended December 31, 1999, $1,351,400 or 35% of Gomez's
revenues were from subscriptions and related data and analysis services from its
GomezPro web site, which it began selling in March 1999. For the nine-month
periods ended December 31, 1999 and 1998, Gomez generated $1,730,549 and
$223,500, respectively, in advertising, sponsorship, and transaction-based
revenues. Consulting and advisory service revenues declined as a percentage of
total revenues due to Gomez's introduction of its GomezPro web site and Research
Station. Total consulting and advisory service revenues were $755,001 or 20% of
Gomez's revenues in the nine months ended December 31, 1999, compared to
$730,000 or 67% of revenues in the three months ended December 31, 1998.
The costs of revenues represent salaries associated with the delivery of Gomez's
consulting and advisory services, and amounts paid in connection with
transaction-based revenues. Costs of revenues for the nine months ended December
31, 1999 were $644,510 or 16.7% of total revenues, compared to $146,250 or 13.5%
of revenues for the nine months ended December 31, 1998. The increase as a
percent of total revenues is primarily due to the increase in advertising and
sponsorship revenues and the related increase in amounts paid for transaction-
based revenues.
During the nine-month periods ended December 31, 1999 and 1998, the Company
amortized system development costs related to the eVWAP(TM) totaling $95,354 and
$143,031, respectively. The Company has not capitalized computer software costs
related to the eVWAP(TM) since the second quarter of fiscal 1999, when the
application development stage of the eVWAP(TM) was completed. As of December 31,
1999, the capitalized computer software asset has been completely amortized.
Depreciation and amortization expense includes depreciation of property and
equipment, comprised primarily of computer equipment, and amortization of
intangible assets. Depreciation and amortization for the nine months ended
December 31, 1999 increased to $631,411 from $279,128 for the nine months ended
December 31, 1998, due to an increase in the computer equipment purchased.
Capital expenditures increased to approximately $2,114,000 for the nine months
ended December 31, 1999 compared to approximately $481,000 in the same period
last year. The increase is primarily due to Gomez's purchase of computer
equipment and software to accommodate additional staff and to support the
increased traffic on their web site and network servers. The level of capital
expenditures is expected to increase as the Company moves to replace hardware
originally purchased in 1996, expand the operation of the eVWAP(TM) trading
system, and to develop additional trading systems.
During the nine months ended December 31, 1999 and 1998, $285,208 and 509,375,
respectively, was reflected as a non-cash compensation charge for the
amortization of deferred consulting expenses in connection with the common stock
issued to Continental described above. The deferred consulting expense relating
to the agreement with Continental was fully amortized as of December 31, 1999.
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<PAGE>
In August, 1998, the Company entered into employment agreements with Julio
Gomez, John Robb and Alexander Stein. Pursuant to the employment agreements, an
aggregate of 3,000,000 options were granted at an exercise price of $.01 per
share. In addition, 1,400,000 options with an exercise price of $.01 per share
were granted to certain officers and directors of ATG(TM). During the nine
months ended December 31, 1998, Gomez and the Company recognized a non-cash
compensation charge of $4,367,809 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 those options. Those options were exchanged for
Gomez common stock on January 22, 1999 pursuant to an exchange agreement among
Gomez, ATG(TM), and other persons affiliated with them. Also during the nine
months ended December 31, 1998, the Company incurred a non-cash compensation
charge of $258,327 related to the issuance of non-employee stock options to
consultants and professional advisors.
SG&A totaled $14,492,494 and $6,797,989 for the nine-month periods ended
December 31, 1999 and 1998, respectively. For the nine months ended December 31,
1999, Gomez's SG&A totaled $8,325,399, or 57% of the Company's total SG&A,
compared to $1,466,790 or 22% in the nine months ended December 31, 1998. The
increase in Gomez's SG&A was due primarily to the growth in staff and related
expenses incurred in building Gomez's infrastructure, and increased advertising
and marketing costs related to introduction of new products and services.
Excluding Gomez, the Company's SG&A for the nine months ended December 31, 1999
totaled $6,167,095 compared to $5,331,199 during the nine months ended December
31, 1998. The increase in SG&A is primarily a result of the growth in staff of
ATG(TM) and UTTC(TM), and is partially offset by decreases in consulting and
professional fees.
Interest income increased to $773,312 for the nine months ended December 31,
1999 from $111,081 for the nine months ended December 31, 1998, as a result of
the higher cash and cash equivalents and investments available for sale
balances. (see "Liquidity and Capital Resources"). During the nine months ended
December 31, 1999, the Company recorded a gain of $5,568,475 as a result of a
change in the accounting for its investment in Gomez from the consolidation
method to the equity method (see "Notes to Unaudited Consolidated Financial
Statements"). Other expense for the nine months ended December 31, 1999 is
comprised of a charge of $416,632 for the value of UTTC(TM) stock issued to a
former director in satisfaction of the terms of an agreement executed on June
29, 1999 between the former director and the Company. Other income for the nine
months ended December 31, 1998 relates to judgments rendered in favor of the
Company in connection with its claims against Alliant Techsystems, Inc.
Liquidity and Capital Resources
At December 31, 1999, the Company's consolidated total assets were $27,014,359,
compared to $5,653,737 at March 31, 1999. Current assets at December 31, 1999
totaled $25,309,387 and current liabilities were $294,365. Stockholders' equity
at December 31, 1999 increased to $24,719,994 from $4,444,978 at March 31, 1999
due to the private placement of 20,000 shares of its Series F Preferred Stock
for gross proceeds of $20,000,000, the issuance of 1,582,685 shares of its
common stock for proceeds of $7,908,713 in connection with the Company's Private
Equity Line of Credit Agreement (see "Notes to Unaudited Consolidated Financial
Statements - Stockholders' Equity"), and the exercise of stock options and
warrants. The increase in stockholders' equity resulting from the issuance of
stock was partially offset by the net loss applicable to common stock of
$7,858,035 and net issuance costs of approximately $1,800,000.
At December 31, 1999, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $14,904,873 and investments available for sale of
$9,912,120, compared to cash and cash equivalents of $2,667,347 at March 31,
1999. The increase in cash and cash equivalents and investments available for
sale is primarily a result of (i) the private placement of 20,000 shares of
ATG(TM)'s Series F Convertible Preferred Stock for gross proceeds of $20,000,000
in August 1999, and (ii) the private placement of UTTC(TM)'s Series TK
Convertible Preferred Stock for gross proceeds of $2,000,000 in June 1999. (see
"Notes to Unaudited Consolidated Financial Statements - Certain Transactions").
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 Unaudited Consolidated Financial Statements - Stockholders'
Equity"). During the nine
17
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months ended December 31, 1999, the Company drew down $5,750,000 under the
agreement, reaching the aggregate commitment of $18,000,000.
Gomez has historically generated substantially all of the Company's revenues. As
of December 30, 1999, the Company began accounting for its remaining investment
in Gomez under the equity method of accounting rather than the consolidation
method. As a result, the Company's projected revenues will decrease materially
during the quarter ended March 31, 2000. The revenues reported for the nine
months ended December 31, 1999 will constitute virtually all of the Company's
revenues for the year ended March 31, 2000.
The Company's future revenues will be dependent upon the Company's ability to
deploy its eVWAP(TM) trading system and customer utilization of the eVWAP(TM)
trading system. The Company believes, on a forward-looking basis, it will begin
to generate more significant revenues during its fiscal year ending March 31,
2001. The level and timing of such revenue is dependent upon, among other
factors, the Company's assumptions regarding (i) the rollout of the eVWAP(TM)
trading system implementation; (ii) the trading volume experienced by the
eVWAP(TM) trading system; and (iii) the pricing the Company is able to obtain
for eVWAP(TM) trade execution. Until adequate revenue is derived from the
eVWAP(TM) trading system, the Company's cash and cash equivalents, investments
and cash flow from operations will be sufficient to meet the presently
anticipated cash requirements of the Company for a period of approximately
twenty-four months.
The Company's future capital requirements will depend on many factors, including
the timing for the implementation of the next phases of the eVWAP(TM) trading
system, 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 continued delays in expanding the eVWAP(TM), or
(iii) the Company fails to successfully develop markets for its products. The
Company and its subsidiaries will also require additional financing to fund
development of its products and launch the Canadian and Asian joint ventures.
Such financing may be raised through spin-offs, additional equity offerings,
borrowings, or other collaborative relationships, which may require Ashton to
share ownership of its subsidiaries, joint ventures, and/or revenue from
products and services. There can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all.
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 problems 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. To date, the Company's products, computing and
communications infrastructure systems have operated without Y2K related
problems, and appear to be Y2K ready. The Company is not aware that any of its
major customers, business partners or third-party vendors have experienced
significant Y2K related problems. Y2K experts have warned, however, that
potential problems may arise after January 1, 2000, therefore, the Company is
continuing to monitor for Y2K related problems. Although the Company believes
all its critical systems are Y2K ready, there is no guarantee that the Company
has discovered all possible failure points. Specific factors contributing to
this uncertainty include failure to identify all systems, non-ready third
parties whose systems and operations impact the Company, and other similar
uncertainties.
Costs. To date, the Company estimates it has spent less than $50,000 related to
Y2K preparation. However, the costs incurred to address this issue could become
material if the Company identifies non-compliant systems and
18
<PAGE>
third-party technology which must be replaced or modified, or if the Company
identifies any other problems throughout 2000 related to the Y2K issue which
must be addressed.
Risks. The Company has encountered delays in deploying its eVWAP(TM) trading
system with potential users and business partners as a result of Y2K. This
situation has, in some instances, been referred to as the "Y2K lockout". The Y2K
lockout involves organizations "locking down" their existing systems and
refusing to introduce new systems, hardware, or technology into operation during
the millennium transition period. During the lockout phase, organizations are
not introducing any new technology enhancements, products or services, and are
deploying technical resources to the remediation and testing phases of their Y2K
plans and the preparation for post-Y2K lockout activities. Many organizations
have reported that their lockout periods extend until March 2000.
As a result of these lockouts the Company has encountered delays in deploying
its eVWAP(TM) with certain potential users and business partners. Once the
lockout period is completed, the Company will need to work with its business
partners and potential users to accelerate the prioritization of the eVWAP(TM)
deployment by these organizations.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.15 Certificate of Designation for UTTC (TM) Series TK Convertible
Preferred Stock
4.4 Form of Stock Purchase K Warrants
10.35 Stock Purchase Agreement between TK Holdings, Inc. and UTTC(TM)
dated as of June 4, 1999
10.36 Joint Venture Agreement by and between The Ashton Technology
Group, Inc. and Kingsway Electronic Services, Ltd. dated as of
December 16, 1999
10.37 Unanimous Shareholder Agreement between The Ashton Technology
Group, Inc., 3690822 Canada, Inc. and Ashton Technology Canada,
Inc. dated as of December 20, 1999
10.38 Amended Stockholders Agreement of Gomez Advisors, Inc. dated as
of December 30, 1999
10.39 Tax Allocation Agreement by and among The Ashton Technology
Group, Inc. and UTTC(TM) dated as of October 27, 1999
10.40 Management Services Agreement between The Ashton Technology
Group, Inc. and UTTC(TM) dated as of October 27, 1999
27 Financial Data Schedule
(B) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
The Ashton Technology Group, Inc.
----------------------------------
(Registrant)
Date: February 11, 2000 By: /s/ Arthur J. Bacci
----------------------------- ---------------------------------
_____________________________ Arthur J. Bacci
President and
Chief Financial Officer
21
<PAGE>
EXHIBIT 3.15
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
CERTIFICATE OF DESIGNATION
FOR
SERIES TK CONVERTIBLE
PREFERRED STOCK
______________________________
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
_________________________________
Universal Trading Technologies Corporation (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "DGCL"), does hereby certify that pursuant to the
provisions of Section 151 of the DGCL, the Board of Directors of the
Corporation, at a meeting duly convened on June 4, 1999 at which a quorum was
present at all times, adopted the following resolution, which resolution remains
in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Corporation's Certificate
of Incorporation, to fix by resolution or resolutions the designation of each
class or series of Preferred Stock (the "Preferred Stock") and the voting
powers, and any designations, preferences, and relative, participating, optional
or other special rights of any such class or series of Preferred Stock, as well
as such other provisions with regard to redemption (at the option of the holders
thereof and/or at the option of the Corporation), dividends, dissolution or the
distribution of assets, conversion or exchange, and any qualifications or
restrictions thereof or such other subjects or matters as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix the terms of the
series of Preferred Stock designated as Series TK Convertible Preferred Stock
(the "Series TK Preferred"):
1
<PAGE>
NOW THEREFORE, be it resolved, that the terms and provisions of such
series and all other right or preferences granted to or imposed upon such series
or the holders thereof are as herein set forth:
1. Rank. The Series TK Preferred shall, with respect to rights upon
liquidation, dissolution and winding-up of the Corporation, rank pari passu with
all other series of preferred stock or other class of security expressly ranking
pari passu ("Pari Passu Classes") with the Series TK Preferred of the
Corporation and prior to all series or classes of Common Stock of the
Corporation ("Common Stock"). Nothing contained herein shall be construed to
prohibit the Corporation from authorizing or issuing, in accordance with its
Certificate of Incorporation and bylaws, as the same may be amended and in
effect from time to time, any classes or series of equity securities of the
Corporation ranking senior to or pari passu with the Series TK Preferred with
respect to rights upon liquidation, dissolution and winding-up of the
Corporation or both.
2. Dividends. The holders of the shares of the Series TK Preferred
shall not be entitled to dividends.
3. Liquidation Preference.
(a) Subject to the rights of holders of any class of capital stock
or series thereof expressly ranking senior to the Series TK Preferred, upon any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holder of each share of the Series TK Preferred then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount equal to $13.727 for
each share of Series TK Preferred then held by such holder (such amount being
herein called the "Liquidation Preference") before any payment shall be made or
any assets distributed to the holders of Common Stock or any other series of
capital stock junior to the Series TK Preferred. If the assets of the
Corporation are not sufficient to pay in full the payments payable to the
holders of outstanding shares of Series TK Preferred and any Pari Passu Classes
upon the liquidation, dissolution or winding up of the affairs of the
Corporation, then the holders of all such shares shall share ratably with all
other holders of shares of Series TK Preferred and Pari Passu Classes in such
distribution of assets in proportion to the Liquidation Preference of the
respective shares.
(b) For the purposes of this Section 3, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more other corporations or other entities shall be deemed to be a
liquidation, dissolution or winding up of the Corporation, voluntarily or
involuntarily.
2
<PAGE>
4. Conversion.
(a) Rights of Holder of Convert. At any time (i) after April 30,
2001 or (ii) upon a "Change of Control" (as defined below) each holder of shares
of Series TK Preferred may, at the option of the holder exercisable at any time
and from time to time thereafter, convert some or all of such holder's shares of
Series TK Preferred into such number of shares of Common Stock, par value $0.01
per share, of the Corporation (the "Common Stock") as is obtained by multiplying
the number of shares of Series TK Preferred to be so converted by 10 (such
number, as adjusted from time to time pursuant hereto, is herein called the
"Conversion Ratio"). For purposes hereof a "Change of Control" shall mean: (x)
the consolidation or merger of the Corporation or any affiliate of the
Corporation holding or controlling a majority of the assets relating to the
business of the Corporation with or into any third party; (y) the assignment,
sale, transfer, lease or other disposition of all or substantially all of the
assets of the Corporation and its affiliates taken as a whole; or (c) the
acquisition by any third party or group of third parties acting in concert, of
beneficial ownership of shares of greater than fifty percent (50%) of the voting
stock of the Corporation.
(b) Adjustments to Conversion Ratio. The Conversion Ratio shall be
adjusted, from time to time by the Board of Directors of the Corporation, to
reflect the effect of any stock dividend, stock split, reverse stock split,
merger, consolidation, recapitalization (other than the issuance of Common Stock
in exchange for indebtedness or other obligation of similar value),
reorganization or other similar transaction affecting the Corporation so that
immediately following such event the holders of the Series TK Preferred shall be
entitled to receive upon conversion thereof the kind and amount of shares of
securities of the Corporation and other property which they would have owned or
been entitled to receive upon or by reason of such event if such shares of
Series TK Preferred had been converted immediately before the record date (or,
if no record date, the effective date) for such event. An adjustment made
pursuant to this paragraph (b) of this Section 4 shall become effective
immediately after the opening of business on the day next following the record
date in the case of a dividend or distribution and shall become effective
immediately after the opening of business on the day next following the
effective date in the case of an applicable subdivision, combination,
reclassification, merger, recapitalization, reorganization or other similar
transaction.
(c) Notice of Adjustments. The Corporation shall give each holder
of Series TK Preferred prior written notice delivered to the applicable address
set forth on the record books of the Corporation of each adjustment made
pursuant to this paragraph (b) of Section 4.
(d) Procedures for Conversion. Any holder of Series TK Preferred
electing to convert such shares or any portion thereof commencing on or after
April 30, 2001, shall deliver the certificates therefor to the principal office
of the Corporation, with the form of notice of election to convert endorsed on
such certificates fully completed and duly executed. The conversion right with
respect to such Series TK Preferred shall be deemed to have been
3
<PAGE>
exercised on the date upon which the certificates therefor with such notice of
election duly executed shall have been so delivered, and the person or persons
entitled to receive Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common Stock on such
date.
(e) No Fractional Securities. No fractional shares of Common Stock
shall be issued upon conversion of shares of Series TK Preferred. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any share or shares of Series TK Preferred, the Corporation shall
pay a cash adjustment in respect of such fraction in such amount as the Board of
Directors of the Corporation shall in good faith determine.
(f) Taxes. If a holder converts shares of Series TK Preferred, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of securities of the Corporation to the holder upon the
conversion. The holder shall pay any such tax due because any shares are issued
in a name other than the holder's.
(g) Reservation of Shares. The Corporation shall at all times
reserve out of its authorized but unissued shares of Common Stock, or such
shares held in treasury enough of such shares (or other securities deliverable
upon conversion) to permit the conversion of all of the Series TK Preferred then
outstanding and the issuance of shares of Common Stock issuable upon the
conversion of all of the Series TK Preferred then outstanding. All shares of
Common Stock issued upon due conversion of shares of Series TK Preferred shall
be validly issued, fully paid and non-assessable.
5. Redemption.
(a) General. At any time and from time to time after the sixth
anniversary of the date this Certificate of Designation is first filed with the
Secretary of State of the State of Delaware, the Corporation may redeem all or
any portion of the then outstanding Series TK Preferred for an amount in cash
equal to the Liquidation Preference in accordance with the provisions of this
Section 5.
(b) Redemption Procedure. If the Corporation shall determine to
redeem less than all shares of the Series TK Preferred then outstanding pursuant
to paragraph (a) of this Section 5, (i) the shares to be redeemed shall be
selected pro rata (or as nearly as may be) so that the number of shares redeemed
from each holder shall bear the same proportion to all the shares to be redeemed
that the total number of shares then held by such holder bears to the total
number of shares then outstanding or (ii) if the number of holders of the Series
TK Preferred Stock exceeds 50, and the Board of Directors so determines, the
shares to be redeemed shall be selected by lot.
(c) Notice. Notice of every redemption pursuant to this Section 5
shall be mailed, first class, postage prepaid, not less than 60 days prior to
the date fixed for redemption
4
<PAGE>
(the "Redemption Date"), to each holder's address as it appears on the books of
the Corporation. Each such notice shall state: the Redemption Date; the number
of shares of Series TK Preferred to be redeemed, and, if less than all shares of
Series TK Preferred held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; the redemption price applicable to the
shares to be redeemed; and the place or places where such shares are to be
surrendered.
(d) Rights of Holders. Notice having been mailed as aforesaid,
from and after the Redemption Date (unless the Corporation defaults in providing
money for the payment of the redemption price) said shares shall no longer be
deemed to be outstanding, all rights of holders thereof as stockholders of the
Corporation (except the right to receive the redemption price thereof, without
interest) shall terminate, and, upon surrender, in accordance with said notice,
of the certificates representing any such shares (properly endorsed or assigned
for transfer, if the Board of Directors of the Corporation shall so require),
such shares shall be redeemed by the Corporation at the applicable redemption
price; provided, however, that the Corporation may include in such notice a
statement that the money required for the payment of the redemption price will
be deposited on a specified date, prior to the Redemption Date, with a specified
bank or trust company (which shall have an office in The City of New York and
which shall have a combined capital and surplus of not less than $50,000,000) in
trust for the benefit of holders of shares called for redemption, and, notice
having been given, from and after such deposit shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith upon such deposit cease and terminate except for the
right to receive the amount payable upon surrender of the certificates
representing such shares from such bank or trust company (but not from the
Corporation). If less than all the shares represented by any surrendered
certificate are redeemed, a new certificate representing the unredeemed shares
shall be issued to the holder who surrendered such certificate. Holders of
shares of Series TK Preferred called for redemption shall not be entitled to any
interest allowed by any such depositary on money deposited to effect the
redemption but any such interest shall be paid to the Corporation. Any money
deposited as aforesaid for redemption of any shares and remaining unclaimed for
four years and eleven months after the date of such deposit shall then be repaid
to the Corporation upon its request, and the holders of such shares shall
thereafter look only to the Corporation for payment of the redemption price
thereof, without interest.
(e) Status of Redeemed Shares. Any share of Series TK Preferred
redeemed or otherwise purchased or acquired by the Corporation shall be retired,
shall no longer be deemed outstanding, and shall not be reissued.
6. Voting Rights. The holders of record of shares of Series TK
Preferred shall not be entitled to vote on any matters presented to the
stockholders of the Company for approval, except as required by law.
5
<PAGE>
7. General Provisions.
(a) "Outstanding" Securities. The term "outstanding", when used
with reference to shares of stock, shall mean issued shares, excluding shares
held by the Corporation, or a subsidiary thereof.
(b) Headings. The headings of the paragraphs, subparagraphs,
clauses, and sub-clauses of this Certificate of Designation are for convenience
of reference only and shall not define, limit, or affect any of the provisions
hereof.
IN WITNESS WHEREOF, the undersigned have caused this certificate to be
signed by their respective Presidents and Secretaries, respectively, this 4th
day of June, 1999.
UNIVERSAL TRADING
TECHNOLOGIES CORPORATION
/s/ Fred S. Weingard
------------------------------------
Fred S. Weingard
President
/s/ John Blohm
------------------------------------
John Blohn
Secretary
6
<PAGE>
EXHIBIT 4.4
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED OR REGISTERED
UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR SUCH
SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933,
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND
REGULATIONS THEREUNDER.
STOCK PURCHASE "K" WARRANT
No. 3
To Purchase 500,000 Shares of Common Stock of
THE ASHTON TECHNOLOGY GROUP, INC.
THIS CERTIFIES that, for value received, TK Holdings, Inc. (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after June 4, 2000 and on or prior to
June 4, 2002 (the "Termination Date") but not thereafter, to subscribe for and
purchase from THE ASHTON TECHNOLOGY GROUP, INC., a Delaware corporation (the
"Company") five hundred thousand (500,000) shares of Common Stock (the "Warrant
Shares"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be equal to two dollars and fifty cents
($2.50). The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant is
being issued in connection with that certain Joint Venture Agreement of even
date herewith (the "Agreement") by and among the Investor, TK Holdings, Inc.
In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
<PAGE>
3. Vesting of Shares Underlying Warrant. The right to purchase the
Warrant Shares shall vest in quarterly installments of one hunderd and twenty-
five thousand (125,000) shares beginning on the first anniversary of the Closing
Date (as defined in the Agreement) and on the last business day of each complete
calendar quarter thereafter.
4. Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole, before the close of
business on the Termination Date, or such earlier date on which this Warrant may
terminate as provided in paragraph 13 below, by the surrender of this Warrant
and the Subscription Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price of
the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within five business days after the date on which this Warrant
shall have been exercised as aforesaid. Payment of the Exercise Price of the
shares may be by certified check or cashier's check or by wire transfer to an
account designated by the Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
5. Mandatory Exercise. At the written demand of the Company, at the
Company's sole discretion, the Investor shall exercise any remaining portion of
the Warrant on the first business day following the twentieth (20th) consecutive
business day on which the closing stock price of the Common Stock of the Company
on the Nasdaq Small Cap Market, or each other securities market on which such
shares are listed for trading, shall exceed $15 per share. Any unvested portion
of the Warrant shall vest immediately upon such written demand by the Company.
If the Investor shall fail to exercise this Warrant within thirty (30) days of
the demand made by the Company pursuant to this Section 5, this Warrant shall
terminate.
6. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
7. Charges, Taxes and Expenses. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
<PAGE>
8. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
9. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. If, however, at the time of the
surrender of this Warrant and purchase the holder hereof shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised.
10. Assignment and Transfer of Warrant. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act of 1933, as amended, or
(ii) in a transaction pursuant to an exemption, if available, from such
registration and whereby, if requested by the Company, an opinion of counsel
reasonably satisfactory to the Company is obtained by the holder of this Warrant
to the effect that the transaction is so exempt.
11. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
12. Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
13. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in which
the consideration to be received by the Company or its shareholders consists
solely of cash, the Company shall give the holder of this Warrant thirty (30)
days' notice of the proposed effective date of the transaction specifying that
the Warrant shall terminate if the Warrant has not been exercised by the
effective date of the transaction.
3
<PAGE>
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) "Piggy-Back" Registration. The holder of this Warrant shall
have the right to include all of the shares of Common Stock underlying this
Warrant (the "Registrable Securities") as part of any registration of securities
filed by the Company (other than in connection with a transaction contemplated
by Rule 145(a) promulgated under the Act or pursuant to Form S-8) and must be
notified in writing of such filing. Holder shall have five (5) business days to
notify the Company in writing as to whether the Company is to include holder or
not include holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this paragraph 13(c) be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering pursuant
to the foregoing provisions of this paragraph 13(c) (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering.
14. Adjustments of Exercise Price and Number of Warrant Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time in case the
Company shall (i) declare or pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock in a reclassification of the
Common Stock, the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior thereto shall be adjusted so that the holder of this
Warrant shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which such holders would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof. An
adjustment made pursuant to this paragraph shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.
4
<PAGE>
15. Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.
16. Notice of Adjustment. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
17. Authorized Shares. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
the NASDAQ Small Cap Stock Market or any domestic securities exchange upon which
the Common Stock may be listed for trading.
18. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws and jurisdictions of New York and for all
purposes shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules and be subject
to the arbitration provisions as set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
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(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: June 4, 1999
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Arthur J. Bacci
_________________________________________
Name: Arthur J. Bacci
Title: President
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NOTICE OF EXERCISE
To: THE ASHTON TECHNOLOGY GROUP, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock of
THE ASHTON TECHNOLOGY GROUP, INC. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________(Name)
_______________________________(Address)____________________
___________
Dated:
______________________________Signature
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ___________________,
Holder's Signature: ___________________________
Holder's Address: ___________________________
___________________________
Signature Guaranteed: ____________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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EXHIBIT 10.35
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of June 4, 1999 (the "Agreement"),
by and among TK HOLDINGS, INC., a Canadian corporation ("TK Holdings"), located
at 365 Bay Street, 10th Floor, Toronto, Ontario, CANADA MSH 2V2, and Mark
Valentine ("Valentine"; each of Valentine and TK Holdings, an "Investor", and
collectively, the "Investors"), UNIVERSAL TRADING TECHNOLOGIES CORPORATION, a
corporation organized and existing under the laws of the State of Delaware (the
"Company") located at 1900 Market Street, Suite 701, Philadelphia, Pennsylvania
19103, and THE ASHTON TECHNOLOGY GROUP, INC. ("ATG") located at 1900 Market
Street, Suite 701, Philadelphia, Pennsylvania 19103. The Investors, the Company
and ATG together are referred to collectively as the "Parties" and each, a
"Party".
WHEREAS, the Parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
as provided herein, and the Investors shall purchase (a) certain shares of the
Company's Series TK Convertible Preferred Stock (the "Preferred Stock") and (b)
two (2) warrants to purchase shares of the common stock of ATG, par value $.01
per share ("ATG Common Stock") (each a "Warrant" and collectively, the
"Warrants") as more fully described herein (together, the "Securities") for an
aggregate purchase price of $2,000,000 (the "Aggregate Purchase Price"); and
WHEREAS, such investment will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the
Securities Act of 1933, as amended (the "Securities Act") and the regulations
promulgated thereunder, and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the offer
and sale of the Securities to be made hereunder; and
NOW, THEREFORE, the Parties hereto agree as follows:
ARTICLE I
Purchase and Sale of the Securities
Section I.1 Sale and Issuance of the Securities.
The Company agrees to sell and the Investors agrees to purchase from
the Company: (a) 145,700 shares of the Preferred Stock, and (b) two (2)
Warrants, for an aggregate purchase price of $2,000,000 at the Closing (as
hereinafter defined).
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Section I.2 Terms of Preferred Stock.
The rights, privileges and preferences of the Preferred Stock shall be
as stated in the Certificate of Designation for the Preferred Stock, the form of
which is attached hereto as Exhibit A, as filed with the appropriate offices of
the State of Delaware.
Section I.3 Terms of the Warrant.
The rights, privileges and preferences of the Warrants shall be stated
in the Stock Purchase Warrants, the forms of which are attached hereto as
Exhibits B-1 and B-2.
Section I.4 Closing.
The purchase and sale of the Securities shall take place at 9:00 a.m.,
Eastern Standard Time, on June 4, 1999 (the "Closing Date") at the offices of
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor,
Philadelphia, PA 19103, or at such other place as the Parties mutually agree
upon orally or in writing (which time and place are designated as the
"Closing"). At the Closing, the Parties shall complete each of the following
conditions:
(1) The execution and delivery by the Company, ATG and the Investors
of this Agreement, and all Exhibits and Attachments hereto;
(2) The delivery into escrow by the Company of certificates
representing the Securities;
(3) The delivery into escrow by the Investors of good cleared funds in
the amount of $2,000,000 as payment for the Securities;
(4) The delivery of evidence of the filing by the Company of the
Certificate of Designation for the Preferred Stock (the "Certificate of
Designation"), with the appropriate offices of the State of Delaware.
(5) The execution and delivery by the Company and the Investors of a
letter of intent in regard to a joint venture proposed to be formed by the
Parties in the form satisfactory to each Party.
ARTICLE II
Representations and Warranties of the Investors
Each of the Investors hereby represents and warrants to the Company
that the following are true and correct as of the Closing Date:
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Section II.1 Organization and Authorization. TK Holdings is duly
incorporated or organized and validly existing in the country of its
incorporation or organization and each of the Investors has all requisite power
and authority to purchase and hold the Securities to be issued hereunder. The
decision to invest and the execution and delivery of this Agreement by the
Investors, the performance by each of the Investors of its obligations hereunder
and the consummation by the Investors of the transactions contemplated hereby
have been duly authorized and require no other action or proceeding on the part
of the Investors. The undersigned executing this Agreement on behalf of TK
Holdings has all right, power and authority to execute and deliver this
Agreement on behalf of TK Holdings. This Agreement has been duly executed and
delivered by each of the Investors and, assuming the execution and delivery
hereof and acceptance thereof by the Company and ATG, will constitute the legal,
valid and binding obligation of each of the Investors, enforceable against each
of the Investors in accordance with its terms.
Section II.2 Sophisticated Investors. Each of the Investors 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 each of the
Investors has such experience in business and financial matters that it is
capable of evaluating the merits and risks of, and bearing the economic risks
entailed by, an investment in the Securities and protecting its interest in
connection with this transaction. Each of the Investors acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
Section II.3 Independent Counsel. Each of the Investors acknowledges
that it has been advised to consult with its own attorney regarding legal
matters concerning the Company and ATG and to consult with its tax advisor
regarding the tax consequences of acquiring the Securities issuable hereunder.
Each of the Investors acknowledges that it has been advised to consult with its
own attorney regarding any laws of any country other than the United States.
Section II.4 No Public Market. Each of the Investors acknowledges
that it is aware that there is no public market for the Preferred Stock, the
Warrants or the Common Stock underlying the Preferred Stock. Each of the
Investors acknowledges that it is aware that a public market may not develop for
the Preferred Stock, the Warrants or the Common Stock underlying the Preferred
Stock.
Section II.5 No Registration. Each of the Investors understands that
neither the Preferred Stock, the Common Stock underlying the Preferred Stock,
the Warrants nor the ATG Common Stock issuable upon the exercise of the Warrants
have been registered under the Securities Act, any state securities law or any
other securities laws but are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of the Securities Act and
certain state securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of each of the
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Investors set forth herein in order to determine the applicability of such
exemptions and the suitability of each of the Investors to acquire the
securities hereunder.
Section II.6 Investment Intent. Each of the Investors is entering
into this Agreement solely for its own account and each of the Investors has no
present intention or arrangement (whether or not legally binding) at any time to
sell or distribute any of the Securities to or through any person or entity.
Each of the Investors understands and agrees that it may bear the economic risk
of its investment in the Securities for an indefinite period of time.
Section II.7 Transfer Restrictions Regarding the Preferred Stock.
The Investors understands that the Securities are characterized as "restricted
securities" under the United States securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under the Securities Act and applicable regulations the securities may be
resold without registration under the Securities Act only in certain limited
circumstances and only with the prior approval by the Company. In this regard,
each of the Investors represent that he or it is familiar with Rule 144 under
the Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
Section II.8 Registration Rights. The Investors understand that
they shall have no registration rights with respect to the Securities other than
those set forth in Section 5.1 of the Agreement and or may be provided in the
Warrants.
Section II.9 No Advertisements. None of the Investors are 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 II.10 Foreign Investors. Each of the Investors that is not a
United States person hereby represents that he or it has satisfied himself or
itself as to the full observance of the applicable laws of his or its country
and/or jurisdiction in connection with any invitation to subscribe for the
Securities or any use of the Agreement, including (i) the legal requirements
within his or its country and/or jurisdiction for the purchase of the
Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any government or other consents that may need to be obtained, and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities. Each of the
Investors' subscription and payment for, and his or its continued beneficial
ownership of, the Securities, will not violate any applicable securities or
other laws of its country and/or jurisdiction.
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ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to the Investors that the
following are true and correct as of the Closing Date:
Section III.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.
Section III.2 Capitalization. The authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock, $.01 par value per share,
of which 24,280,592 are outstanding, 2,000,000 shares of non-voting Preferred
Stock, $.01 par value, of which none are outstanding. All issued and outstanding
shares of Common Stock and Preferred Stock have been duly authorized and validly
issued and are fully paid and nonassessable.
Section III.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. 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 Securities are subject to restrictions on transfer under federal and/or
state 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 III.4 Offering. Subject in part to the truth and accuracy of
the Investors' representations as set forth in Article II of this Agreement, the
offer, sale and issuance of the Securities as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will purposefully take any
action hereafter that would cause the loss of such exemption.
Section III.5 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 any provision of the
Company's Certificate of Incorporation, bylaws or any amendments thereto. 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
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violation of, or default, or give rise to a right of termination, cancellation
or acceleration of any material obligation or to a loss of any material benefit,
under 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 III.6 No Undisclosed Liabilities or Events. With the
exception of certain contingent liabilities set forth on Schedule 3.6 hereto,
the Company has no liabilities or obligations other than those incurred in the
ordinary course of the Company's business, 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 have occurred or exist 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 III.7 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, or any decree, judgment, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, in each case which default, lien or charge is likely to cause a
material adverse effect on the Company's business and financial condition.
Section III.8 Litigation. With the exception of certain potential
litigation set forth on Schedule 3.8 hereto, 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.
Section III.9 Title to Assets. The Company has good and marketable
title to all properties and material assets 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.
Section III.10 Required Governmental Permits. The Company and its
subsidiaries are 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 III.11 Governmental Consent. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company
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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 III.12 Other Outstanding Securities/Financing Restrictions.
Other than the Common Stock, Preferred Stock, and warrants and options disclosed
in Section 3.12 hereto, there are no other outstanding securities, debt or
equity presently convertible into Common Stock.
Section III.13 Dilution. The Company is aware and acknowledges that
conversion of the Preferred Stock and the issuance of Common Stock underlying
the Preferred Stock, could cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of the Company's Common
Stock.
ARTICLE IV
Covenants of the Investors
Section IV.1 Conversion Holding Period/Conversion Limits. The
Investors warrants and agrees that it shall not exercise its right to convert
the Preferred Stock as set forth in the Certificate of Designation until the
earlier of (i) April 30, 2001; or (ii) upon the occurrence of a Change of
Control (as defined herein) of the Company (together the "Holding Period").
Section IV.2 Mandatory Conversion. In the event the Preferred Stock
has not been converted by or before April 30, 2004, the Investors's Conversion
Rights as set forth in the Certificate of Designation shall expire and the
Company shall not be obligated under any provisions of this Agreement to issue
the Common Stock underlying the Preferred Stock.
Section IV.3 Short Selling. The Investors hereby covenants that it
shall not engage in any short sales of the Company's Common Stock or the ATG
Common Stock.
ARTICLE V
Covenants of the Company and ATG
Section V.1 Registration Rights. The Company covenants and agrees
that it shall register the Common Stock issuable upon conversion of the
Preferred Stock pursuant to the Securities Act, upon written demand by the
Investors, on one occasion following the fourth (4th) anniversary of the Closing
Date. Notwithstanding the preceding sentence, the Company covenants and agrees
that it shall register such Common Stock pursuant to the Securities Act, upon
written demand by the Investors, at such time that the Company shall engage in
an initial public offering of its Common Stock provided, however, that the
amount of the Common Stock
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registered pursuant to this sentence shall be subject to adjustment by any
underwriter engaged by the Company, at its sole discretion, in connection with
any such initial public offering.
Section V.2 Amendment of Charter or Issuance of Senior Preferred
Stock. The Company covenants and agrees that it shall not (i) amend the
Certificate of Incorporation of the Company or the Certificate of Designation in
any manner that adversely affects the rights of the Investors or (ii) authorize
the issuance of preferred stock ranking senior to the Preferred Stock, without
the prior approval of a majority-in-interest of the Investors; provided,
however, that such approval shall not be unreasonably withheld.
Section V.3 Reservation of Common Stock.
V.3.1 Company 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
Common Stock upon the conversion of the Preferred Stock. The number of shares of
Common Stock so reserved shall be increased or decreased to provide for any
adjustment to the number of shares of Common Stock issuable upon the conversion
of the Preferred Stock as contemplated in the Certificate of Designation.
V.3.2 ATG Common Stock. As of the date hereof, ATG has authorized
and reserved and ATG shall continue to reserve and keep available at all times,
free of preemptive rights, shares of ATG Common Stock for the purpose of
enabling ATG to satisfy its obligation to issue the ATG Common Stock pursuant to
the Warrant and pursuant to Section 5.10 hereof. The number of shares of ATG
Common Stock so reserved shall be increased or decreased to accommodate any anti
dilution protection in the Warrants.
Section V.4 Legends. The certificates evidencing the Common Stock to
be issued to the Investors upon conversion of the Preferred Stock and the
certificates evidencing the ATG Common Stock to be issued to the Investors upon
exercise of the Warrants shall be free of legends, except as set forth in
Article VII.
Section V.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section V.6 Change of Control.
V.6.1 Assumption of Obligations. The Company shall not, at any time
after the date hereof, effect any Change of Control unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the Company's obligations pursuant to this Agreement.
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V.6.2 Definition of Change of Control. A "Change of Control" shall
mean: (a) the consolidation or merger of the Company or any affiliate of the
Company holding or controlling a majority of the assets relating to the business
of the Company with or into any third party; (b) the assignment, sale, transfer,
lease or other disposition of all or substantially all of the assets of the
Company and its affiliates taken as a whole; or (c) the acquisition by any third
party or group of third parties acting in concert, of beneficial ownership of
shares of greater than fifty percent (50%) of the voting stock of the Company.
Section V.7 Conversion of the Preferred Stock. The Company agrees
that it shall permit the Investors to exercise their right to convert the
Preferred Stock by telecopying an executed and completed notice of conversion (a
"Notice of Conversion") to the Company and delivering the original Notice of
Conversion and the certificate representing the 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 Preferred Stock (together with the certificates representing
the Preferred Stock not so converted) to the Investors via express courier, by
electronic transfer or otherwise within five (5) business days after the
conversion date if the Company has received the original Notice of Conversion
and Preferred Stock certificate being so converted by such date. The Investors
will be entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Company within forty-eight (48) hours after receipt
of the earliest of the Notice of Conversion to the Company by telecopy or
express carrier whereupon the Company and the Investors shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Conversion.
Section V.8 Exercise of Warrant. The Company and ATG agree they shall
permit the Investors to exercise their right to exercise the Warrants by
telecopying an executed and completed notice of exercise (a "Notice of
Exercise") to ATG and delivering the original Notice of Exercise and the
certificate representing the Warrant to ATG by express courier. Each business
date on which a Notice of Exercise is telecopied to and received by ATG in
accordance with the provisions hereof shall be deemed an exercise date (the
"Exercise Date"). ATG will transmit the certificates representing shares of ATG
Common Stock issuable upon exercise of each of the Warrants (together with the
certificates representing the portion of the Warrants not so exercised) to the
applicable Investor via express courier, by electronic transfer or otherwise
within five (5) business days after the exercise date if ATG has received the
original Notice of Exercise and Warrants being so exercised by such date. The
applicable Investor will be entitled to revoke the relevant Notice of Exercise
by delivering a notice to such effect to ATG within forty-eight (48) hours after
receipt of the earliest of the Notice of Exercise to ATG by telecopy or express
carrier whereupon ATG and the Investors shall each be restored to their
respective positions immediately prior to delivery of such Notice of Exercise.
Section V.9 Deliveries. The Notice of Conversion and Preferred Stock
representing the portion of the shares converted shall be delivered to the
Company as set forth in
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Section 9.1 hereto. The shares of Common Stock issuable upon conversion of the
Preferred Stock and the certificate for any Preferred Stock not converted shall
be delivered to the Investors as set forth in Section 9.1 hereto. The Notice of
Exercise and Warrant representing the portion of the Warrant exercised shall be
delivered to ATG as set forth in Section 9.1. The shares of ATG Common Stock
issuable upon exercise of the Warrant and any certificate for any portion of the
Warrant not exercised shall be delivered to the Investors as set forth in
Section 9.1 hereto.
Section V.10 Exchange Rights. ATG and the Investors covenant and
agree that beginning on May 1, 2001 and for thirty-one (31) days thereafter each
of the Investors may at its or his option surrender to ATG each share of
Preferred Stock issued pursuant to this Agreement and held by such Investor at
such time in exchange for 1.83 shares of ATG Common Stock pursuant to an
exchange agreement, with typical representation and warranties, including those
similar to those made by the Investors in Article II hereof.
ARTICLE VI
Indemnification
Section VI.1 Indemnification. Each of the Parties agrees to
indemnify the other Parties and to hold the other Parties harmless from and
against any and all losses, damages, 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 VII
Legends
Section VII.1 Legends. Unless otherwise provided below, each
certificate representing the Securities and Common Stock to be issued upon
conversion of the Preferred Stock or exercise of the Warrants 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
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TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
Section VII.2 Investors' Compliance. Nothing in this Article shall
affect in any way the Investors' obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE VIII
Choice of Law/Jurisdiction
Section VIII.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 Securities Act,
without reference to principles of conflicts of law. Each Party hereby agrees
that if another Party to this Agreement obtains a judgment against another Party
arising from a dispute involving this Agreement, the Party which obtained such
judgment may enforce such judgment by summary judgment or other procedure not
requiring trial on the merits 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 IX
Notices
Section IX.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:
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If to the Company:
Universal Trading Technologies Corporation
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: Fred S. Weingard
Fax: (215) 636-3560
If to ATG:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: Arthur J. Bacci
Fax: (215) 636-3560
with copy to:
Justin P. Klein, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
Fax: (215) 864-8999
If to the Investors:
TK Holdings, Inc.
365 Bay Street
10th Floor
Toronto, Ontario
CANADA MSH 2V2
Attn: Robert Wilson
Fax: 416-860-8323
Mark Valentine
365 Bay Street
10th Floor
Toronto, Ontario
CANADA MSH 2V2
Fax: 416-860-8323
with a copy to:
12
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John Mann, Esquire
Fax: (713) 622-7114
Either Party hereto may from time to time change its address or
facsimile number for notices under this Section 9.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other Party hereto.
ARTICLE X
Miscellaneous
Section X.1 Assignment. Neither this Agreement nor any rights of the
Investors 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 Preferred Stock purchased or acquired by the Investors hereunder with
respect to the Preferred Stock held by such person, and (b) upon the prior
written consent of the Company, which consent shall not unreasonably be
withheld, the Investors'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 Investors) who agrees to make the representations and
warranties contained in Article II and who agrees to be bound by the covenants
of Article IV.
Section X.2 Waiver. No waiver of any terms of this Agreement shall
be valid unless in writing and signed by authorized representatives of each of
the Parties. Failure by any Party to enforce any of its rights under this
Agreement shall not be construed as a waiver of such rights, nor shall a waiver
by any Party in one or more instances be construed as constituting a waiver or
as a waiver in other instances.
Section X.3 Termination. This Agreement shall terminate 6 years after
the Closing Date.
Section X.4 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 X.5 Entire Agreement. This Agreement, the Exhibits or
Attachments hereto 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.
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<PAGE>
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 X.6 Survival; Severability. The following provisions shall
survive the termination of this Agreement: 2.7, 6.1, 7.2, 8.1, 9.1, 10.6, 10.8,
10.10 and 10.11. 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 X.7 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 X.8 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 Securities 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 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 to the Investors.
Section X.9 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.
Section X.10 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 Investors, 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 X.11 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 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]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Stock Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
Agreed to and Accepted on
this 4th day of June, 1999
UNIVERSAL TRADING TECHNOLOGY CORPORATION
By: /s/ Fred S. Weingard
------------------------
Fred S. Weingard
President
TK HOLDINGS, INC.
By: /s/ Robert Wilson
------------------------
Name:
Title:
/s/ Mark Valentine
------------------------
MARK VALENTINE
For purposes of Sections 1.3, 1.4, 5.3.2, 5.4, 5.6, 5.9, 5.10, 6.1, 7.1, 8.1,
9.1, 10.2, 10.6, 10.10 and 10.11
THE ASHTON TECHNOLOGY
GROUP, INC.
By: /s/ Arthur J. Bacci
------------------------
Arthur J. Bacci
President
15
<PAGE>
EXHIBIT 10.36
JOINT VENTURE AGREEMENT
BY AND BETWEEN
ASHTON TECHNOLOGY GROUP, INC.
AND
KINGSWAY ELECTRONIC SERVICES LIMITED
DATED AS OF
DECEMBER 16, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS 2
1.1 Definitions 2
1.2 Additional Definitions 11
1.3 Interpretation and Construction of This Agreement 12
ARTICLE 2
FORMATION AND OFFICES 12
2.1 Formation 12
2.2 Principal Executive Offices and Other Offices 12
2.3 Purpose of Joint Venture 13
ARTICLE 3
CAPITALIZATION OF THE COMPANY 13
3.1 Authorized Capital; Initial Subscriptions 13
3.2 Contributions to the Company 13
3.3 Initial Capital Contributions of the Parties 13
3.4 Additional Capital Contributions of the Parties 13
3.5 Failure to Make Additional Capital Contributions 14
3.6 Loans 14
3.7 Pre-emptive Rights 15
3.8 Distributions 15
3.9 Business Plan 16
3.10 Preparation of Approved Annual Budget 16
3.11 Approved Annual Budget for Initial Financial Year 16
ARTICLE 4
OPERATIVE AGREEMENTS 16
4.1 Operative Agreements 16
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARTIES 16
5.1 Representations and Warranties of ATG 16
5.2 Representations and Warranties of Kingsway 17
ARTICLE 6
CERTAIN COVENANTS 18
6.1 Further Assurances 18
6.2 Commitment of Parties to the Joint Venture 19
6.3 Effect of Applicable Law 19
6.4 Notice of Party Change of Control 19
ARTICLE 7
MANAGEMENT 19
7.1 Composition of the Boards 19
7.2 Responsibilities of the Company Board 21
2
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7.3 Certain Restrictions 21
7.4 Language 21
7.5 Officers 21
7.6 Compensation 21
7.7 Management of Subsidiaries 21
ARTICLE 8
GOVERNANCE PROVISIONS 21
8.1 Meetings; Quorum; Notice 21
8.2 Removal; Resignation; Vacancies 22
8.3 No Remuneration 23
ARTICLE 9
INDEMNIFICATION 23
9.1 Indemnification 23
ARTICLE 10
DEADLOCKS 24
10.1 Deadlocks 24
ARTICLE 11
TRANSFERS OF VENTURE INTERESTS 25
11.1 General Restrictions 25
11.2 Permitted Transferees 25
11.3 Right of First Refusal 25
11.4 Party Change of Control 26
11.5 Governmental Approvals 27
11.6 Closing of Purchase of Venture Interests 27
ARTICLE 12
FINANCIAL AND ACCOUNTING MATTERS 27
12.1 Books and Records; Financial Year 27
12.2 Financial Information 27
12.3 Right of Inspection of Books 27
12.4 Accounting Principles 27
12.5 Auditors 27
ARTICLE 13
OTHER ACTIVITIES BY THE PARTIES;
EXPANSION OF TERRITORY; CONFIDENTIALITY 28
13.1 In General 28
13.2 Non-Competition Obligations 28
13.3 Non-Competition Exceptions 28
13.4 Expansion of Territory 29
13.5 Confidentiality 29
ARTICLE 14
TERM AND TERMINATION DEFAULT 29
14.1 Term of KAA 29
14.2 Termination of Joint Venture 30
14.3 Termination Notice 30
3
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14.4 Termination Upon Default, Etc 31
14.5 Other Terminations, Etc 31
14.6 Closing 31
14.7 Termination by Dissolution 31
ARTICLE 15
POST TERMINATION PROVISIONS 31
15.1 Consequences of Termination 31
15.2 Non-Solicitation 32
15.3 Transition Plan 32
ARTICLE 16
NEGOTIATIONS; ARBITRATION; SUBMISSION TO JURISDICTION
16.1 Negotiations; Arbitration 32
ARTICLE 17
MISCELLANEOUS 33
17.1 Notices 33
17.2 Applicable Law 34
17.3 Severability 34
17.4 Amendments 34
17.5 Waiver 34
17.6 Counterparts 34
17.7 Entire Agreement 34
17.8 No Assignment 34
17.9 No Third-Party Beneficiaries 34
17.10 Publicity 35
17.11 Construction 35
17.12 Disclaimer of Agency 35
17.13 Relationship of the Parties 35
17.14 Fiduciary Duties 35
EXHIBITS
Exhibit A - ATG License Agreement
Exhibit B - Employment Agreement
Exhibit C - Territory
Exhibit D - Stock Option Plan
Exhibit E - Kingsway/POP Exchange Agreement
SCHEDULES
Schedule 3.8 - Business Plan
Schedule 3.10 - Initial Year Budget
Schedule 5.1(d) - List of Finders and Brokers
Schedule 5.1(f) - Competition
Schedule 5.2(d) - List of Finders and Brokers
Schedule 5.2(f) - Competition
Schedule 7.5 - List of Officers
4
<PAGE>
JOINT VENTURE AGREEMENT
JOINT VENTURE AGREEMENT (this "Agreement"), is made and entered into as of
this 16th day of December, 1999 by and between Ashton Technology Group, Inc.
("ATG"), a company organized under the laws of Delaware, United States, and
Kingsway Electronic Services Limited ("Kingsway"), a company organized under the
laws of the British Virgin Islands; and together with ATG, sometimes referred to
herein collectively as the "Parties" and individually as a "Party"), for the
express purpose of forming Kingsway ATG Asia Limited, a company to be organized
under the laws of the British Virgin Islands (the "Company" or "KAA"), and such
subsidiaries of KAA ("JV Companies") as KAA may choose to establish for the
purpose of effectuating this Agreement.
WITNESSETH
WHEREAS, ATG and certain subsidiaries develop, deploy, and operate on-line
transaction systems primarily in the United States and own and have developed an
electronic trading system commonly referred to as "eVWAP" for use by exchanges,
institutions, money managers and broker-dealers to which such customers submit,
directly and confidentially, buy and sell orders and related systems for
matching such orders and executing such trades (collectively, the "eVWAP
System");
WHEREAS, Kingsway and certain of its affiliates operate brokerage and
investment banking businesses throughout the Asia Pacific region and have access
to various institutional and retail brokerage customers who may be interested in
utilizing an eVWAP developed to match buy and sell orders in Asia Pacific equity
securities (hereinafter referred to as "Asian eVWAP");
WHEREAS, it is anticipated that the Parties desire to co-develop and/or co-
operate and/or co-market and/or co-utilize additional alternative trading
systems (ATSs) and distribution systems for seamless use by US and Asian
institutions as well as other financial intermediaries such as broker-dealers
and banks;
WHEREAS, it is anticipated that the ATSs and distribution systems will
initially be deployed in the Hong Kong market and will be expanded to other Asia
Pacific territories and the Parties will form KAA and subsidiaries of KAA for
the purpose of developing and deploying ATSs and distribution systems for use in
such territories and to market and promote within the Asia Pacific region
utilization of similar systems operated by ATG and its affiliates and licensees
outside such region; and
WHEREAS, in connection therewith, the Parties desire to make certain
contributions to the Company of working capital, to provide for the management
of the Company and for certain restrictions on the transferability of their
respective Equity Interests in the Company, among other things, all in
furtherance of the objectives set forth above and subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein, the Parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context otherwise requires:
5
<PAGE>
"Affiliate" shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, such Person. The JV Companies
shall not be deemed Affiliates of the Parties or their Affiliates for purposes
of this Agreement.
"Agreement" shall mean this Joint Venture Agreement made between ATG, Kingsway,
and the Company, as it may be amended from time to time.
"Applicable Law" shall mean all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including common law), rules, regulations, ordinances
or codes of any Governmental Authority, and (ii) orders, decisions, injunctions,
judgments, awards and decrees of any Governmental Authority.
"Applicable Rate" shall mean, during any period during which interest is due and
payable, the rate of interest per annum then being charged with respect to the
then outstanding Senior Debt of the Company; PROVIDED, HOWEVER, if no such
Senior Debt is then outstanding, "Applicable Rate" shall mean the then current
U.S. dollar prime rate established by U.S. banks, as quoted in the Wall Street
Journal.
"ATG License Agreement" shall mean the ATG License Agreement dated as of even
date herewith among ATG, Universal Trading Technologies Corporation, and KAA, a
true and correct copy of which is attached hereto as EXHIBIT A.
"Authorized Investments" shall mean, at any time, (i) any time deposit,
certificate of deposit or bankers acceptance, maturing not more than one year
after such time, maintained with or issued or guaranteed by either (a) a
commercial banking institution (including U.S. branches of foreign banking
institutions) that is a member of the Federal Reserve System and has assets of
not less than $1,000,000,000, or (b) a commercial banking institution located in
the Territory with assets of not less than $1,000,000,000, (ii) U.S. or Asia
Pacific government or local authority guaranteed securities, maturing not more
than one year after such time or (iii) commercial paper, maturing not more than
nine months after the date of issue, which is issued by a corporation (other
than an Affiliate of a Party) organized under the laws of any state of the
United States, the District of Columbia or any country in the Territory and
rated at least AAA by Standard & Poor's or the equivalent rating by Moody's
rating services; PROVIDED, HOWEVER, an Authorized Investment must be denominated
in U.S. dollars.
"Bankruptcy" shall mean, with respect to any Person, (i) the commencement, under
any bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, appointment of examiner, dissolution, insolvency or liquidation or
similar Applicable Law of any jurisdiction, whether now or hereafter in effect,
by such Person of a case or proceeding seeking (A) the entry as to such Person
of an order of relief, (B) such Person's own bankruptcy, liquidation,
reorganization, rehabilitation or composition or adjustment of debts, or (C) a
suspension or moratorium of payments, (ii) the commencement against such Person
of any case or proceeding of the type described in clause (i) of this definition
which remains undismissed for a period of 30 days; (iii) the appointment of a
custodian, trustee, administrator or similar official under any Applicable Law
described in clause (i) of this definition with respect to such Person, or the
taking charge by such custodian, trustee, administrator or similar official, of
all or any substantial part of the property of such Person; (iv) any
adjudication that such Person is insolvent or bankrupt; (v) the entering of any
order of relief in, or other order approving, any case or proceeding of the type
described in clause (i) of this definition; (vi) the making by such Person of a
general assignment for the benefit of its creditors; (vii) the failure by such
Person to pay, or the statement by such Person that it is unable to pay or shall
be unable or deemed unable to pay its debts generally as they become due under
Applicable Law; (viii) the calling by such Person of a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or (ix) any
indication by such Person, either by an act or failure to act, of its consent
to, approval of or acquiescence in any of the actions, orders or events
described in the foregoing clauses of this definition.
6
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"Business Day" shall mean any day on which commercial banks in each of the
cities of New York and Hong Kong are normally open for the conduct of commercial
banking business.
"Business Plan" shall mean the Business Plan referred to in Section 3.8 and
implemented as provided herein.
"Competing Services" shall mean, (i) the JV Business described in clause (a) of
Section 2.3 and (ii) any services in the Territory substantially similar to such
JV Business, PROVIDED, HOWEVER, nothing herein shall preclude either of the
Parties from conducting any business activity which is being conducted by it on
the date of this Agreement or the date of termination of this Agreement (in the
case of ATG, outside the Territory), or that is derived from the business
activity being conducted by it on the date of this Agreement or the date of
termination of this Agreement and is not substantially similar to such JV
Business, or, in the case of Kingsway and its Affiliates, any internet-based or
on-line securities or other brokerage business; PROVIDED, HOWEVER, that the
utilization by Kingsway or its Affiliates of order-trading services shall not be
deemed a Competing Service so long as Kingsway and its Affiliates do not hold
any ownership, financial or other interest therein other than as a broker.
"Constituent Documents" shall mean the charters, bylaws, memorandum or articles
of association, or such other similar documents as may be required or otherwise
entered into in connection with the formation pursuant to Section 2.1(a).
"Contract" shall mean any loan or credit agreement, note, bond, indenture,
mortgage, deed of trust, lease, franchise, contract, or other agreement,
obligation, instrument or binding commitment of any nature.
"Control" (including, with its correlative meanings, "Controlled by" and "under
common Control with") shall mean, with respect to any Person, any of the
following: (i) ownership, directly or indirectly, by such Person of equity
securities entitling it to exercise in the aggregate more than fifty percent
(50%) of the voting power of the equity share capital of the entity in question,
or (ii) the possession by such Person of the power, directly or indirectly, (A)
to elect a majority of the board of directors (or equivalent governing body) of
the entity in question; or (B) to direct or cause the direction of the
management and policies of or with respect to the entity in question, whether
through ownership of securities, by Contract or otherwise.
"Distribution" shall mean any distribution by the Company by means of any
dividend payment, whether in cash, shares, property, other Equity Interests or
otherwise, any payment or application of any of its assets to purchase, redeem
or otherwise retire Equity Interests held by a Party, any distribution by way of
reduction of capital, partial liquidation or otherwise in respect of any such
Equity Interests held by such Party or any interest or other payment in respect
of, or any repayment, repurchase or redemption of, Subordinated Debt of the
Company or any Subsidiary of the Company held by or on behalf of a Party.
"Employment Agreements" shall mean, collectively, the (i) Employment Agreement
between KAA and Richard Yin, and (ii) other Employment Agreements entered into
between KAA and senior management of KAA, true and correct copies of which are
attached hereto as EXHIBIT B.
"Equity Interest" shall mean in relation to KAA, the voting common stock of KAA,
any subsequently issued classes or series of any other capital stock of KAA and
any debt or other right convertible into Share Capital of the Company.
"Financial Year" shall mean the period commencing July 1 in any year and ending
on June 30 of the following year, except that the first Financial Year with
respect to KAA formed pursuant to Article 2 hereof, shall commence on the date
of its formation and end on June 30, 2000.
7
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"GAAP" shall mean generally accepted accounting principles as in effect from
time to time in Hong Kong or the Asia Pacific Territory in which the JV Company
operates.
"Governmental Approval" shall mean any consent, approval, authorization, waiver,
grant, concession, license, exemption or order of, registration, certificate,
declaration or filing with, or report or notice to, any Governmental Authority.
"Governmental Authority" shall mean any federation, nation, state, sovereign or
government, any federal, supranational, regional, state or local political
subdivision, any governmental or administrative body, instrumentality,
department or agency, any self regulatory organization or any court,
administrative hearing body, commission or other similar dispute resolving panel
or body, and any other entity exercising executive, legislative, judicial,
regulatory or administrative functions of a government to which KAA and/or any
Party hereto is subject.
"Indebtedness" shall mean, without duplication, all (i) obligations for borrowed
money or other extensions of credit, whether secured or unsecured and whether
absolute or contingent, including, without limitation, unmatured reimbursement
obligations with respect to letters of credit or guarantees issued on behalf of
any Person and all obligations for the deferred purchase price of property,
including finance leases and hire purchase agreements, (ii) obligations
evidenced by bonds, notes, debentures or other similar instruments, (iii)
obligations secured by any mortgage, pledge, security interest or other lien on
property owned or acquired by the Company or its Subsidiaries, (iv) capital
lease obligations, sale-leaseback or similar obligations and (v) all guarantees,
endorsements or other contingent or surety obligations (other than endorsement
of instruments for collection in the ordinary course of business) with respect
to obligations of others, including, without limitation, any obligation to
furnish funds, directly or indirectly (whether by virtue of partnership
arrangements, commission agreements, or otherwise), through the purchase of
goods, supplies or services or by way of shares purchase, capital contribution,
advance or loan.
"Injunction" shall mean any preliminary, temporary, interim or final injunction,
temporary restraining order or other court ordered legal prohibition or
equitable remedy requiring or prohibiting action.
"Invest or Participate" (including, with its correlative meanings, "Investment
or Participation", "Invested or Participated" and "Investing or Participating"),
as it relates to a Party or any of its Affiliates, shall mean, with respect to
any other Person that Offers Competing Services, directly or indirectly through
an Affiliate, (a) to acquire, as a principal, partner, shareholder, beneficial
owner or in any similar capacity, any ownership interest in such Person or (b)
by contract or otherwise to manage, operate or finance such Person, or to
participate in the management, operation or financing of such Person, or to act
as agent, representative, consultant or in any similar capacity for such Person,
or to use the name of such Person, or permit the use of the name of such Party
or its Affiliate by such Person, to the extent that any of such activities
described in this clause (b) are related to such Competing Services.
"Joint Venture" shall mean KAA and the rights and obligations of the Parties and
their Affiliates under this Agreement and the other Operative Agreements.
"Judgment" shall mean any judgment, order, judicial decree or arbitral award.
"JV Companies" shall mean, collectively, KAA, its respective Subsidiaries, if
any, that may hereafter be formed.
"Major Competitor" shall mean a Person or any Affiliate of such Person, which
materially competes with the Company or any Subsidiary through the offering of
Competing Services, or a Person which has taken substantial steps to become such
a competitor.
8
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"Material Non-Monetary Default" shall mean a breach by a Party of any of the
terms or provisions of Article 13 of this Agreement, which breach is not cured
by such Party within thirty (30) days after written notice hereof is furnished
to such Party by the other Party.
"Offer" (including, with its correlative meanings, "Offering" or "Offered")
shall mean, with respect to electronic brokerage related products and services,
directly or indirectly, offering, producing, providing, selling, promoting,
distributing or marketing such product or service.
"Operative Agreements" shall mean all agreements that are exhibits to this
Agreement and such other agreements that the Parties enter into for the purpose
of fostering the Joint Venture.
"Party" or "Parties" shall have the respective meanings ascribed to such terms
in the first paragraph hereof.
"Party Change of Control", with respect to a Party, shall mean the acquisition
by any Person (other than William Lam or his Affiliates) or group of Persons
acting in concert, directly or indirectly, of equity securities of such Party
(or such Party's parent entity) entitling it or them to exercise in the
aggregate fifty percent (50%) or more of the voting power of such Party (or such
Party's parent entity), unless, in the case of Kingsway, William Lam maintains
effective management control following such acquisition.
"Party Subordinated Debt" shall mean Subordinated Debt of the Company owing to
one of its Parties that is subordinated to any other Indebtedness of the Company
other than other Subordinated Debt of the Company owing to one of its Parties.
"Percentage Interest" with respect to any Person's investment in another Person,
shall mean such Person's equity interest therein (whether voting or non-voting)
expressed as a percentage of the total outstanding equity share capital of such
other Person on a fully diluted basis (whether voting or non-voting).
"Permitted Affiliate" shall mean a Subsidiary of a Party, no minority interest
in which is owned or held or the benefits of which are in any way enjoyed,
directly or indirectly, by any Person engaged in a Competing Service.
"Permitted Lien" shall mean: (i) material, mechanics, carriers, workmen's,
repairmen's or other like liens arising in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate
proceedings, (ii) liens for current taxes not yet due or any taxes being
contested in good faith by appropriate proceedings, (iii) liens to secure
performance of statutory obligations, (iv) any lien securing any purchase money
indebtedness incurred in the ordinary course of business, and (v) liens of
lessors under Leases.
"Person" shall mean an individual or a partnership, an association, a joint
venture, a corporation, a business or a trust or other entity organized under
any Applicable Law, an unincorporated organization or any Governmental
Authority.
"Proceeding" shall mean any action, litigation, suit, proceeding or formal
investigation or review of any nature, civil, criminal, regulatory or otherwise,
before any Governmental Authority.
"Public Offering" shall mean (i) any bona fide public offering of equity
securities (or securities exchangeable for or convertible into equity
securities) of the Company pursuant to an effective registration statement under
the Securities Act or any other Applicable Law or any other offering which
results in such securities being listed for trading on any international
securities exchange, or (ii) any offer
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of equity securities (or securities exchangeable for or convertible into equity
securities) of a Person made in reliance on Rule 144A under the Securities Act.
"Securities Act" shall mean the United States Securities Act of 1933, or any
similar United States federal statute, and the rules and regulations of the U.S.
Securities and Exchange Commission thereunder, all as the same shall be in
effect from time to time.
"Security Interest" shall mean any debenture, mortgage, pledge, security
interest, adverse claim, encumbrance, lien (statutory or otherwise) or charge of
any kind (including any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, any lease in the nature thereof, the
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or similar filing pursuant to Applicable Law of any
jurisdiction) or any other type of preferential arrangement for the purpose, or
having the effect, of protecting a creditor against loss or securing the payment
or performance of any obligation.
"Senior Debt" of any Person shall mean indebtedness of such Person ranking
senior in right of payment and in liquidation to any other Indebtedness of such
Person.
"Share Capital" shall mean all classes or series of the Company's equity
securities.
"Subordinated Debt" of any Person shall mean Indebtedness of such Person ranking
junior in right of payment and in liquidation to any other Indebtedness of such
Person.
"Subsidiary" shall mean, with respect to any Person (the "Parent"), any other
Person in which the Parent, one or more direct or indirect Subsidiaries of the
Parent, or the Parent and one or more if its direct or indirect Subsidiaries (i)
have the ability, through ownership of securities individually or as a group,
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or individuals performing similar functions) of such other Person, or
(ii) own more than fifty percent (50%) of the equity share capital of such other
Person. The JV Companies will not be deemed Subsidiaries of the Parties or
their Affiliates for purposes of this Agreement.
"Territory" shall mean those territories and nations in Asia and the Pacific
Islands set forth on EXHIBIT C attached hereto.
"Third Party Approval" shall mean the approval of any Person other than a
Governmental Authority or a JV Company.
"Transfer" shall mean any transfer, directly or indirectly, conditionally,
contingently, voluntarily or involuntarily, whether or not for value, by
operation of law or otherwise, including any sale, pledge, security interest or
encumbrance, assignment, gift, merger, combination or other transaction or the
entering into any agreement, arrangement, undertaking or action which results or
may result in any of the foregoing.
"Venture Interest", in the case of any Party, shall mean the Equity Interests in
the Company held by the Party and any Subordinated Debt owed by the Company to
the Party.
"Wholly-Owned" shall mean, when used to designate the ownership interest of any
Person in an entity, that such Person owns directly or indirectly all of the
equity share capital and voting power of such entity, other than any DE MINIMIS
ownership in such entity as required by Applicable Law.
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1.2 ADDITIONAL DEFINITIONS.
Approved Annual Budget Section 3.10
Bona Fide Offer Section 11.3(a)
Class A Common Shares Section 3.1
Company Affiliate Section 9.1(a)
Company Board Section 7.1
Control Call Notice Date Section 11.5(b)
Control Put Notice Date Section 11.5(a)
Deadlock Section 11.1(b)
Default Termination Value Section 14.4
Distributable Cash Section 3.7
Initial Profit Year Section 3.7
KAA Board Section 7.1
JV Business Section 2.3
Non-Transferring Party Section 11.7
Offeree Section 11.3(a)
Offered Interest Section 11.3(a)
Profit Year Section 3.7
Proposed Transferee Section 11.3(a)
Seller Section 11.3(a)
Senior Officers Section 16.1(a)
Shares Section 3.1
Specified Court Section 16.1(c)
Termination Conditions Section 14.2
Termination Notice Section 14.2
Transferring Party Section 11.7
Written Offer Section 11.3(a)
1.3 INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT. The definitions in
Section 1.1 and 1.2 shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." All reference herein to Articles, Sections, Exhibits and Schedules
shall be deemed to be references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise require. The
table of contents and the headings of the Articles and Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement. Unless the context shall
otherwise require any reference to any agreement or other instrument or statute
or regulation is to such agreement, instrument or statute or regulation as
amended and supplemented from time to time (and, in the case of a statute or
regulation, to any replacement provision). Any reference in this Agreement to a
"day" or a number of "days" (without the explicit qualification of "Business")
shall be interpreted as a reference to a calendar day or number of calendar
days. If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then such action or
notice shall be deferred until, or may be taken or given, on the next Business
Day. In the event of a conflict between any provision of a Constituent Document
and any provision of this Agreement, this Agreement shall prevail.
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ARTICLE 2
FORMATION AND OFFICES
2.1 FORMATION. (a) It is the Parties' intent to operate the Joint
Venture in a holding company structure with the business and operations of the
Joint Venture to be conducted through KAA and its subsidiaries, and,
accordingly, the Parties have heretofore caused the formation of the Company
under the name "Kingsway ATG Asia Limited" as a company under the laws of
British Virgin Islands. From and after the date hereof, the Parties shall take
such action as may be necessary and appropriate so that the Constituent
Documents shall incorporate the terms and conditions of this Agreement to the
extent practicable and customary in the jurisdiction of formation of the Company
and each of the other JV Companies, if any.
(b) Except as otherwise provided herein, Kingsway shall own forty-seven
percent (47%) of the voting Equity Interests of the Company, ATG shall own
forty-seven percent (47%) of the voting Equity Interests of the Company, and
Grand Conqueror Investments Limited, a BVI company, shall own six percent (6%)
of the voting Equity Interests of the Company.
2.2 PRINCIPAL EXECUTIVE OFFICES AND OTHER OFFICES. It is the intention of
the Parties that principal executive offices of KAA will initially be located at
5/F, Hutchinson House, 10 Harcourt Road, Hong Kong, with such other offices to
be maintained at such location or locations as the KAA Board shall determine
from time to time.
2.3 PURPOSE OF JOINT VENTURE. The sole purpose and the nature of the
business (the "JV Business") to be conducted and promoted by the Joint Venture
are (a) to develop and exploit electronic securities trading and distribution
systems in the Territory, including but not limited to trading on stock,
futures, commodities, currency and other exchanges or any recognized trading
market in the Territory and any alternative trading system, utilizing the Asian
eVWAP matching engine technology as the core of such JV Business in accordance
with the Operative Agreements, and any products or services ancillary to such
development and exploitation, (b) to operate brokerage operations in the
Territory to the extent necessary to the operation of such electronic securities
trading and distribution systems, (c) to operate as the exclusive enrollment
agent in the Territory for marketing, promotion and solicitation of customers
located in the Territory for utilization or electronic trading and distribution
systems operated by or through Ashton and its Affiliates and licensees outside
the Territory, and (d) to engage in any and all activities necessary, advisable,
convenient or incidental to the foregoing. Unless otherwise approved by the
Parties, the activities of KAA shall be limited to the activities set forth in
the Operative Agreements, Business Plan and the Constituent Documents and KAA
shall not conduct any other business operations whatsoever.
ARTICLE 3
CAPITALIZATION OF THE COMPANY
3.1 AUTHORIZED CAPITAL; INITIAL SUBSCRIPTIONS. The Parties shall cause
the Constituent Documents of the Company to provide that (A) the authorized
Share Capital of the Company shall consist of 500,000,000 shares of voting
common shares (the "Shares"), having one vote per share and (B) no Shares will
entitle the holder thereof to any preferences upon Distributions by the Company
by way of dividends or otherwise. It is the intention of the Parties that
10,000,000 Shares will be reserved for issuance in connection with performance
based incentive compensation for management, directors and other personnel of
KAA, Ashton and Kingsway as designated by ATG and Kingsway pursuant to EXHIBIT
D. Notwithstanding the prior sentence, 2,500,000 of such Shares will be reserved
for issuance to management and directors of Kingsway as designated by Kingsway
and 2,500,000 of such Shares will be reserved for issuance to management and
directors of Ashton as designated by Ashton.
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3.2 CONTRIBUTIONS TO THE COMPANY. Except as otherwise expressly provided
in this Agreement, no Party shall be required to make any contributions to the
capital of KAA or subscribe for additional shares of the equity securities of
KAA.
3.3 INITIAL CAPITAL CONTRIBUTIONS OF THE PARTIES. On or within ten (10)
Business Days following the execution of this Agreement, Kingsway shall have
made initial capital contributions to the Company consisting of USD 4,000,000 in
exchange for 27,000,000 Shares, ATG shall have made initial capital
contributions to the Company consisting of USD 1,000,000 and the technology
contributions contemplated by the ATG License Agreement in exchange for
47,000,000 Shares, and Grand Conqueror Investments Ltd. shall have made initial
capital contributions to the Company consisting of USD 5 in exchange for
6,000,000 Shares. In addition, Kingsway shall have entered into the Kingsway/POP
Exchange Agreement, a true and correct copy of which is included as EXHIBIT E,
for which Kingsway shall receive 20,000,000 Shares.
3.4 ADDITIONAL CAPITAL CONTRIBUTIONS OF THE PARTIES. Except as set
forth in Section 3.3 above, no Party shall be required to make any additional
capital contribution to the Company. In the event the Company proposes to issue
additional Shares in exchange for capital contributions in excess of the amounts
set forth in Section 3.3 above, each Party shall have a pre-emptive right to
participate in such capital contribution up to its pro rata portion to avoid
dilution in accordance with Section 3.6.
3.5 LOANS. (a) No Party shall be obligated to loan funds to the Company.
Loans by a Party to the Company shall not be considered capital contributions.
The amount of any such loans shall be a debt of the Company owed to such Party
in accordance with the terms and conditions upon which such loans are made.
(b) With the prior written consent of the other Party, a Party may (but
shall not be obligated to) guarantee a loan made to the Company. If a Party
guarantees a loan made to the Company and it is required to make payment
pursuant to such guarantee to the maker of the loan, then the amounts so paid to
the maker of the loan shall be treated as a loan by such Party to the Company
repayable on demand and not as an additional capital contribution. In the event
that only one of the Parties provides such a guarantee, the other Party hereby
agrees to indemnify the Party who provides such guarantee for a percentage equal
to the non-guarantor Party's pro-rata Equity Interest in KAA of any amounts paid
under such guarantee and any other costs, liabilities or expenses incurred in
respect thereof.
(c) It is the intention of the Parties that the Company be financed in a
manner that enables the Company to have a debt to equity ratio that enables them
to fulfill any regulatory capital requirements imposed on the JV Business under
the Applicable Laws of any Territory in which the Company or its subsidiaries
are conducting or intend to conduct JV Business. To the extent necessary to
maintain such regulatory capital requirements, the Parties may, in their
discretion, loan such funds as may be necessary to the Company, and each Party
shall participate in such loans on a pro-rata basis based on its Percentage
Interest at the time such loans are made and, as necessary, the Parties shall
enter into intercreditor agreements to ensure that such loans shall be
subordinate in right of payment to any Senior Debt of the Company from time to
time.
3.6 PRE-EMPTIVE RIGHTS. Other than the stock and options set aside
pursuant to EXHIBITS D and E, the Company shall not issue any equity securities
or any warrant, option or other security convertible into or exercisable for
such equity securities of the Company (other than any issuance of Shares as
described in Sections 3.1 and 3.3) or enter into any agreement in respect of
such issuance, unless the issuance has been approved as required by this
Agreement and pursuant to which the Company offers to each of the Parties the
right to participate proportionately according to the Percentage Interest of
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such Party, as of the date of such proposed issuance, on the same terms and
conditions, unless otherwise approved by the Company Board. Any right granted
pursuant to the preceding sentence shall be exercised by written notice to the
Company given within twenty (20) business days after delivery to each Party of
written notice of such proposed issuance. If any Party fails to respond to the
Company within such 20-day notice period, such failure shall be deemed to be the
rejection and waiver of the right of such Party to participate in the purchase
of the equity of the Company to be issued. At any time within sixty (60)
business days following the date the Company has received notice (or deemed
rejection and waiver) from each Party accepting or rejecting its right to
participate, the Company may carry out the proposed issuance to any other Party
or third party, or third parties, in the Company's sole discretion. The
provisions of this Section 3.6 shall not apply to an issuance of Share Capital
of the Company or any other Equity Interest in the Company, including without
limitation any warrant, option or security convertible into or exercisable for
such Share Capital in connection with a Public Offering, an acquisition
completed in the ordinary course of the JV Business or an employee benefit plan
or incentive compensation plan.
3.7 DISTRIBUTIONS. Unless the Parties mutually otherwise agree in writing
to permit Distributions at an earlier time or on a different basis, the Parties
shall, and shall cause their representatives on the Company Board, to take all
such action so that the Company shall not make any Distributions until such time
as profits as accumulated since the formation of the Company are in excess of
losses as accumulated since the formation of the Company as reflected in the
annual consolidated financial statements prepared for the Company and the
Subsidiaries for the Financial Year then ended (the first such Financial Year
being hereinafter referred to as an "Initial Profit Year" and each such
subsequent Financial Year being hereinafter referred to as a "Profit Year").
Thereafter, the Company may declare dividends in the discretion of the Company
Board, not to exceed Distributable Cash. "Distributable Cash" shall mean seventy
percent (70%) of the amount by which cash and cash equivalents (less the
Company's debt proceeds and contributions to capital, less (without duplication)
amounts to be funded from operating income and amounts specified in the Approved
Annual Budget to serve as a source of funds for capital expenditures and, less
required amounts needed pursuant to Applicable Law to ensure that the Company
has sufficient regulatory capital) as shown in the Company's quarterly
consolidated statement of cash flows as of the end of the relevant fiscal
quarter exceeds the cash and cash equivalents as shown in the Company's
consolidated statement of cash flows as of the end of the preceding fiscal
quarter (after taking into account any Distributions as of the end of such
preceding fiscal quarter). The Company shall cause its Subsidiaries to make
Distributions to the Company to the extent necessary to facilitate the making of
Distributions by the Company as contemplated by this Section 3.7, subject to
mandatory provisions of Applicable Law. In no event shall the Company or its
Subsidiaries make Distributions in excess of amounts permitted under Applicable
Law. Unless otherwise approved by the Company Board, all Distributions to
Parties shall be in cash in US Dollars.
3.8 BUSINESS PLAN. In furtherance of the Joint Venture, the Parties have
established the Business Plan which sets forth the manner in which the JV
Business is to be conducted by the Company during the two-year period beginning
on the date hereof and embodies the overall business strategy for the Joint
Venture until such time as it may be amended or modified upon the approval of
the Company Board. A true and correct copy of the Business Plan on the date
hereof is attached hereto as SCHEDULE 3.8.
3.9 PREPARATION OF APPROVED ANNUAL BUDGET. The Company's Chief Executive
Officer shall prepare for presentation to the Company Board on or before April
30 in each year beginning April 30, 2000, an annual budget for the Company and
its Subsidiaries setting forth in reasonable detail the proposed and projected
operating revenues and expenses for the Company and its Subsidiaries for the
year beginning the following July 1. Upon approval of such proposed annual
budget by the Company Board (with such changes, if any, as the Company Board may
determine), each annual budget shall constitute an "Approved Annual Budget" for
purposes hereof. In the event of the failure by the Company Board to approve an
annual budget for the next fiscal year, the Company shall operate
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according to the Approved Annual Budget for the just completed fiscal year until
approval of a new annual budget.
3.10 APPROVED ANNUAL BUDGET FOR INITIAL FINANCIAL YEAR. Notwithstanding
anything to the contrary contained in Section 3.9, a true and correct copy of
the Approved Annual Budget for the initial Financial Year of the Company and its
Subsidiaries is set out in the document attached as SCHEDULE 3.10.
ARTICLE 4
OPERATIVE AGREEMENTS
4.1 OPERATIVE AGREEMENTS. On or prior to the date hereof, each of the
Parties has and has caused its Affiliates insofar as within its power, to enter
into each of the Operative Agreements attached as exhibits hereto. The Parties
expressly reserve the right to enter into such other Operative Agreements that
they deem are necessary and appropriate for the furtherance of the JV Business
through KAA.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARTIES
5.1 REPRESENTATIONS AND WARRANTIES OF ATG. ATG represents and warrants to
Kingsway as follows:
(a) ORGANIZATION AND STANDING. ATG is a corporation duly organized,
validly existing and in good standing under the law of the jurisdiction of its
incorporation and has all requisite corporate power and corporate authority
necessary to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as presently conducted.
(b) DUE AUTHORIZATION. ATG has all requisite corporate power and corporate
authority to enter into and perform its obligations under this Agreement and to
consummate the transactions to be consummated by it hereunder. ATG has all
requisite corporate power and corporate authority to enter into and perform its
obligations under the other Operative Agreements to which it is a party and to
consummate the transactions to be consummated thereby by it. The execution,
delivery and performance by ATG of the Operative Agreements to which it is a
party have been duly authorized by all necessary corporate action on the part of
ATG. This Agreement has been, and the other Operative Agreements to which ATG is
a party have been, duly executed and delivered by it. This Agreement
constitutes, and the other Operative Agreements to which ATG is a party
constitute, legal, valid and binding obligations of ATG, enforceable against it
in accordance with their respective terms, subject to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and subject to the effect of general
principles of equity, including, without limitation, the possible unavailability
of specific performance or injunctive relief regardless of whether considered in
a proceeding in equity or at law.
(c) NO CONFLICTS. The execution, delivery and performance by ATG of this
Agreement does not, and the execution, delivery and performance by ATG of the
other Operative Agreements to which it is a party and the compliance with the
terms of the Operative Agreements to which it is a party will not, conflict
with, result in any violation of or default (with or without notice or lapse of
time or both) under, give rise to a right of termination, cancellation or
acceleration of any obligation (in each case by any third party) or to the loss
of any benefit under, or result in or require the creation, imposition or
extension of any Security Interest upon any of its properties or assets under
(i) any provision of its
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Certificate of Incorporation or by-laws or similar constituent documents, or
(ii) any Judgment, Injunction, Applicable Law or Contract to which it is a party
or by which it or any of its properties is bound. To the knowledge of ATG, no
Third Party Approval and no Governmental Approval is required to be obtained or
made by ATG in connection with the execution, delivery and performance of this
Agreement, the other Operative Agreements to which it is a party, and the
transactions contemplated hereby and thereby.
(d) BROKERS OR FINDERS. With the exception of SCHEDULE 5.1(d), no Person
is or will be entitled to any broker's or finder's fee, or any other commission
or similar fee in connection with any of the transactions contemplated hereby as
a result of any action taken by or on behalf of ATG.
(e) LITIGATION. There is no Proceeding pending or, to the knowledge of
ATG, threatened against ATG reasonably likely to restrain, enjoin or otherwise
prevent the consummation of the transactions contemplated hereby or the
operation of the JV Business under the Operative Agreements as contemplated
hereby.
(f) NON-COMPETE. As of the date of this Agreement, except as set forth in
SCHEDULE 5.1(f), neither ATG nor any of its Affiliates conducts any business
activity anywhere in the Territory which is the same as, or substantially
similar to the JV Business as described in clause (a) of Section 2.3.
(g) INTELLECTUAL PROPERTY. ATG acknowledges that Kingsway has entered into
this Agreement in reliance upon ATG's contribution of the Technology, Licensed
Marks and Proprietary Rights therein (each of the foregoing as defined in the
ATG License Agreement) to the JV Business and ATG's entering into the ATG
License Agreement with KAA. ATG hereby confirms its representations and
warranties in Sections 9.1(v) and 9.1(vi) of the ATG License Agreement, which
are incorporated herein by reference.
5.2 REPRESENTATIONS AND WARRANTIES OF KINGSWAY. Kingsway represents and
warrants to ATG as follows:
(a) ORGANIZATION AND STANDING. Kingsway is a corporation duly organized,
validly existing and in good standing under the law of the jurisdiction of its
incorporation and has all requisite corporate power and corporate authority
necessary to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as presently conducted.
(b) DUE AUTHORIZATION. Kingsway has all requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement and to consummate the transactions to be consummated by it hereunder.
Kingsway has all requisite corporate power and corporate authority to enter into
and perform its obligations under the other Operative Agreements to which it is
a party and to consummate the transactions to be consummated thereby by it. The
execution, delivery and performance by Kingsway of the Operative Agreements to
which it is a party have been duly authorized by all necessary corporate action
on the part of Kingsway. This Agreement has been, and the other Operative
Agreements to which Kingsway is a party have been, duly executed and delivered
by it. This Agreement constitutes, and the other Operative Agreements to which
Kingsway is a party constitute, legal, valid and binding obligations of
Kingsway, enforceable against it in accordance with their respective terms,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject to
the effect of general principles of equity, including, without limitation, the
possible unavailability of specific performance or injunctive relief regardless
of whether considered in a proceeding in equity or at law.
(c) NO CONFLICTS. The execution, delivery and performance by Kingsway of
this Agreement does not, and the execution, delivery and performance by Kingsway
of the other Operative
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Agreements to which it is a party and the compliance with the terms of the
Operative Agreements to which it is a party will not, conflict with, result in
any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation (in each case by any third party) or to the loss of any benefit
under, or result in or require the creation, imposition or extension of any
Security Interest upon any of its properties or assets under (i) any provision
of its Certificate of Incorporation or by-laws or similar constituent documents,
or (ii) any Judgment, Injunction, Applicable Law or Contract to which it is a
party or by which it or any of its properties is bound. To the knowledge of
Kingsway, no Third Party Approval and no Governmental Approval is required to be
obtained or made by ATG in connection with the execution, delivery and
performance of this Agreement, the other Operative Agreements to which it is a
party, and the transactions contemplated hereby and thereby.
(d) BROKERS OR FINDERS. With the exception of SCHEDULE 5.2(d), no Person
is or will be entitled to any broker's or finder's fee, or any other commission
or similar fee in connection with any of the transactions contemplated hereby as
a result of any action taken by or on behalf of Kingsway.
(e) LITIGATION. There is no Proceeding pending or, to the knowledge of
Kingsway, threatened against Kingsway reasonably likely to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated hereby or
the operation of the JV Business under the Operative Agreements as contemplated
hereby.
(f) NON-COMPETE. As of the date of this Agreement, except as set forth in
SCHEDULE 5.2(f), neither Kingsway nor any of its Affiliates conducts any
business activity which is the same as, or substantially similar to the JV
Business as described in clause (a) of Section 2.3.
ARTICLE 6
CERTAIN COVENANTS
6.1 FURTHER ASSURANCES. From and after the date hereof, each of the
Parties shall use its reasonable efforts to do or cause to be done, and to cause
its Affiliates to do or cause to be done, such further acts and things and
deliver or cause to be delivered to each other Party or its designees such
additional agreements and instruments as such Party or its designees may
reasonably require or deem advisable to carry into effect the purpose of the
Operative Agreements or to better assure and confirm unto such Party or its
designees its rights, powers and remedies hereunder and thereunder.
6.2 COMMITMENT OF PARTIES TO THE JOINT VENTURE. Each of ATG and Kingsway
agrees that it will (i) ensure that its relevant personnel are equally and fully
committed to the success of the Joint Venture, (ii) devote sufficient resources
so that it can comply fully with obligations under the Operative Agreements to
which it is a party, and (iii) fulfill its obligations under this Agreement and
any other Operative Agreements to which it is a party.
6.3 EFFECT OF APPLICABLE LAW. If any provision contained in any Operative
Agreement relating to KAA is inconsistent with or prohibited by the Applicable
Laws of the jurisdiction in which KAA is formed or operates, the Parties agree
to take all reasonable steps necessary to modify such provision in a manner
which is as similar as possible in terms and effect as the original provision
and which preserves substantially the intended purpose of the original
provision, but which is not inconsistent with or prohibited by, the Applicable
Laws of the jurisdiction in which KAA is formed or operates.
6.4 NOTICE OF PARTY CHANGE OF CONTROL. If a Party Change of Control
occurs or is likely to occur with respect to a Party, subject to Applicable Law,
such Party shall promptly give prior written notice to the other Party of such
Party Change of Control.
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6.5 COOPERATE IN PUBLIC OFFERINGS. In the event the Company undertakes to
list its Shares, or the shares of any Subsidiary, on any public exchange or
electronic trading system in any jurisdiction upon the approval of the Company
Board as set forth in Section 7.2 below, each Party shall, and shall cause its
officers, directors, employees, agents and Affiliates to, cooperate fully with
all requests of the Company to effectuate such listing.
ARTICLE 7
MANAGEMENT
7.1 COMPOSITION OF THE BOARDS. (a) The board of directors of the Company
(alternatively, the "Company Board" or "KAA Board") shall consist of eight (8)
directors until the second Anniversary of the date herein (the "Initial
Period"). ATG shall be entitled to designate four (4) such directors to the
Company Board. Kingsway shall be entitled to designate four (4) such directors,
one whom will be the chief executive officer of KAA during the Initial Period.
After the Initial Period, the KAA Board shall consist of nine (9) directors, and
Kingsway shall be entitled to designate five (5) such directors, one of whom
will be the chief executive officer of KAA to. In each election of directors,
each Party shall vote its Share Capital in the Company to effect the election of
the nominees so designated.
7.2 RESPONSIBILITIES OF THE COMPANY BOARD. The Company Board shall be
responsible for the management of the business and affairs of the Company.
Without limiting the generality of the foregoing, the Board shall assure that
the Company not take any action with respect to the following matters without
the affirmative vote of a majority of the directors in attendance at any duly
constituted meeting of the Company Board:
(i) action by the Company or any of its Subsidiaries which (A) is outside
the ordinary course of business operations of the Company or any such
Subsidiary and (B) has not been reflected in an Approved Annual Budget;
(ii) incurrence of any Indebtedness or the making of any capital
expenditure by the Company or any of its Subsidiaries in excess of
USD500,000 in any case, or in the aggregate in any Financial Year, except
as contemplated by the Approved Annual Budget and except, in the case of
Indebtedness, for endorsements for collection or deposits in the ordinary
course of business;
(iii) mortgage, pledge or the granting of any other Security Interest with
respect to the assets of the Company and its Subsidiaries, except purchase
money mortgages in the ordinary course of business and other Permitted
Liens;
(iv) making of any loans or the agreement to make any loans by the Company
or any of its Subsidiaries or the guarantee by any of them of any
Indebtedness of any other Person in excess of USD500,000, in any case, or
in the aggregate in any Financial Year;
(v) entering into any transaction, directly or indirectly (including,
without limitation, any purchase, sale, lease, investment, loan, service or
management agreement or other transaction) with either Party or any of
their respective Affiliates involving the receipt or expenditure by the
Company and any of its Subsidiaries of more than USD500,000, in any case,
or in the aggregate in any Financial Year, except as expressly contemplated
by this Agreement or any of the other Operative Agreements or as specified
in the Approved Annual Budget for such Financial Year or the Business Plan;
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(vi) declaration, setting aside, or payment of Distributions by the Company
or any of its Subsidiaries or any redemptions, purchase or other
acquisition of the equity securities of the Company or any of its
Subsidiaries, except as set forth in Section 3.7 above;
(vii) any amendment of the Constituent Documents;
(viii) any issuance, transfer, pledge or sale of equity securities by the
Company, including, without limitation, capital stock, options, warrants or
similar instruments, except as specifically provided in this Agreement;
(ix) entering into or conducting any business other than the JV Business;
(x) any appointment or change in the Company's independent auditors;
(xi) approval of any material amendment or modification of the Business
Plan;
(xii) approval of any annual budget or any material amendment or
modification of any Approved Annual Budget;
(xiii) establishment of any committee of the Company Board and the
delegation of powers thereto, it being expressly understood that any such
committee shall at all times have a number of voting representatives
designated by each of the Parties proportionate to the Parties'
representation on the Company Board;
(xiv) appointment of the board of directors of any Subsidiary;
(xv) (A) any acquisition by the Company or any of its Subsidiaries (in one
or a series of related transactions) of, or any investment by the Company
or any of its Subsidiaries (in one or a series of related transactions) in,
assets or properties of any Person other than a Wholly-Owned Subsidiary
(whether by acquiring shares or other equity securities, partnership
interests or evidences of Indebtedness of any Person, by contributing to
the capital of any Person, by making a loan, advance or other extension of
credit to any other Person) in any case if the purchase price or amount to
be invested is more than USD 500,000, or (B) the investment of cash
included in the working capital of the Company in other than Authorized
Investments;
(xvi) any sale, assignment or transfer of any assets or properties of the
Company in any Financial Year in excess of USD 500,000 in the case of any
particular asset or property or in the aggregate in the case of a group of
similar assets or properties except for such sales, assignments or
transfers in the ordinary course of business;
(xvii) approval of any quarterly, semi-annual or annual financial
statements of the Company and its Subsidiaries; and
(xviii) approval of the listing of the Shares, or any shares of a
Subsidiary, on any public exchange or electronic trading system in any
jurisdiction.
7.3 CERTAIN RESTRICTIONS. Anything herein to the contrary notwithstanding,
in no event shall the Company Board approve any of the following matters without
the prior written consent of each Party:
(i) any amendment of the Constituent Documents of the Company;
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(ii) any sale or other transfer (in one or a series of related
transactions) of substantially all of the assets and properties of the
Joint Venture;
(iii) whether, directly or indirectly, by operation of law or otherwise,
any merger with, consolidation with, or other combination with, any Person;
or
(iv) the winding-up or dissolution of KAA or any subsidiary thereof except
as otherwise provided in Section 14.6.
7.4 LANGUAGE. The proceedings of meetings of the board of directors of
the Company shall be conducted in the English language. The formal minutes of
meetings of the board of directors of the Company shall be maintained in the
English language. The Company shall ensure that all senior management of KAA and
any Subsidiary thereof will have a good working knowledge of English.
7.5 OFFICERS. The principal officer of the Company shall be its Chief
Executive Officer. The Company Board shall also have the power to appoint such
other officers as it deems appropriate and delegate such powers to such officers
as shall not be inconsistent with this Agreement, the Business Plan, Applicable
Law and the Constituent Documents of the Company which may include a finance
director, head of marketing and sales, and head of technology. As of the date
hereof, the initial slate of officers of the Company shall be as set forth on
SCHEDULE 7.5 attached hereto.
7.6 COMPENSATION. It is the intent of the Parties that compensation and
other forms of remuneration for employees and officers of the Company, including
incentive bonus plans, share participation schemes, pension plans and employee
benefits plans, medical insurance, vacation and other benefit plans shall be
consistent with the guidelines outlined in the Business Plan.
7.7 MANAGEMENT OF SUBSIDIARIES. The general provisions of Sections 7.1,
7.3, 7.4, 7.5 and 7.6 shall, to the extent practicable, govern the management of
each Subsidiary of the Company.
ARTICLE 8
GOVERNANCE PROVISIONS
8.1 MEETINGS; QUORUM; NOTICE. (a) The chairman of the Company Board
shall prepare or direct the preparation of the agenda for, and preside over,
meetings of the Company Board on which he serves as chairman. The chairman shall
deliver such agenda to each director on the Company Board as chairman at least
four (4) Business Days prior to giving of notice of a regular or special meeting
and any director may add items to such agenda.
(b) The Parties anticipate that a regular meeting of the Company Board
shall be held at least once every six (6) months. Special meetings of the
Company Board may be called by any director and shall be held at such place as
may be determined by the Company Board. Written notice of the time and place of
each regular and special meeting of the Company Board shall be given by or at
the direction of the chairman or co-chairman, as the case may be, to each
director, in the case of a regular meeting, at least ten (10) Business Days, and
in the case of a special meeting, at least five (5) Business Days, before such
meeting. Additionally, the Company Board may meet on an emergency basis with any
notice so long as at least one director representing each Party is present at
such meeting. Whenever notice is required to be given to any director, such
notice shall specify the agenda for such meeting and, to the extent appropriate,
shall be accompanied by supporting documentation. The required notice to any
director may be waived by such director in writing. Attendance by a director at
a meeting shall constitute a waiver of any required notice of such meeting by
such director, except when such director attends such meeting for the
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express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not properly called or
convened.
(c) Except as expressly provided in this Agreement, the presence of at
least any two (2) directors shall be required to constitute a quorum for the
transaction of any business by the Company Board. Each Party shall use its
reasonable efforts to ensure the existence of a quorum at any duly convened
meeting of the Company Board. Except as expressly provided in this Agreement, no
action shall be taken by the Company Board with respect to any matter without
the affirmative vote of a majority of the directors of the Company Board present
at a duly constituted meeting. If fewer than all of the directors designated to
the Company Board by a given Party are present at a meeting, to the extent
permitted by Applicable Law, each director or directors of a Party present at
such meeting shall be entitled to vote the entire voting power held by all
directors designated by such Party. If more than one director appointed by a
given Party is present at a meeting, to the extent permitted by Applicable Law,
such representatives shall vote such Party's entire voting power in the same
manner.
(d) While the Parties intend that their directors on the Company Board
shall attend meetings in person, the Parties acknowledge that directors may from
time to time be prevented from doing so due to various circumstances. Directors
may, therefore, to the extent permitted by Applicable Law, participate in a
meeting of the Company Board by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 8.1(d) shall constitute presence in person at such meeting, except where
a director participates in the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the ground
that the meeting is not properly called or convened.
(e) To the extent permitted by Applicable Law, any action required or
permitted to be taken at a meeting of the Company Board may be taken without a
meeting if a written consent, setting forth the action so taken, is signed by
all the directors and filed with the minutes of the proceedings of the Company
Board. Such consent shall have the same force and effect as a unanimous
affirmative vote of the directors.
8.2 REMOVAL; RESIGNATION; VACANCIES. A Party's designated directors on
the Company Board shall hold office at the pleasure of such Party that
designated them. Any such Party may at any time, by written notice to the other
Party and the Company Board, remove (with or without cause) its representative
on the Company Board and designate a new director. Subject to Applicable Law, no
director may be removed except by the Party designating the same. Any director
may resign at any time by giving written notice to the Party that appointed such
director and to the Company Board. Such resignation shall take effect on the
date shown on or specified in such notice or, if such notice is not dated and
the date of resignation is not specified in such notice, on the date of the
receipt of such notice by the Company Board. No acceptance of such resignation
shall be necessary to make it effective. Any vacancy on the Company Board shall
be filled only by the Party whose director has caused the vacancy, by giving
written notice to the Company Board and to the other Party, and each of the
Parties agree, as necessary, to vote, or to cause its designated representatives
on the Company Board to vote, for any Person so nominated by the Party whose
representative has caused such vacancy.
8.3 NO REMUNERATION. Unless the Parties otherwise agree, no Person shall
be entitled to any fee, remuneration or compensation in connection with his
service as a director of the Company.
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ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION. (a) To the fullest extent permitted under
Applicable Law, the Company shall indemnify and hold harmless, or cause its
Subsidiaries to indemnify and hold harmless, each of their respective Affiliates
and all officers, directors and shareholders (including the Parties) of such
Affiliates, and each director and officer of the Company and any Person serving
in any similar capacity for another Person (including the KAA Board) affiliated
with the Company at the request of the Company or any of its Subsidiaries
(solely for purposes of this Section 9.1, each of the foregoing Persons being
referred to as, a "Company Affiliate"), from and against any and all losses,
claims, demands, costs, damages, liabilities, expenses of any nature (including
reasonable attorneys' fees and disbursements), judgments, fines, settlements and
other amounts (collectively, "Damages") arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal, administrative
or investigative, in which a Company Affiliate may be involved, or threatened to
be involved, as a party or otherwise, arising out of or incidental to the
business of the Joint Venture, regardless of whether a Company Affiliate
continues to be a Company Affiliate, at the time any such liability or expense
is paid or incurred, if (i) the Company Affiliate acted in good faith and in a
manner it or he reasonably believed to be in, or not opposed to, the interests
of the Company and, with respect to any criminal proceeding, had no reason to
believe its or his conduct was unlawful, (ii) the Damages do not arise from a
breach of any of the Operative Agreements by any Company Affiliate, and (iii)
the Company Affiliate's conduct did not constitute actual fraud, gross
negligence or willful or wanton misconduct. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not, in and of itself, create a presumption
or otherwise constitute evidence that the Company Affiliate acted in a manner
contrary to that specified in (i), (ii) or (ii) above.
(b) Expenses (including reasonable legal fees and expenses) incurred in
defending any proceeding subject to subsection (a) of this Section 9.1 shall be
paid by the Company in advance of the final disposition of such proceeding upon
receipt of a written affirmation by the Company Affiliate of his or its good
faith belief that he or it has met the standard of conduct necessary for
indemnification under this Section 9.1 and a written undertaking (which need not
be secured) by or on behalf of the Company Affiliate to repay such amount if it
shall ultimately be determined, by a court of competent jurisdiction or
otherwise, that the Company Affiliate is not entitled to be indemnified by the
Company as authorized hereunder.
(c) The indemnification provided by this Section 9.1 shall be in addition
to any other rights to which each Company Affiliate may be entitled under any
agreement or vote of the Board by the vote of directors who are disinterested
and unaffiliated with such Company Affiliate, as a matter of law or otherwise,
both as to action in the Company Affiliate's capacity as a Company Affiliate or
as a Person serving at the request of the Company and shall continue as to a
Company Affiliate who has ceased to serve in such capacity and shall inure to
the benefit of the heirs, successors, assigns, administrators and personal
representatives of such Company Affiliate.
(d) The Company shall purchase and maintain directors and officers
insurance or, similar coverage, for its directors and its officers in such
amounts and with such deductibles or self-insured retentions as are customary
for Persons engaged in businesses similar in size and type to those engaged in
by the Joint Venture.
(e) Any indemnification hereunder shall be satisfied only out of the assets
of the Company and the Parties shall not be subject to personal liability by
reason of these indemnification provisions.
(f) A Company Affiliate shall not be denied indemnification in whole or in
part under this Section 9.1 because the Company Affiliate had an interest in the
transaction with respect to which the
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indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement and all material facts relating to such Company Affiliate's
interest were adequately disclosed to the Company Board at the time the
transaction was consummated.
(g) The provisions of this Section 9.1 are for the benefit of the Company
Affiliates and the heirs, successors, assigns, administrators and personal
representatives of the Company Affiliates and shall not be deemed to create any
rights for the benefit of any other Persons.
(h) Any repeal or amendments of any provisions of this Section 9.1 shall be
prospective only and shall not adversely affect any Company Affiliate's right
existing at the time of such repeal or amendment.
ARTICLE 10
DEADLOCKS
10.1 DEADLOCKS. (a) The Parties agree that all Deadlocks shall be
resolved in accordance with this Article 10.
(b) A deadlock (a "Deadlock") shall be deemed to have occurred upon the
failure of either of the Parties to give prior written consent to any proposed
Company Board action on a matter covered under Section 7.3.
(c) If a Deadlock occurs, the Company Board shall refer the Deadlock to the
board of directors of both Parties for resolution. The Parties' boards of
directors shall have thirty (30) days to consider and attempt to resolve such
Deadlock. If the Deadlock cannot be resolved by the Parties' boards of directors
within such 30-day period, the Deadlock shall be resolved pursuant to Section
10.2.
10.2 RIGHT TO BUY OR SELL. In the event of a Deadlock that cannot be
resolved pursuant to Section 10.1(c), either Party (the "Initiating Party")
shall have the right to purchase from, or the obligation to sell to, the other
Party (the "Responding Party") all, but not less than all, of the applicable
Party's Equity Interest in accordance with the following provisions:
(a) The Initiating Party shall deliver a written notice (the "Purchase
Notice") to the Company and the Responding Party stating (i) a statement of
intent to rely on this Section 10.2, and (ii) the amount representing, in the
opinion of the Initiating Party, the value of 100% of the Equity Interests in
the Company then outstanding, on a fully diluted basis, (the "Specified
Amount").
(b) Within one hundred and twenty (120) days after receipt of the Purchase
Notice, the Responding Party shall elect, by written notice, to either (i) sell
all, but not less than all, of the Responding Party's Equity Interest to the
Initiating Party for the portion of the price set forth in the Purchase Notice
attributable to the Responding Party's Equity Interest, or (ii) purchase all,
but not less than all, of the Initiating Party's Equity Interest for the portion
of the price set forth in the Purchase Notice attributable to the Initiating
Party's Equity Interest.
(c) If the Responding Party does not exercise either of the options set
forth in subsection 10.2(b) hereof within one hundred and twenty (120) days
after receipt of the Purchase Notice, then such Responding Party shall
conclusively be deemed to have elected to sell all of its Equity Interest to the
Initiating Party for the portion of the price set forth in the Purchase Notice
attributable to the Responding Party's Equity Interest.
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(d) The purchase and sale of the applicable Equity Interest in accordance
with this Section 10.2 shall be completed within sixty (60) days after the
delivery of the Responding Party's response pursuant to subsection 10.2(b) (or
deemed election pursuant to subsection 10.2(c)) and payment for the Equity
Interest shall be made in immediately available funds at the closing, unless the
Parties agree otherwise, against delivery of appropriate documents evidencing
and transferring title of the Equity Interest herein acquired, free and clear of
all liens or encumbrances thereon. The Parties hereby agree to take all actions
necessary to implement the provisions of this Section 10.2, including, without
limitation, to execute any agreements or other documents required to evidence
the Transfer of the applicable Equity Interest in accordance with Section 11.6.
(e) Upon the delivery by the Initiating Party of a Purchase Notice, neither
Party shall Transfer any or all of its Equity Interest except pursuant to this
Section 10.2.
ARTICLE 11
TRANSFERS OF VENTURE INTERESTS
11.1 GENERAL RESTRICTIONS. No Party may Transfer all or any part of such
Party's Venture Interest, except in open market transactions after the listing
of the Shares on a public exchange or electronic trading system in any
jurisdiction, or as otherwise provided in this Agreement. Any purported Transfer
of a Party's Venture Interest or a portion thereof in violation of the terms of
this Agreement shall be null and void and of no effect. Any permitted transferee
desiring to make a further Transfer shall become subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Party
desiring to make any Transfer. Upon the transfer by a Party of part of its
Equity Interest such that the Party's remaining Equity Interest is less than
twenty-five percent (25%) of the outstanding Equity Interests in the Company,
this Agreement shall immediately terminate, except in respect of a transfer
pursuant to Section 11.3 as to which the transferee is substituted hereunder for
the transferor.
11.2 PERMITTED TRANSFEREES. Notwithstanding the provisions of Sections
11.3 and 11.4, each Party shall have the right to Transfer, by a written
instrument, all or any part of its Venture Interest to a Permitted Affiliate;
PROVIDED, HOWEVER, that such transfer is not materially financially detrimental
to KAA and that such Permitted Affiliate shall execute an instrument in form and
substance reasonably satisfactory to the KAA Board accepting and adopting the
terms and provisions of this Agreement and the other Operative Agreements to
which the transferor is a party and shall pay all reasonable expenses of KAA in
connection with such Transfer, it being understood that upon such Transfer the
transferor shall remain obligated under the Operative Agreements unless the
Company Board otherwise agrees.
11.3 RIGHT OF FIRST REFUSAL. (a) If any Party (the "Seller") desires to
Transfer all, and not less than all, of its Venture Interest (the "Offered
Interest") pursuant to a bona fide offer (the "Bona Fide Offer") from a third
party (the "Proposed Transferee"), other than a transferee permitted by Section
11.2, it shall submit a written offer (the "Written Offer") to Transfer such
Venture Interest (collectively, the "Offered Interest") to the other Party (for
purposes of this Section 11.3, the "Offeree") on terms and conditions, including
price, not less favorable to the Offeree than those on which the Seller proposes
to Transfer such Offered Interest to the Proposed Transferee. The Written Offer
shall disclose the identity of the Proposed Transferee, the Person or Persons,
if any, that Control such Proposed Transferee, the Offered Interest proposed to
be Transferred, the total number of Shares and principal amount of any
Subordinated Debt owned by the Seller, the terms and conditions, including
price, of the proposed Transfer, and any other material facts relating to the
proposed Transfer. The Written Offer shall further state that the Offeree may
acquire, in accordance with the provisions of this Agreement, all of the Offered
Interest for the price and upon the other terms and conditions, including
deferred payment (if applicable), set forth therein.
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(b) The Offeree shall be permitted to confirm that the Bona Fide Offer is
firm and subject only to conditions that could reasonably be expected to be
satisfied, by (i) review of the documents involved in such Bona Fide Offer and
(ii) requiring that the Proposed Transferee submit evidence reasonably
satisfactory to the Offeree of any financing for such purchase.
(c) (i) If the Offeree elects to purchase the Offered Interest at the
price offered by the Proposed Transferee, the Offeree shall communicate in
writing its election to purchase to the Seller, which communication shall be
delivered to the Seller within 30 days of the date the Written Offer was made.
Such communication shall, when taken in conjunction with the Written Offer, be
deemed to constitute a valid, legally binding and enforceable agreement for the
sale and purchase of the Offered Interest. If the Offeree does not communicate
in writing within such 30-day period its election to purchase the Offered
Interest, then such Offeree shall conclusively be deemed to have rejected and
waived its right to purchase the Offered Interest.
(ii) The closing of the sale and purchase of the Offered Interest to
the Offeree shall occur in accordance with Sections 11.5 and 11.6.
(iii) If the Offeree does not elect to so purchase the Offered
Interest, the Seller may sell the entire Offered Interest to the Proposed
Transferee within 90 days following the expiration of the thirty (30) day
period referred to in Section 11.3(c), upon terms that are no more
favorable to the Proposed Transferee than those set forth in the Written
Offer; provided that such Proposed Transferee agrees in writing to be bound
by and subject to the terms and conditions of this Agreement and the
Operative Agreements, as applicable, in all respects as if originally party
hereto in place of the Seller. If the Proposed Transferee does not carry
out its purchase within said 90-day period, or withdraws its offer or
introduces any changes thereto that are more favorable to the Proposed
Transferee, the Offered Interests may not be sold, assigned or transferred
unless previously offered to the Parties once again pursuant to this
Section 11.3.
11.4 PARTY CHANGE OF CONTROL. (a) Kingsway shall have the right at any
time within sixty (60) days after the later of (i) the occurrence of a Party
Change of Control as to ATG or (ii) the giving of notice of such Party Change of
Control as to ATG pursuant to Section 6.4, by written notice to ATG (the date of
such notice is referred to herein as the "Control Put Notice Date"), to require
ATG to purchase all, but not less than all, of its Venture Interest for a cash
price equal to the Reference Value. Promptly following the Control Put Notice
Date, the Parties shall commence determining the Reference Value as set forth
below.
(b) ATG shall have the right at any time within sixty (60) days after the
later of (i) the occurrence of a Party Change of Control as to Kingsway or (ii)
the giving of notice of a Party Change of Control as to Kingsway pursuant to
Section 6.4, by written notice to Kingsway (the date of such notice is referred
to herein as the "Control Call Notice Date"), to require Kingsway to sell all,
but not less than all, of its Venture Interest for a cash price equal to the
applicable Reference Value. Promptly following the Control Call Notice Date, the
Parties shall commence determining the Reference Value as set forth below.
(c) The "Reference Value" referred to in Sections 11.4(a) and 11.4(b) shall
be such amount as agreed by the Parties. If the Parties fail to agree on such
amount within twenty (20) Business Days of the Control Put Notice Date or the
Control Call Notice Date, as the case may be, then the Reference Value shall be
determined by an arm's length, nationally recognized investment banking firm in
Hong Kong selected by the Parties jointly.
(d) If the Parties cannot agree on the choice of a nationally recognized
investment banking firm, each of the Parties shall choose one nationally
recognized investment banking firm in Hong Kong,
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each of which is at arm's length to both Parties (and if a Party fails to make
such selection within ten (10) Business Days after notice is given of the other
Party's selection, then the value determined by the investment banking firm
selected by such other Party shall be deemed conclusive). The Reference Value
shall be the mean of the values proposed by each such investment banking firm.
All costs associated with the determination of the Reference Value, including
the fees of any nationally recognized investment banking firm retained, shall be
shared equally by the Parties.
(e) The closing of the terms pursuant to Section 11.4(a) or 11.4(b) shall
occur in accordance with Sections 11.5 and 11.6.
11.5 GOVERNMENTAL APPROVALS. Each of the Parties shall use all reasonable
commercial efforts to obtain all Governmental Approvals required to effect any
purchase and sale of Venture Interests pursuant to Sections 11.3 or 11.4. If the
required Governmental Approvals have not been received at the time any such
closing is scheduled to occur, the contemplated transfer shall be deferred and
made conditional until such time as the required Governmental Approvals have
been obtained.
11.6 CLOSING OF PURCHASE OF VENTURE INTERESTS. Unless the Parties
otherwise agree, the closing of any purchase and sale of Venture Interests
pursuant to Sections 11.3 or 11.4 shall occur at the Company's principal
executive office within sixty (60) days after the applicable notice of purchase
and sale has been furnished. At such closing, (i) the Party transferring such
Venture Interests (the "Transferring Party") shall transfer, assign and deliver
to the Person purchasing such Venture Interests (the "Non-Transferring Party")
the certificates or other documents evidencing the Venture Interests being
purchased, duly endorsed for transfer, together with such assignments separate
from any such certificate and other documents or instruments reasonably required
by counsel for the Non-Transferring Party to consummate such purchase, and (ii)
the Non-Transferring Party shall pay the purchase price in immediately available
funds in US Dollars. In addition, at the closing of such purchase and sale, (A)
the Transferring Party shall deliver to the Non-Transferring Party an executed,
written representation, in form and substance reasonably satisfactory to legal
counsel for the Non-Transferring party, that the Transferring Party owns the
Venture Interests free and clear of all Security Interests and that upon the
delivery of the Venture Interests, the Transferring Party shall have transferred
all of its right, title and interest in the Venture Interests, and (B) the Non-
Transferring Party shall deliver to the Transferring party such investment
representations as may be reasonably required to comply with applicable
securities laws.
ARTICLE 12
FINANCIAL AND ACCOUNTING MATTERS
12.1 BOOKS AND RECORDS; FINANCIAL YEAR. The Company shall, and shall
cause its Subsidiaries to, to the extent permitted by Applicable Law, keep its
accounts and financial and cost records in US Dollars and in English. The fiscal
year of the Company shall be the Financial Year.
12.2 FINANCIAL INFORMATION. The Company shall prepare in accordance with
Hong Kong GAAP (i) not later than sixty (60) days after the end of each
Financial Year audited financial statements in English of the Company and its
Subsidiaries, and (ii) not later than thirty (30) days after the end of each
fiscal quarter (other than the final quarter of a Financial Year), unaudited
financial statements in English of the Company and its Subsidiaries and shall
also cause the Company to provide on a timely basis all statements in English
necessary for each Party to prepare its tax returns as they relate to such
Party's interest in the Company.
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12.3 RIGHT OF INSPECTION OF BOOKS. The Company and each of its
Subsidiaries shall keep full, complete and accurate books of account, record and
information with respect to their affairs and the same shall be maintained at
the principal office of the Company. Entries shall be made in such books of
account and records of all such matters, transactions and things as are usually
written and entered in books of account and records kept by Persons engaged in
businesses similar to the business of the Company or required by Applicable Law.
Each Party shall have the right, acting reasonably and in coordination with the
Company's auditors and accounting personnel and, to the extent practicable, the
other Party, to audit, examine, and make copies of or extracts from the books of
account and records of the Company and its Subsidiaries at all reasonable times
during usual business hours. Such right may be exercised through any agent or
employee of such Party designated in writing by it or by an independent
certified accountant designated in writing by such Party. Each Party shall bear
all expenses incurred in any examination made for such Party's account.
12.4 ACCOUNTING PRINCIPLES. Unless otherwise agreed by the Parties, the
accounts and records of the Company and its Subsidiaries shall be maintained in
accordance with Hong Kong GAAP.
12.5 AUDITORS. The auditors of the Company shall be an internationally
recognized auditing firm selected by the Company Board and approved by the
Parties. All audit reports and reports to management on internal controls and
procedures prepared by such auditing firm shall be made available to the Company
Board and each Party.
ARTICLE 13
OTHER ACTIVITIES BY THE PARTIES; EXPANSION OF TERRITORY; CONFIDENTIALITY
13.1 IN GENERAL. The Parties acknowledge that to support their intention
to make the Joint Venture the principal embodiment of the JV Business of the
Parties and to protect adequately their interests in KAA, it is necessary and
essential that the Parties enter into and adhere to the covenants contained in
this Article 13.
13.2 NON-COMPETITION OBLIGATIONS. (a) From and after the date hereof and
until a date twelve (12) months following the termination of KAA and its
Subsidiaries, or following the date on which any Party ceases to be a Party
pursuant to a Transfer hereunder, pursuant to the terms of this Agreement,
except as otherwise expressly provided in Section 13.3 or as provided in the ATG
License Agreement, no Party or any of its Affiliates shall within the Territory:
(i) Offer Competing Services; or
(ii) Invest or Participate in any Person that Offers Competing
Services; or
(iii) Except as required by Applicable Law, no senior officer or
member of the board of directors of a Party shall serve as senior officer
or member of a board of directors, managing board or similar governing body
of a Major Competitor of KAA.
(b) During the period Section 13.2(a) is applicable to Kingsway, neither
Kingsway nor its Affiliates shall Offer or Invest or Participate in any Person
that offers Competing Services in the United States or in any other territory in
which Ashton or its Affiliates or licensees operates an equivalent Competing
Service and has agreed to a reciprocal limitation as to competition in the
Territory.
(c) In the event that the ATG License Agreement is terminated by ATG in
accordance with the ATG License Agreement, the non-compete obligations set forth
in Sections 13.2(a) and (b) above shall cease to apply.
27
<PAGE>
13.3 NON-COMPETITION EXCEPTIONS. Except as expressly set forth in this
Section 13.3, nothing in this Article 13 shall be construed to prohibit any of
the following activities by a Party or any of its Affiliates after the date
hereof.
(a) FIVE PERCENT INVESTMENTS. The acquisition or ownership by a Party
(directly or indirectly through an Affiliate) of any securities of a publicly
held Person engaged in Competing Services, if such securities (i) were not
acquired directly from such Person in a private placement or similar
transaction, (ii) do not represent more than five percent (5%) of the aggregate
voting power of the outstanding equity securities of such Person (assuming the
conversion, exercise or exchange of all such securities held by such Party or
its Affiliate that are convertible, exercisable or exchangeable into or for
voting securities), and (iii) in the case of debt securities, entitle the holder
thereof to receive only interest or other returns that are not based on the
value or results of operations of such Person.
(b) INVESTMENT FUNDS. The acquisition or ownership (directly or indirectly
through an Affiliate) by a Party of an ownership interest in an investment fund
or plan (including pension and retirement plans) investing on behalf of the
employees or retirees of such Party or its Affiliates or the continued
sponsorship by such Party (or Affiliate) thereof; provided that no investment by
any such fund or plan has the purpose or effect of changing or influencing the
Control of any Person that Offers Competing Services.
13.4 EXPANSION OF TERRITORY. Each of the Parties acknowledges that the JV
Business shall only be conducted in connection with equity securities listed and
traded on securities exchanges located within the Territory and that the
countries and regions comprising the Territory can only be changed by mutual
agreement in writing by the Parties. With respect solely to the Peoples Republic
of China (the "PRC"), KAA shall have non-exclusive rights to the PRC until
January 1, 2002. In the event ATG does not enter into any joint ventures in the
PRC by the latter date, then KAA shall have exclusive licensing rights as to the
PRC. For purposes of this Section 13.4, the Parties agree that none of Hong
Kong, Macau or the Republic of China (Taiwan) shall be included within the
definition of PRC. The foregoing notwithstanding, in the event any Party
contemplates Offering Competing Services in any country or region that is not
part of the Territory (excluding the United States, Europe and Canada), such
Party shall first consult with the other Party with respect to expanding the
Territory to include such country or region.
13.5 CONFIDENTIALITY. Each Party shall use, and shall cause its
Affiliates, employees and agents to use, their respective reasonable best
efforts to ensure that the terms of this Agreement, the other Operative
Agreements (including all Exhibits and Schedules hereto and thereto) and
confidential proprietary information concerning the other Party, the JV Business
and affairs of the Company and its Subsidiaries are not disclosed to third
parties unless the other Party shall have consented to such disclosure in
writing; PROVIDED, HOWEVER, that such information may be disclosed to third
parties to the extent reasonably required to accomplish any proposed transfer
under Article 12, as necessary in connection with any private offering of
securities of a Party or any of its Affiliates, if the Person to which the
information is disclosed agrees in writing to keep such information
confidential, as necessary in connection with any Public Offering of securities
of a Party or any of its Affiliates (and related reporting obligations
occasioned thereby), and as required by law.
28
<PAGE>
ARTICLE 14
TERM AND TERMINATION DEFAULT
14.1 TERM OF KAA. KAA and its Subsidiaries shall continue without
interruption until they are dissolved and terminated pursuant to the terms of
this Agreement, the Constituent Documents and Applicable Law.
14.2 TERMINATION OF JOINT VENTURE. The following shall be "Termination
Conditions" with respect to the Joint Venture in which case the non-defaulting
Party may deliver a written notice (the "Termination Notice") in accordance with
Section 14.3:
(a) a Material Non-Monetary Default (in which case the non-defaulting Party
may deliver a Termination Notice in accordance with Section 14.3);
(b) the Bankruptcy of a Party (in which case the non-bankrupt Party may
deliver a Termination Notice in accordance with Section 14.3);
(c) the proper termination of the ATG License Agreement in accordance with
its terms (in which case any Party may deliver a Termination Notice in
accordance with Section 14.3);
(d) written mutual consent of the Parties (in which case any Party may
deliver a Termination Notice in accordance with Section 14.3); or
(e) if a Party's equity ownership falls below twenty-five percent (25%) of
total Shares issued and outstanding, other than pursuant to a Transfer under
Section 11.3.
14.3 TERMINATION NOTICE. (a) If a Termination Condition occurs, a Party
entitled to deliver a Termination Notice pursuant to Section 14.2 may give such
Termination Notice to the other Parties and to the Company Board within 60 days
following the date upon which such Party becomes aware of the occurrence of the
Termination Condition. If any Party properly delivers a Termination Notice, the
other Party shall be precluded from delivering a subsequent Termination Notice.
(b) Each Party acknowledges and agrees that (i) it shall not challenge the
validity of any provision of this Article 14 in any Proceeding and (ii) each
Party shall have a right to seek specific performance of each provision of this
Article 14.
14.4 TERMINATION UPON DEFAULT, ETC. In the case of a Termination
Condition under Section 14.2(a) or (b), the non-defaulting Party delivering the
Termination Notice shall have the right to exercise its option to purchase all
but not less than all, of the Venture Interest of the defaulting Party at eighty
percent (80%) of the defaulting Party's investment to date plus interest on
amounts invested from time to time at the Applicable Rate (the "Default
Termination Value") by delivering a written notice of exercise within sixty (60)
days following delivery of a Termination Notice. This reduction to eighty
percent (80%) of the investment to date plus interest on amounts invested from
time to time at the Applicable Rate is agreed by both parties as a reasonable
pre-estimate by way of liquidated damages of the likely loss, direct and
indirect, which would be incurred by the non-defaulting Party in consequence of
a Termination Condition arising under Section 14.2(a) or (b) hereof in relation
to the defaulting Party, this assessment taking into account the financial and
other commitments made by both Parties under this Agreement in relation to the
establishment and proposed long term operation of the Joint Venture. Such
written notice shall constitute an offer by the non-defaulting Party to purchase
the Venture Interests of the defaulting Party at a price equal to the Default
Termination Value, and the defaulting Party hereby accepts any such offer by the
non-defaulting Party. If the non-defaulting Party fails to deliver such written
notice of such exercise within said 60-day period, it will be deemed to have
elected not to
29
<PAGE>
purchase the Venture Interest of the defaulting Party. In the event that the
non-defaulting Party purchases the Venture Interest of the defaulting Party
pursuant to this Section 14.4, the purchase price for the Venture Interest shall
be an amount payable in immediately available funds in US dollars.
14.5 CLOSING. Each of the Parties shall use its reasonable efforts to
obtain all Governmental Approvals required to effect the purchase and sale of
Venture Interests, pursuant to Section 14.4. Unless the Parties have failed to
receive all required Governmental Approvals, the closing of the purchase of a
Venture Interest pursuant to this Article 14 shall be held at the offices of the
purchasing Party within ten (10) days after the final determination of the
purchase price to be paid to the selling Party. If in spite of the Parties'
efforts in this regard, the required Governmental Approvals have not been
received at the time the closing is scheduled to occur, the closing shall be
postponed until such date as the Parties shall have obtained the required
Governmental Approvals; provided that, if such Governmental Approvals are not
obtained prior to the first anniversary of the date on which such closing is
postponed, at the request of any Party, the Parties shall negotiate in good
faith to provide for the termination of the Joint Venture pursuant to such
mutually agreeable terms and conditions as will permit the Parties to obtain all
Governmental Approvals required for the termination of the Joint Venture, and as
will have substantially the same economic consequences to the Parties as the
transaction contemplated by Section 14.4. At the closing, the purchasing Party
and the selling Party shall make the deliveries specified in Section 11.6.
14.7 TERMINATION BY DISSOLUTION. In the case of a Termination Condition
under Section 14.2(c) or (d), upon delivery of a Termination Notice, the Parties
shall proceed to dissolve the Joint Venture by the Parties causing their
representative directors on the KAA Board to proceed with the winding up of the
affairs and liquidation of KAA through the sale of their respective assets and
properties. Notwithstanding the foregoing, in the event that a Party fails to
give a Termination Notice within the time period set forth in Section 14.3, such
Party shall be deemed to have waived its right to dissolve, with respect to the
event or events which gave rise to such right to dissolve. In the case of a
Termination Condition under Section 14.2(e), there shall be no dissolution of
the Joint Venture, and the Party whose interest is subject to such event shall
cease to have any rights under this Agreement.
ARTICLE 15
POST TERMINATION PROVISIONS
15.1 CONSEQUENCES OF TERMINATION. Upon the transfer by at least one Party
of its entire Venture Interest in accordance with this Agreement (other than a
transfer pursuant to Section 11.2), this Agreement shall forthwith cease to have
further force and effect as between such transferor on the one hand and the
Company and the other Party on the other hand, and all further obligations of
the Company, the other Party and each of their respective officers, directors
and Affiliates on the one hand and the transferor on the other hand under this
Agreement shall terminate without further liability, except that:
(a) such transfer shall not constitute a waiver of any rights that any
Party (or any of its Affiliates) may have by reason of a breach of this
Agreement or any other Operative Agreement, subject to any limitations thereon
in this Agreement or the other Operative Agreements;
(b) Each Operative Agreement shall continue or terminate in accordance with
the terms therein; and
(c) the provisions of Articles 9, 13 (other than Section 13.4) (for the
twelve-month period following such termination with respect to Article 13 only),
15 and 17 (other than Section 17.8) of this Agreement shall continue in full
force and effect.
30
<PAGE>
15.2 NON-SOLICITATION. Anything herein to the contrary notwithstanding,
upon the Transfer by any Party of all of its Venture Interest in accordance with
this Agreement, for a period commencing on the date of such Transfer and ending
on the first anniversary of such Transfer, such Party shall not, and shall cause
its Affiliates not to, induce or attempt to influence any employees of the
Company, its Subsidiaries or any of their Affiliates to terminate such
employee's employment therewith.
ARTICLE 16
NEGOTIATIONS; ARBITRATION; SUBMISSION TO JURISDICTION
16.1 NEGOTIATIONS; ARBITRATION. (a) Except for interim injunctive relief
in respect of any claimed violation of Article 13 pending resolution of such
claim as provided below, in the event of any dispute, controversy or claim
(other than a Deadlock) arising out of or relating to this Agreement, or the
performance, breach, termination, or invalidity hereof, such dispute,
controversy or claim shall be the subject of an attempt at an amicable solution,
for which purpose any party shall give notice to the other parties, giving a
concise description of the matter in question and the position of such party in
respect thereof and proposing a meeting among the chief executive officers,
executive managing directors or their designees (the "Senior Officers") of the
ultimate parent companies of the Parties in Hong Kong (or such other place as
they may agree) with the purpose of resolving the dispute, controversy or claim.
(b) In the event such a meeting is called, the meeting shall take place
within ten (10) Business Days of its being requested. Unless the parties
otherwise agree, if such meeting does not take place within such ten (10)
Business Days or if within ten (10) Business Days after such meeting the Senior
Officers have not resolved such matter, then the matter shall be settled by
arbitration in accordance with the rules of the International Chamber of
Commerce. The arbitration shall be the sole and exclusive forum for resolution
of the dispute, controversy or claim, and the award shall be final and binding.
Judgment thereon may be entered by any court having jurisdiction. The place of
arbitration shall be London, England. The arbitration shall be conducted in the
English language and any foreign-language documents presented at such
arbitration shall be accompanied by an English translation thereof. The
arbitrators shall apply the laws of England without regard to the principles of
conflicts of laws.
(c) Each of the parties hereby submits to the exclusive jurisdiction of the
courts of London, England in any action, suit or proceeding with respect to (i)
interim injunctive relief in respect of any claimed violation of Article 13, or
(ii) the enforcement of the arbitration provisions of this Agreement, and to the
non-exclusive jurisdiction of such court with respect to the enforcement of any
award thereunder. Each party irrevocably appoints the agent for service
specified opposite its name on the signature pages hereof as its authorized
agent in the city of London upon which process may be served in any related
proceeding, and agrees that service of process upon such agent, and written
notice of said service to such party, by the person serving the same to the
address so provided, shall be deemed in every respect effective service of
process upon such party in any such action, suit or proceeding. Each party
further agrees to take any and all action as may be necessary to maintain such
designation and appointment of such agent in full force and effect for the
duration of this Agreement.
ARTICLE 17
MISCELLANEOUS
17.1 NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and shall be (a) personally delivered, (b) transmitted by
internationally recognized air courier service, or (c) transmitted by facsimile,
in each case to the Parties as follows, as elected by the Party giving such
notice:
31
<PAGE>
If to ATG, to:
Ashton Technology Group, Inc
1900 Market Street
Suite 1900
Philadelphia, PA 19103
Tel: (215) 751-1900
Fax: (215) 970-3481
Attn: Arthur J. Bacci
with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 19103
Tel: (215)
Fax: (215)
If to Kingsway, to:
Kingsway Group
10 Harcourt Road
5/F, Hutchison House
Central, Hong Kong
Tel: (852) 2877-1830
Fax: (852) 2845-3368
Attn: William Lam
with a copy to:
Kingsway ATG Asia
10 Harcourt Road
5/F, Hutchison House
Central, Hong Kong
Tel: (852) 2877-1830
Fax: (852) 2845-3368
Attn: Richard Yin
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California
U.S.A.
Tel: (650) 813-5600
Fax: (650) 494-0792
Attn: Joseph Barbeau, Esq.
Except as otherwise specified herein, all notices and other communications shall
be deemed to have been duly given on (i) the date of receipt if delivered
personally, (ii) three (3) Business Days after delivery to the courier, or (iii)
the next Business Day in the jurisdiction of the recipient following the date of
transmission with electronic confirmation if transmitted by facsimile, whichever
shall first occur. Any
32
<PAGE>
Party may change its address for purposes hereof by notice to the other Party
and the Company. All notices and other communications shall be in the English
language.
17.2 APPLICABLE LAW. The validity, construction and performance of this
Agreement shall be governed by and construed in accordance with the law of Hong
Kong, regardless of the laws that might otherwise govern under applicable
principles of conflicts or choice of law.
17.3 SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, the Parties agree that such provision will be
enforced to the maximum extent permissible so as to effect the intent of the
Parties, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby. If necessary to effect the intent of the Parties, the Parties will
negotiate in good faith to amend this Agreement to replace the unenforceable
language with enforceable language which as closely as possible reflects such
intent.
17.4 AMENDMENTS. This Agreement may be modified only by a written
amendment signed by all of the Parties to this Agreement.
17.5 WAIVER. The waiver by a Party of any instance of any other Party's
non-compliance with any obligation or responsibility herein shall be in writing
and signed by the waiving Party and shall not be deemed a waiver of other
instances of such other Party's non-compliance.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts shall have been signed by
each Party and delivered to the other Parties.
17.7 ENTIRE AGREEMENT. The provisions of this Agreement and those written
agreements executed and delivered contemporaneously herewith set forth the
entire agreement and understanding among the Parties as to the subject matter
hereof and supersede all prior agreements, oral or written, and all other prior
communications between the Parties relating to the subject matter hereof and
thereof.
17.8 NO ASSIGNMENT. (a) Except as specifically provided herein, no
Party shall, directly or indirectly, assign this Agreement or any of its rights
or obligations hereunder without the prior written consent of the other Parties.
(b) Any attempted assignment of this Agreement in violation of this Section
17.8 shall be void and of no effect.
(c) This Agreement shall be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and permitted
assigns.
17.9 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of Article 9
hereof, this Agreement is for the sole benefit of the Parties and their
permitted assigns, and nothing herein express or implied shall give or be
construed to give to any Person, other than the Parties and such assigns, any
legal or equitable rights hereunder.
17.10 PUBLICITY. The Parties shall use reasonable efforts to consult in
good faith with each other with a view to agreeing upon any press release or
public announcement relating to the transactions contemplated hereby or by the
other Operative Agreements prior to the consummation thereof.
33
<PAGE>
17.11 CONSTRUCTION. This Agreement has been negotiated by the Parties and
their respective counsel and shall be fairly interpreted in accordance with its
terms and without any strict construction in favor of or against any of the
Parties.
17.12 DISCLAIMER OF AGENCY. This Agreement shall not constitute any Party
as a legal representative or agent of any other Party, nor shall a Party have
the right or authority to assume, create or incur any liability or any
obligation of any kind, express or implied, against or in the name or on behalf
of any other Party or any of its Affiliates or of the Company unless otherwise
expressly permitted by such Party.
17.13 RELATIONSHIP OF THE PARTIES. The relationship among the Parties
shall not be that of partners and nothing herein contained shall be deemed to
constitute a partnership among them.
17.14 FIDUCIARY DUTIES. Subject to Applicable Law, no Party or any of its
Affiliates nor any officer, director, employee or former employee of any Party
or its Affiliate shall have any obligation, or be liable, to any Party or the
Company for exercising any of the rights of such Party or such Affiliate under
this Agreement or any other Operative Agreement to which it is or will be a
party, for exercising or failing to exercise its rights as a shareholder of the
Company or for breach of any fiduciary or other similar duty to any Party or the
Company by reason of such conduct, other than a breach of any Operative
Agreement.
* * *
34
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused its respective duly
authorized officers to execute this Agreement as of the day and year first above
written.
Ashton Technology Group, Inc.
By: /s/ Fredric W. Rittereiser
-----------------------------
Name: Fredric W. Rittereiser
Title: Chief Executive Officer
Kingsway Electronic Services Limited
By: /s/ Richard Yin
-----------------------------
Name: Richard Yin
Title: Chief Executive Officer
Dated: December 16, 1999
35
<PAGE>
EXHIBIT A
---------
ATG License Agreement
EXHIBIT B
---------
Employment Agreement
EXHIBIT C
---------
Countries and Other Jurisdictions
Comprising Territory
--------------------
Australia
Bangladesh
Brunei
Cambodia
Federated States of Micronesia
Fiji Islands
French Polynesia
Hong Kong
Guam
India
Indonesia
Japan
Laos
Macau
Malaysia
Mongolia
Myanmar
New Zealand
Northern Mariana Islands
North Korea
Pakistan
Papua, New Guinea
Philippines
Samoa
Singapore
Solomon Islands
South Korea
Sri Lanka
Taiwan
Thailand
Timor
Vietnam
EXHIBIT D
---------
Stock Option Plan
EXHIBIT E
---------
Kingsway/POP Exchange Agreement
36
<PAGE>
EXHIBIT 10.37
UNANIMOUS SHAREHOLDER AGREEMENT
Made as of December 20, 1999
Between
THE ASHTON TECHNOLOGY GROUP, INC.
as "ATG"
and
3690822 CANADA INC.
as "NumberCo"
and
ASHTON TECHNOLOGY CANADA INC.
as "Corporation"
MCMILLAN BINCH
----------
BARRISTERS & SOLICITORS
<PAGE>
TABLE OF CONTENTS
RECITALS.......................................................... 1
SECTION 1 - INTERPRETATION ....................................... 1
1.1 Definitions............................................. 1
(1) Adoption Agreement................................. 1
(2) Agreement.......................................... 2
(3) Affiliate.......................................... 2
(4) Applicable Law..................................... 2
(5) Arm's Length....................................... 2
(6) Articles........................................... 2
(7) Bankruptcy Proceedings............................. 2
(8) Business Corporations Act.......................... 2
(9) Business Day....................................... 2
(10) By-laws............................................ 2
(11) Canadian Securities................................ 3
(12) Closing Date....................................... 3
(13) Confidential Information........................... 3
(14) Control............................................ 3
(15) Corporate Shareholder.............................. 3
(16) Fair Market Value.................................. 3
(17) GAAP............................................... 3
(18) Governmental Authority............................. 3
(19) Indebtedness....................................... 4
(20) Individual Shareholder............................. 4
(21) Licence and Services Agreement..................... 4
(22) Lien 4
(23) Notice............................................. 4
(24) Permitted Transferee............................... 4
(25) Person............................................. 4
(26) Principal Shareholders............................. 4
(27) Purchase Price..................................... 4
(28) Purchasing Shareholder............................. 4
(29) Question........................................... 4
(30) Selling Shareholder................................ 4
(31) Shares............................................. 4
(32) Shareholders....................................... 5
(33) Triggering Event................................... 5
1.2 Headings and Table of Contents.......................... 5
1.3 References.............................................. 5
1.4 Number and Gender....................................... 5
1.5 Time of Day............................................. 5
1.6 Business Day............................................ 5
1.7 Governing Law........................................... 5
1.8 Conflict................................................ 5
(i)
<PAGE>
1.9 Severability............................................ 6
1.10 Time of Essence......................................... 6
1.11 Statutory References.................................... 6
1.12 Schedules............................................... 6
1.13 Entire Agreement........................................ 6
1.14 GAAP.................................................... 6
1.15 Unanimous Shareholder Agreement......................... 6
SECTION 2 - MANAGEMENT ........................................... 6
2.1 Number of Directors..................................... 6
2.2 Election of Directors................................... 6
2.3 Quorum.................................................. 7
2.4 Officers................................................ 7
2.5 Restrictions on Management.............................. 7
2.6 Amalgamation with NumberCo.............................. 8
2.7 Signing Authority....................................... 8
SECTION 3 - SHAREHOLDER MATTERS .................................. 8
3.1 Meetings of Shareholders................................ 8
3.2 Non-Competition Covenant................................ 9
3.3 Non-Solicitation Covenant............................... 9
3.4 Confidentiality......................................... 9
3.5 Breach of Obligations................................... 10
SECTION 4 - FINANCIAL AND SUPPORT OBLIGATIONS .................... 10
4.1 ATG Funding and Support Obligations..................... 10
4.2 Further Obligations..................................... 11
4.3 Dividends............................................... 11
4.4 Auditors................................................ 11
SECTION 5 - DEALING WITH SHARES .................................. 11
5.1 Ownership of Shares..................................... 11
5.2 Restrictions on Transfer of Shares...................... 11
5.3 Permitted Transfers..................................... 12
5.4 Employee Stock Option Plan.............................. 12
5.5 Put/Call................................................ 12
SECTION 6 - COMPLETION OF PURCHASE AND SALE ...................... 13
6.1 Purchase Price.......................................... 13
6.2 Determination and Notification of Fair Market Value..... 13
6.3 Outstanding Indebtedness................................ 14
6.4 Title to Shares Free and Clear.......................... 14
6.5 Closing and Closing Date................................ 14
6.6 Time and Place of Closing............................... 15
6.7 Payment of Purchase Price and Delivery of Certificates.. 15
6.8 Failure to Complete Transaction of Purchase and Sale.... 15
SECTION 7 - GENERAL .............................................. 16
7.1 Carrying out of Agreement............................... 16
7.2 Assignment and Enurement................................ 16
7.3 Notices................................................. 16
(ii)
<PAGE>
7.4 No Set-off.............................................. 17
7.5 Waivers................................................. 17
7.6 Further Assurances...................................... 17
7.7 Remedies Cumulative..................................... 17
7.8 Counterparts and Adoption Agreement..................... 17
7.9 Amendments.............................................. 18
7.10 Submission to Jurisdiction.............................. 18
7.11 Termination............................................. 18
Schedule 1.1(1) - Adoption Agreement
Schedule 1.1(6) - Articles
Schedule 1.1(10) - By-Laws
(iii)
<PAGE>
EXHIBIT 10.37
UNANIMOUS SHAREHOLDER AGREEMENT
This Agreement is made as of December 20, 1999 , between
THE ASHTON TECHNOLOGY GROUP, INC.
a corporation subsisting under the laws of Delaware
as "ATG"
and
3690822 CANADA INC. a corporation subsisting under
the laws of Canada
as "NumberCo"
and
ASHTON TECHNOLOGY CANADA INC. a
corporation subsisting under the laws of Canada
as "Corporation"
RECITALS
A. The authorized capital of the Corporation consists of an unlimited number of
common shares in two classes, of which 100,000 shares are issued and
outstanding;
B. At the date of this Agreement all of the issued and outstanding shares of the
Corporation are legally and beneficially owned by ATG and NumberCo;
C. The parties have agreed to enter into this Agreement to provide for certain
rights and obligations concerning the Corporation and to record their agreement
as to the manner in which the affairs of the Corporation shall be conducted.
FOR VALUE RECEIVED, the parties agree as follows:
SECTION 1 - INTERPRETATION
1.1 Definitions. In this Agreement:
1.1(10)-1
<PAGE>
(1) Adoption Agreement means an agreement by which a Person agrees to be bound
by the terms of this Agreement, substantially in the form of Schedule 1.1(1);
(2) Agreement means this agreement including any recitals and schedules to this
agreement, as amended, supplemented or restated from time to time;
(3) Affiliate has the meaning ascribed thereto in the Business Corporation Act;
(4) Applicable Law in respect of any Person, property, transaction or event,
means all present and future laws, statutes, regulations, treaties, judgments
and decrees applicable to that Person, property, transaction or event and,
whether or not having the force of law, all applicable official directives,
rules, consents, approvals, authorizations, guidelines, orders and policies of
any Governmental Authority having or purporting to have authority over that
Person, property, transaction or event;
(5) Arm's Length has the meaning given to it in the Income Tax Act (Canada) as
amended or re-enacted from time to time;
(6) Articles means the articles of the Corporation attached to this Agreement as
Schedule Schedule 1.1(6), as amended, restated or replaced from time to time in
accordance with this Agreement;
(7) Bankruptcy Proceedings by or against a Person means any voluntary or
involuntary case or proceeding (including the filing of any notice) under any
insolvency, incorporation or other Applicable Law in any jurisdiction in respect
of the:
(a) bankruptcy, liquidation, winding-up, dissolution or suspension of
general operations;
(b) composition, rescheduling, reorganization, arrangement or readjustment
of, or other relief from, or stay or proceedings to enforce, some or
all of the debts or obligations;
(c) appointment of a trustee, receiver, receiver and manager, liquidator,
administrator, custodian or other official for, all or a substantial
part of the assets; or
(d) possession, foreclosure or retention, or sale or other disposition of,
or other proceedings to enforce security over, all or a substantial
part of the assets;
of that Person;
(8) Business Corporations Act means the Canada Business Corporations Act, as
amended or re-enacted from time to time;
(9) Business Day means a day on which banks are open for business in the City of
Toronto, but does not include a Saturday, Sunday or statutory holiday in the
Province of Ontario. The Business Day will end at 5:00 p.m. on that day;
<PAGE>
(10) By-laws means the by-laws of the Corporation attached to this Agreement as
Schedule Schedule 1.1(10), as amended or replaced from time to time in
accordance with this Agreement;
(11) Canadian Securities means the securities issued by any company domiciled in
Canada or whose principal place of business is Canada. "Canadian Securities"
shall also mean the securities of any company listed for trading on any
registered Canadian exchange.
(12) Closing Date means in the case of a purchase and sale under Section 5.5,
the date determined under Section 6.5, unless otherwise agreed by the parties to
the transaction of purchase and sale;
(13) Confidential Information means all information, documentation, knowledge,
data or know-how owned, possessed or controlled by, or relating to, the
Corporation or acquired or developed for its benefit, that the Corporation
treats as confidential including, without limitation, supplier and customer
lists, price lists, marketing information, product information, trade secrets
and computer software, but excluding any information:
(a) that is or becomes part of the public domain by publication or
otherwise without any breach of this Agreement;
(b) that is obtained on a non-confidential basis from another source
acting in good faith without any breach of this Agreement; or
(c) that was not obtained from another source and that can be demonstrated
by the recipient to have been known or independently developed by the
recipient before disclosure to the recipient;
(14) Control means the possession of the power to direct or cause the direction
of the management and policies of a corporation or a trust through, in the case
of a corporation, legal and beneficial ownership of a majority of voting shares
in the corporation, or, in the case of a trust, through legal ownership of a
trust's assets;
(15) Corporate Shareholder means a corporation which owns Shares;
(16) Fair Market Value of any class of Shares means the fair market value of all
the issued and outstanding Shares of that class on any particular date
determined in accordance with Section 6.2 and for the purposes of this
definition "fair market value" means the highest price expressed in money or
money's worth, available in an open and unrestricted market between informed and
willing parties acting at arm's length and under no compulsion to act, with no
discount for minority interests, illiquid markets or restrictions on transfers
of shares and no premium for a control block of Shares;
(17) GAAP means generally accepted accounting principles in effect in Canada
including, without limitation, the accounting recommendations published in the
Handbook of the Canadian Institute of Chartered Accountants;
(18) Governmental Authority means any domestic or foreign government, including,
without limitation, any federal, provincial, state, territorial or municipal
government, and any
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government agency, tribunal, commission or other authority exercising or
purporting to exercise executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, government;
(19) Indebtedness of a Person means all debts, liabilities and other obligations
of that Person however incurred;
(20) Individual Shareholder means an individual who:
(a) owns Shares; or
(b) owns shares of a Corporate Shareholder;
(21) Licence and Services Agreement means the Licence and Services Agreement
dated the date hereof between the Corporation, ATG and Universal Trading
Technologies Corporation;
(22) Lien means any lien, mortgage, charge, hypothec, encumbrance, security
interest, pledge, hypothecation, deposit arrangement, priority, conditional sale
agreement, other title retention agreement or other security arrangement of any
kind;
(23) Notice means any notice, approval, demand, direction, consent, designation,
request, document, instrument, certificate or other communication required or
permitted to be given under this Agreement;
(24) Permitted Transferee means a single Affiliate of a Shareholder and of which
the Shareholder has Control;
(25) Person means any natural person, sole proprietorship, partnership,
corporation, trust, joint venture, any Governmental Authority or any
incorporated or unincorporated entity or association of any nature;
(26) Principal Shareholders means ATG and NumberCo;
(27) Purchase Price has the meaning given to it in Section 6.1;
(28) Purchasing Shareholder means a Shareholder purchasing Shares pursuant to
Section 5.5(1) or 5.5(2), as the case may be;
(29) Question includes any resolution, by-law, or other matter submitted to
directors or Shareholders of the Corporation, as applicable;
(30) Selling Shareholder means a Shareholder selling Shares pursuant to Section
5.5(1) or 5.5(2), as the case may be;
(31) Shares means:
(a) common and preference shares in the capital of the Corporation,
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(b) any other securities into which those common or preference shares may
be converted, exchanged, reclassified, redesignated, subdivided,
consolidated or otherwise changed from time to time,
(c) any securities of any successor corporation to or corporation
continuing from the Corporation which those common or preference
shares or other securities are changed into or become as a result of
any amalgamation, continuance, merger, consolidation, plan of
arrangement or reorganization, statutory or otherwise, and
(d) any securities received as a stock dividend or other distribution on
or in respect of those common shares or preference or other
securities;
(32) Shareholders means ATG, NumberCo and any other Person who at the relevant
time owns Shares;
(33) Triggering Event means a change in Control of a Shareholder, a sale of all
or substantially all of the assets of a Shareholder, or, in the event Shares in
the Corporation held by a Shareholder have been transferred to a Permitted
Transferee under Section 5.3, a change in Control of such Permitted Transferee
or a sale of all or substantially all of the assets of such Permitted
Transferee.
1.2 Headings and Table of Contents. The division of this Agreement into
sections, the insertion of headings and the provision of a table of contents are
for convenience of reference only and are not to affect the construction or
interpretation of this Agreement.
1.3 References. Unless otherwise specified, references in this Agreement to
Sections and Schedules are to sections of, and schedules to, this Agreement.
1.4 Number and Gender. Unless otherwise specified, words importing the singular
include the plural and vice versa and words importing gender include all
genders.
1.5 Time of Day. Unless otherwise specified, references to time of day or date
mean the local time or date in the City of Toronto, Province of Ontario.
1.6 Business Day. If under this Agreement any payment or calculation is to be
made or any other action is to be taken, on or as of a day which is not a
Business Day, that payment or calculation is to be made, and that other action
is to be taken, as applicable, on or as of the next day that is a Business Day.
Any extension of time will be included for the purposes of computation of
interest.
1.7 Governing Law. This Agreement and each of the documents contemplated by or
delivered under or in connection with this Agreement are governed by, and are to
be construed and interpreted in accordance with, the laws of the Province of
Ontario and the laws of Canada applicable in the Province of Ontario.
1.8 Conflict. If there is a conflict between the provisions of this Agreement
and the Articles or By-laws, the provisions of this Agreement prevail and the
Articles and By-laws are to be amended accordingly. If there is a conflict
between any provision of this Agreement and any
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other document contemplated by or delivered under or in connection with this
Agreement, the relevant provision of this Agreement is to prevail.
1.9 Severability. If any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, the illegality, invalidity or
unenforceability of that provision will not affect:
(1) the legality, validity or enforceability of the remaining provisions of this
Agreement; or
(2) the legality, validity or enforceability of that provision in any other
jurisdiction.
1.10 Time of Essence. For every provision of this Agreement, time is of the
essence.
1.11 Statutory References. Each reference to an enactment is deemed to be a
reference to that enactment, and to the regulations made under that enactment,
as amended or re-enacted from time to time.
1.12 Schedules. The following Schedules are attached to and form part of this
Agreement:
Schedule Description
Schedule 1.1(1) Adoption Agreement
Schedule 1.1(6) Articles
Schedule 1.1(10) By-laws
1.13 Entire Agreement. This Agreement and all documents contemplated by or
delivered under or in connection with this Agreement, constitute the entire
agreement between the parties with respect to the subject matter and supersede
all prior agreements, negotiations, discussions, undertakings, representations,
warranties and understandings, whether written or verbal.
1.14 GAAP. Unless otherwise specified, any financial statements to be prepared
in respect of any accounting period are to be prepared in accordance with GAAP
applied on a consistent basis.
1.15 Unanimous Shareholder Agreement. This Agreement is a unanimous shareholder
agreement within the meaning of the Business Corporations Act. To the extent
that this Agreement specifies that any matter may only be or shall be dealt with
or approved by or requires action by the Shareholders, the powers of the
directors of the Corporation to manage and supervise the management of the
business and affairs of the Corporation with respect to those matters are
correspondingly restricted.
SECTION 2 - MANAGEMENT
2.1 Number of Directors. The board of directors of the Corporation shall consist
of five directors, the majority of whom shall be resident Canadians.
2.2 Election of Directors. ATG shall nominate three directors and NumberCo shall
nominate two directors. The Shareholders shall vote at all meetings of the
Shareholders and act in all other respects in connection with the corporate
proceedings of the Corporation to ensure
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that ATG's three nominees and NumberCo's two nominees are elected and maintained
in office from time to time as directors.
2.3 Quorum. The quorum for the transaction of business at any meeting of the
board of directors of the Corporation shall be at least three directors present
in person or by telecommunication of which at least two of the directors present
in person or by telecommunication are ATG's nominees. For greater certainty, all
Questions before the board of directors of the Corporation shall be decided by a
majority of the votes cast on the Question. The Chairman of the meeting shall
not have a second or casting vote.
2.4 Officers. Until changed by resolution of the directors, the officers of the
Corporation shall be:
Office Name
------ ----
Chairman Frederic W. Rittereiser
President and Chief Executive Officer Robert F. Wilson
Chief Technology Officer Duane R. Erickson
Treasurer Arthur J. Bacci
Secretary Chris N. Germanakos
2.5 Restrictions on Management. Except as otherwise expressly contemplated by
this Agreement, none of the following actions shall be taken without the consent
of all the Shareholders:
(1) any change in the authorized or issued share capital of the Corporation;
(2) the allotting or issuing of any Shares, the entering into of any agreement,
or the making of any offer or the granting of any right capable of becoming an
agreement, to allot or issue any Shares;
(3) the redemption, purchase or other acquisition of any Shares by the
Corporation;
(4) the taking of any steps to amalgamate or merge the Corporation with another
person or to continue the Corporation under the laws of another jurisdiction;
(5) the taking of any steps to wind-up, dissolve, reorganize or terminate the
corporate existence of the Corporation or the taking of any steps in respect of
Bankruptcy Proceedings by or against the Corporation;
(6) the taking of any steps in connection with the distribution of Shares of the
Corporation to the public;
(7) the borrowing of money from, or the giving of security, to any Shareholder;
<PAGE>
(8) the sale, lease, exchange, encumbrance, transfer or other disposition of all
or a substantial part of the assets of the Corporation or any subsidiary of the
Corporation, including the granting of an option for any such transaction;
(9) the entering into of a partnership, joint venture or any other arrangement
for the sharing of profits with any Person;
(10) any material change in the business to be carried on by the Corporation at
the date of this Agreement , namely the business contemplated in the Licence and
Services Agreement;
(11) any change in the number of directors of the Corporation, the establishment
of any committee of directors or the delegation of any power of the directors to
a committee of directors or a managing director;
(12) the entering into of any contract or commitment with any Shareholder or a
Shareholder's Affiliate;
(13) any agreement by the Corporation with respect to any of the matters listed
in this Section; and
(14) any other matters required by the Business Corporations Act to be approved
by the shareholders of a corporation.
2.6 Amalgamation with NumberCo. Subject to the proviso in the next sentence,
prior to any distribution of Shares of the Corporation to the public or any sale
of the Corporation or all or substantially all of its assets to a third party,
NumberCo shall have the right to require the Corporation to amalgamate with
NumberCo (and/or its Permitted Transferee, if any) and upon exercise of such
right by notice in writing from NumberCo to the Corporation and the other
Shareholder(s), the parties hereto will vote at all meetings of the Corporation
and act in all other respects so as to implement the amalgamation as
expeditiously as possible. NumberCo's right to require an amalgamation shall be
subject to (i) NumberCo (and its Permitted Transferee, if applicable) having no
assets or liabilities at the time of the amalgamation, other than an interest in
Shares and such other assets and liabilities contemplated in this Agreement or
consented to by the other Shareholders; and (ii) there being no material
detriment to ATG (or its Permitted Transferree, if any) as a result of such
amalgamation.
2.7 Signing Authority.
(1) All deeds, contracts, obligations, documents or other instruments in writing
shall be signed on behalf of the Corporation by the President or such other
Persons authorized by the Corporation's board of directors.
(2) All cheques drawn by the Corporation shall be signed by either the President
or Treasurer of the Corporation or such other Persons authorized by the
Corporation's board of directors. The Shareholders and the Corporation shall
work together to establish appropriate banking and internal accounting
mechanisms for the Corporation as soon as possible following the execution of
this Agreement.
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SECTION 3 - SHAREHOLDER MATTERS
3.1 Meetings of Shareholders.
(1) The quorum for the transaction of business at any meeting of the
Shareholders shall be two persons present in person or by proxy holding at least
66 2/3% of the Shares entitled to vote at the meeting. No meeting shall continue
with the transaction of business in the absence of a quorum.
(2) Subject to Section 2.5 and the Business Corporations Act, all Questions
before the Shareholders shall be decided by a majority of the votes cast on the
question. The chairman of a meeting of the Shareholders shall not have a second
or casting vote.
3.2 Non-Competition Covenant. No Shareholder, while a Shareholder or for a
period of 2 years after ceasing to be a Shareholder, shall directly or
indirectly, alone or in partnership or in conjunction with any Person:
(1) engage in a business, or
(2) advise, invest in, lend money to, guarantee the debts or obligations of, or
permit its name or any part of its name to be used by any Person engaged in a
business,
that competes with the business carried on by the Corporation in Canada with
respect to the development, licensing and marketing of technology and related
services for the trading of Canadian Securities.
3.3 Non-Solicitation Covenant.
(1) No Shareholder, while a Shareholder or for a period of 2 years after ceasing
to be a Shareholder, shall directly or indirectly, alone or in partnership or
conjunction with any Person, solicit business from any Person who is a customer
of the Corporation at any time while it is a Shareholder or within six months
after it ceases to be a Shareholder, if that business competes with the business
carried on by the Corporation in Canada at any time while it is a Shareholder,
or at the time it ceases to be a Shareholder.
(2) Except with the written consent of the Corporation, no Shareholder, while a
Shareholder or for a period of 2 years after ceasing to be a Shareholder, shall
directly or indirectly, alone or in partnership or in conjunction with any
Person:
(a) employ any Person who is an employee of the Corporation at any time
while it is a Shareholder or at the time it ceases to be a
Shareholder, or
(b) induce or attempt to induce any Person who is an employee of the
Corporation at any time while it is a Shareholder or at the time it
ceases to be a Shareholder, to leave his or her employment with the
Corporation.
3.4 Confidentiality.
<PAGE>
(1) No Shareholder, while a Shareholder or any time after ceasing to be a
Shareholder, shall disclose any Confidential Information to any other Person,
except:
(a) to those of its employees or agents having a need to know and who
either are bound by the duties of their employment or engagement to
maintain the confidentiality of the Confidential Information or enter
into a confidentiality agreement in a form reasonably acceptable to
the Corporation,
(b) as authorized by the Corporation, or
(c) as required by law (if the Shareholder has immediately notified the
Corporation of that requirement of law, unless precluded by law from
doing so).
(2) Each Shareholder shall use at least the same degree of care in maintaining
the confidentiality of the Confidential Information as it uses in maintaining
the confidentiality of its own confidential or proprietary information, but in
no event with less care than is reasonable given the nature of the information.
(3) No Shareholder shall use or copy any Confidential Information, except:
(a) to advance the business of the Corporation,
(b) as authorized by the Corporation, or
(c) as required by law (if the Shareholder has immediately notified the
Corporation of that requirement of law, unless precluded by law from
doing so).
(4) The Corporation may at any time require a Shareholder that ceases to be a
Shareholder to immediately deliver to the Corporation or, at the Corporation's
option, to immediately erase or destroy, any documents and other materials and
copies and translations of them (whether recorded, stored or reproduced in or on
any medium or by means of any device) containing any Confidential Information in
the Shareholder's possession or control. The Shareholder shall provide evidence
satisfactory to the Corporation that all those documents, materials, copies and
translations have been delivered, erased or destroyed.
3.5 Breach of Obligations.
(1) Each Shareholder acknowledges that a breach or threatened breach of its
obligations under Sections 3.2, 3.3, or 3.4 would result in irreparable harm to
the Corporation which could not be calculated or adequately compensated by
recovery of damages alone. Each Shareholder therefore agrees that the
Corporation shall be entitled to interim or permanent injunctive relief,
specific performance and other equitable remedies.
(2) The obligations of the parties under Sections 3.2, 3.3, and 3.4 shall
survive termination of this Agreement and are in addition to and not in
substitution of the provisions in the Licence and Services Agreement.
<PAGE>
SECTION 4 - FINANCIAL AND SUPPORT OBLIGATIONS
4.1 ATG Funding and Support Obligations. ATG shall provide a loan and/or equity
of (U.S.)$1 million in the aggregate to the Corporation to cover the
Corporation's short-term operating requirements. Initially, ATG shall invest
(U.S.) $333,400 by way of equity in the Class A common shares of the
Corporation. The balance of ATG's (U.S.) $1 million obligation will be provided
to the Corporation as and when required by the Corporation in accordance with
the Corporation's annual business plan which has been approved by the board of
directors of the Corporation. In addition, ATG shall provide all necessary
technical and administrative support to the Corporation, in accordance with the
requests of the Corporation's officers as they are made from time to time and
subject to the Licence and Services Agreement.
4.2 Further Obligations. The Shareholders shall have no further funding or
support obligations except as expressly contemplated by this Agreement or the
Licence and Services Agreement.
4.3 Dividends. Dividends shall be paid at the discretion of the board of
directors of the Corporation. However, the Shareholders acknowledge that they do
not expect to receive any dividends or other distributions from the Corporation
for at least three years from the date of formation of the Corporation.
4.4 Auditors. The auditors of the Corporation shall be a nationally recognized
accounting firm in Canada as selected by the Shareholders. The auditors shall be
instructed to prepare and deliver to the Shareholders audited financial
statements on an annual basis.
SECTION 5 - DEALING WITH SHARES
5.1 Ownership of Shares.
(1) The Shareholders acknowledge that at the date of this Agreement all of the
issued and outstanding Shares are legally owned as follows:
Shareholder Series and No. of Shares
ATG 51,000 Class A common shares
NumberCo 49,000 Class B common shares
(2) Each Shareholder represents and warrants to the other Shareholder that it is
the beneficial owner of the Shares legally owned by it at the date of this
Agreement, and shall be deemed to represent and warrant to the other Shareholder
throughout the term of this Agreement that subject to Section 5.4 it is the
beneficial owner of all those Shares and all other Shares legally held by it
after the date of this Agreement.
(3) The Corporation represents and warrants to the Shareholders that the Shares
described above are the only issued and outstanding shares of the Corporation at
the date of this Agreement and there are no outstanding options or other rights
obligating the Corporation to issue additional shares to any Person.
<PAGE>
5.2 Restrictions on Transfer of Shares. No Shareholder shall directly or
indirectly sell, assign, transfer, devise, bequeath, give, mortgage, charge,
pledge, create a Lien against, or otherwise encumber or dispose of any Shares it
owns or permit those Shares to become encumbered except as otherwise permitted
by this Agreement or with the prior written consent of all the Shareholders.
5.3 Permitted Transfers. Notwithstanding Section 5.2, Shareholders are hereby
permitted to transfer their Shares in the Corporation to a Permitted Transferee.
However, no such transfer shall be effective unless and until the proposed
Permitted Transferee has executed an Adoption Agreement. In addition, the
Shareholder who has transferred its shares to its Permitted Transferee shall
continue to be bound by this Agreement notwithstanding such transfer of Shares
and shall at all times cause its Permitted Transferee to carry out the
provisions of this Agreement and any other agreement entered into pursuant to
this Agreement.
5.4 Employee Stock Option Plan
(1) The directors of the Corporation shall be entitled at any time to establish
an employee stock option plan providing for the transfer of Shares held by
NumberCo to employees of the Corporation designated by the directors, to a
maximum of 5% in the aggregate of the total Shares outstanding as of the date of
this Agreement.
(2) In the event that the board of directors of the Corporation elects to make
available to the Corporation's employees options on Shares of the Corporation,
NumberCo hereby agrees, on the exercise of such options by any employee, to
transfer (or cause its Permitted Transferee to transfer as the case may be) to
such employee that number of its Shares as required by the options exercised by
the employee (up to a maximum of 5% in the aggregate of all outstanding Shares
as of the date of this Agreement), provided such employee to whom such Shares
are transferred enters into an Adoption Agreement.
(3) The strike price for the employee stock options shall be established by the
directors of the Corporation and shall be within 25% of the fair market value
(as determined by the Corporation and notwithstanding Section 6.2 of this
Agreement) of the Shares and such options may only be exercised on a
distribution of Shares to the public or on a sale of the Corporation to a Person
other than a Shareholder or its Affiliates. Until duly exercised, such options
shall not entitle the holder thereof to any rights as a Shareholder of the
Corporation and, in particular, shall not entitle the holder to any rights as a
Shareholder under this Agreement, to vote at any meetings of the Corporation or
to participate in any dividends or other distributions by the Corporation.
5.5 Put/Call.
(1) If, at any time, a Triggering Event with respect to ATG or ATG's Permitted
Transferee occurs, NumberCo (or NumberCo's Permitted Transferee, as the case may
be) shall, for a period of 45 days from the date on which it has become aware or
received actual notice of the Triggering Event, have the option to sell all its
Shares in the Corporation to ATG and upon exercise of that option ATG shall
purchase such Shares at the Purchase Price as determined in accordance with
Section 6.2.
<PAGE>
(2) If, at any time, both Lee Simpson and Mark Valentine are no longer officers,
directors or employees of Thomson Kernaghan and Co. Ltd. or its Affiliates and
Lee Simpson and Mark Valentine do not at such time, either individually or
collectively, Control NumberCo, ATG (or ATG's Permitted Transferee, as the case
may be) shall, for a period of 45 days from the date on which it has become
aware or received actual notice of such event, have the option to purchase all
of NumberCo's Shares (or the Shares of NumberCo's Permitted Transferee, as the
case may be) in the Corporation, and upon exercise of that option, NumberCo
shall sell (or NumberCo. shall cause its Permitted Transferee to sell) its
Shares to ATG (or ATG's Permitted Transferee, as the case may be) at the
Purchase Price as determined in accordance with Section 6.2.
(3) If, at any time, a purchase of NumberCo's Shares (or NumberCo's Permitted
Transferee's Shares, as the case may be) in the Corporation is effected under
Sections 5.5(1) or 5.5(2), ATG agrees to assume all the obligations of NumberCo
with respect to transferring Shares of the Corporation to employees of the
Corporation who hold options as contemplated in Section 5.4.
(4) The purchase of Shares under Sections 5.5(1) or 5.5(2) shall be completed in
accordance with Section 6, which shall be applicable only to purchases and sales
under Sections 5.5(1) and 5.1(2).
SECTION 6 - COMPLETION OF PURCHASE AND SALE
6.1 Purchase Price
(1) The purchase price ("Purchase Price") for Shares to be purchased and sold
pursuant to Sections 5.5(1) or 5.5(2) shall be the Fair Market Value of those
Shares on the date on which the applicable option referred to therein becomes
exercisable.
6.2 Determination and Notification of Fair Market Value
(1) The Fair Market Value of Shares to be purchased and sold pursuant to
Sections 5.5(1) or 5.5(2) shall be such amount as agreed by the Principal
Shareholders. If the Principal Shareholders fail to agree on such amount within
10 Business Days of the delivery of notice of the exercise of an option under
Section 5.5, then the Fair Market Value shall be determined by an Arm's Length,
nationally recognized investment banking firm in Canada selected by the
Principal Shareholders jointly, subject only to the parameters set out in
Section 1.1(16).
(2) If the Principal Shareholders cannot agree on the choice of a nationally
recognized investment banking firm, the Principal Shareholders agree to choose
one nationally recognized investment banking firm in Canada each which is at
Arm's Length to both the Principal Shareholders. The Fair Market Value of Shares
to be purchased and sold pursuant to Sections 5.5(1) or 5.5(2) shall be the mean
of the values proposed by each such investment banking firm. All costs
associated with the determination of Fair Market Value under Section 6,
including the fees of any nationally recognized investment banking firm
retained, shall be paid by the Corporation.
(3) The determination of Fair Market Value under Sections 6.2(1) or 6.2(2) shall
be final and no Shareholder shall dispute it.
<PAGE>
(4) The Principal Shareholders shall request that the nationally recognized
investment banking firm(s) retained provide both Principal Shareholders written
notification of the Fair Market Value immediately after the determination of
such value is made.
6.3 Outstanding Indebtedness. Concurrently with the completion of a transaction
of purchase and sale under Sections 5.5(1)or 5.5(2) of this Agreement:
(1) the Selling Shareholder shall repay, or cause to be repaid, to the
Corporation any Indebtedness then owing by that Shareholder (including, in the
case of a Corporate Shareholder, any indebtedness owing by the Individual
Shareholder who owns shares of that Corporate Shareholder) whether or not the
Indebtedness is then due and payable and the Purchasing Shareholder may
discharge that Indebtedness out of the purchase price payable to the Selling
Shareholder;
(2) if at that time the Corporation is indebted to the Selling Shareholder
(including, in the case of a Corporate Shareholder, any Indebtedness owing to
the Individual Shareholder who owns shares of that Corporate Shareholder) the
Purchasing Shareholder shall purchase that Indebtedness for a purchase price
equal to the amount of the Indebtedness against delivery of an assignment by the
selling Shareholder of the Indebtedness and any Liens for that Indebtedness or
the Corporation shall repay that Indebtedness;
(3) if at the Closing Date the Selling Shareholder (including, in the case of a
Corporate Shareholder, the Individual Shareholder who owns shares of that
Corporate Shareholder) is responsible for any guarantee of, or has given any
Lien for any of the Corporation's Indebtedness, the Purchasing Shareholder shall
use his best efforts to cause the Selling Shareholder or Individual Shareholder
to be released from all those guarantees and security, failing which the
Purchasing Shareholder shall indemnify the Selling Shareholder (and in the case
of a Corporate Shareholder, the Individual Shareholder who owns shares of that
Corporate Shareholder) from all claims arising out of those guarantees and
security.
6.4 Title to Shares Free and Clear.
(1) The Selling Shareholder represents and warrants to the Purchasing
Shareholder that it legally and beneficially owns, and has good and marketable
title to, and the right to sell, the Shares being purchased and sold, free and
clear of all Liens, Indebtedness, and claims of others.
(2) The obligation of a Purchasing Shareholder to complete a purchase of Shares
is subject to the conditions that:
(3) the representation and warranty of the Selling Shareholder under Section
6.4(1) is true and correct as at the Closing Date; and
(4) all consents and approvals necessary to complete the purchase and to
transfer good title to the Shares have been obtained.
These conditions are for the exclusive benefit of the Purchasing
Shareholder and may be waived in whole or in part by it.
<PAGE>
6.5 Closing and Closing Date. Unless otherwise agreed, a transaction of purchase
and sale of Shares under Sections 5.5(1) or 5.5(2) shall take place on the 30th
Business Day following the date on which the Principal Shareholders agreed to
the Purchase Price under Section 6.2 or on which the determination of the
Purchase Price is notified to the Principal Shareholders under Section 6.2.
6.6 Time and Place of Closing. Unless otherwise agreed by the parties to a
transaction of purchase and sale, the closing of the transaction shall take
place at the registered office of the Corporation at 11:00 a.m. on the Closing
Date.
6.7 Payment of Purchase Price and Delivery of Certificates. The Purchase Price
shall be paid in full by certified cheque or bank draft in immediately available
funds against receipt by the Purchasing Shareholder of the share certificate or
certificates representing the Shares being purchased and sold, duly endorsed in
blank for transfer together with signed and dated resignations and releases by
the Selling Shareholder (and his nominees) as directors, officers and employees
of the Corporation. All payments required to be made in connection with a
transaction of purchase and sale shall be made by cheque, certified by a
Canadian chartered bank or trust company, or an official bank draft drawn on a
Canadian chartered bank.
6.8 Failure to Complete Transaction of Purchase and Sale.
(1) If the Selling Shareholder fails to complete the transaction of purchase and
sale on the Closing Date, the Purchasing Shareholder may, in addition to any
other rights or remedies he may have, complete the transaction of purchase and
sale in accordance with the provisions of this Section.
(2) If the Purchasing Shareholder deposits the purchase price due on the Closing
Date to an account at a branch of the Corporation's bankers in the name of the
Corporation in trust for the Selling Shareholder, then from and after the date
of that deposit, (and even though the certificates evidencing the Shares held by
the Selling Shareholder have not been delivered to the Purchasing Shareholder),
the purchase of the Shares owned by the Selling Shareholder shall be deemed to
have been completed and all right, title and interest in and to those Shares
shall be conclusively deemed to have been transferred and assigned to the
Purchasing Shareholder and all right, title and interest, of the Selling
Shareholder in and to those Shares shall cease;
(3) The Selling Shareholder irrevocably constitutes and appoints the Purchasing
Shareholder as its true and lawful attorney and agent for, in the name of and on
behalf of the Selling Shareholder to execute and deliver in the name of the
Selling Shareholder all documents or instruments that may be necessary to
transfer and assign his Shares, to the Purchasing Shareholder, or its nominee or
nominees, on the books of the Corporation. This appointment and power of
attorney, being coupled with an interest, shall not be revoked by the
insolvency, bankruptcy or incapacity of the Selling Shareholder. The Selling
Shareholder ratifies and confirms and agrees to ratify and confirm all that the
Purchasing Shareholder may lawfully do or cause to be done by virtue of the
provisions of this Section. This power of attorney will not revoke any other
powers of attorney granted by the Selling Shareholder. The Selling Shareholder
declares that it has given or intends to give multiple continuing powers of
attorney.
<PAGE>
(4) If the Purchasing Shareholder fails to complete the transaction of purchase
and sale on the Closing Date, the Selling Shareholder may, in addition to any
other rights or remedies he may have, give the purchaser within 10 Business Days
after default, a notice that in 30 Business Days after the Closing Date the
Selling Shareholder (the "New Purchasing Shareholder") will purchase from the
defaulting purchaser (the "New Selling Shareholder") all the Shares owned by the
New Selling Shareholder for an amount equal to 50% of the Purchase Price payable
pursuant to this Agreement. In that case, the provisions of Section 6.8 shall
apply mutatis mutandis except that all references in Section 6.8 to the "Selling
Shareholder" and the "Purchasing Shareholder", respectively, shall be deemed to
be references to the New Purchasing Shareholder and the New Selling Shareholder,
respectively.
SECTION 7 - GENERAL
7.1 Carrying out of Agreement.
(1) Each of the Shareholders shall vote at all meetings of the Shareholders and
act in all other respects in connection with the corporate proceedings of the
Corporation so as to carry out and cause the Corporation to carry out the
provisions of this Agreement and any agreement entered into pursuant to this
Agreement.
(2) The Corporation confirms its knowledge of this Agreement and shall carry out
and be bound by the provisions of this Agreement to the full extent that it has
the capacity and power at law to do so.
7.2 Assignment and Enurement. Except as expressly provided under this Agreement,
no party may assign this Agreement without the prior written consent of all the
Shareholders. This Agreement enures to the benefit of and binds the parties,
their respective heirs, executors, administrators, personal and legal
representatives, successors and permitted assigns and all permitted transferees
of Shares.
7.3 Notices. Unless otherwise specified, each Notice to a party must be given in
writing and delivered personally or by courier, or transmitted by fax to the
party as follows:
If to ATG:
Name: The Ashton Technology Group, Inc.
Address: 1900 Market Street,
Suite 701
Philadelphia, PA
19103
USA
Attention: Arthur J. Bacci
Fax No: (215) 636-3560
If to NumberCo:
<PAGE>
Name: 3690822 Canada Inc.
Address: 365 Bay Street, 10th Floor
Toronto, Ontario
M5H 2V2
Attention: Lee Simpson
Fax No: (416) 860-8323
If to the Corporation:
Name: Ashton Technology Canada Inc.
Address: 365 Bay Street, 8th Floor
Toronto, Ontario
M5H 2V2
Attention: Robert F. Wilson
Fax No: (416) 860-8860
or to any other address, fax number or Person that the party designates. Any
Notice, if delivered personally or by courier, will be deemed to have been given
when actually received, if transmitted by fax before 3:00 p.m. on a Business
Day, will be deemed to have been given on that Business Day, and if transmitted
by fax after 3:00 p.m. on a Business Day, will be deemed to have been given on
the Business Day after the date of the transmission.
7.4 No Set-off. Except as permitted in Section 6.3(1), payments made under this
Agreement or any document delivered under this Agreement shall be made without
set-off or counterclaim.
7.5 Waivers. No waiver of any provision of this Agreement is binding unless it
is in writing and signed by all the parties to this Agreement entitled to grant
the waiver. No failure to exercise, and no delay in exercising, any right or
remedy under this Agreement will be deemed to be a waiver of that right or
remedy. No waiver of any breach of any provision of this Agreement will be
deemed to be a waiver of any subsequent breach of that provision.
7.6 Further Assurances. Each party shall from time to time promptly execute and
deliver and take all further action as may be reasonably necessary or
appropriate to give effect to the provisions and intent of this Agreement and to
complete the transactions contemplated by this Agreement.
7.7 Remedies Cumulative. The rights and remedies under this Agreement are
cumulative and in addition to, and not in substitution for, any other rights and
remedies, available at law or in equity or otherwise. No single or partial
exercise by a party of any right or remedy precludes or otherwise affects the
exercise of any other right or remedy to which that party may be entitled.
7.8 Counterparts and Adoption Agreement.
<PAGE>
(1) This Agreement and any amendment, supplement, restatement or termination of
any provision of this Agreement may be executed and delivered in any number of
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
(2) Each Person who proposes from time to time to become a Shareholder shall be
required to execute an Adoption Agreement. No Person shall become a Shareholder
and no issue or transfer of Shares shall be registered by the Corporation unless
the Person and any Person having Control of the Person have executed an Adoption
Agreement.
7.9 Amendments. Except as expressly provided in this Agreement, no amendment,
supplement, restatement, replacement or termination of any provision of this
Agreement is binding unless it is in writing and signed by all the Shareholders
that are, at the time of the amendment, supplement, restatement, replacement or
termination, parties to this Agreement.
7.10 Submission to Jurisdiction. Each of the parties irrevocably submits to the
non-exclusive jurisdiction of the courts of the Province of Ontario.
7.11 Termination. Except as otherwise provided, this Agreement shall terminate
upon the earlier of:
(1) the written agreement of all the Shareholders;
(2) one Shareholder becoming the owner of all of the Shares; or
(3) the offering of Shares of the Corporation to the public.
All obligations of the parties which expressly or by their nature survive
termination of this Agreement shall continue in full force and effect subsequent
to and not withstanding termination of this Agreement until they are fully
satisfied or by their nature expire. No party shall by reason of termination of
this Agreement be relieved of any obligation or liability towards any other
party accrued under this Agreement before termination, and all those obligations
and liabilities shall remain enforceable until they are fully satisfied or by
their nature expire.
The parties have executed this Agreement.
THE ASHTON TECHNOLOGY GROUP,
INC.
By: /s/ Arthur J. Bacci
-----------------------------------------------
Name: Arthur J. Bacci
Title: President & Chief Financial Officer
<PAGE>
3690822 CANADA INC.
By: /s/ Lee Simpson
-----------------------------------------------
Name: Lee Simpson
Title: President
ASHTON TECHNOLOGY CANADA INC.
By: /s/ Duane Erickson
-----------------------------------------------
Name: Duane Erickson
Title: Chief Technology Officer
Schedule 1.1(1) - Adoption Agreement
Schedule 1.1(6) - Articles
Schedule 1.1(10) - By-Laws
<PAGE>
EXHIBIT 10.38
AMENDED STOCKHOLDERS AGREEMENT
of
GOMEZ ADVISORS, INC.
(A Delaware Corporation)
Dated as of December 30, 1999
AMENDED STOCKHOLDERS AGREEMENT, dated as of December 30, 1999, by and
among GOMEZ ADVISORS, INC., a Delaware corporation (the "Company"), THE ASHTON
TECHNOLOGY GROUP, INC., a Delaware corporation ("Ashton"), JULIO GOMEZ, an
individual ("Gomez"), JOHN M. ROBB, an individual ("Robb"), ALEXANDER STEIN, an
individual ("Stein"), and together with Gomez and Robb, (the "Gomez
Principals"), FREDRIC W. RITTEREISER, an individual ("Rittereiser"), K. IVAN F.
GOTHNER, an individual ("Gothner"), and ARTHUR J. BACCI, an individual
("Bacci").
RECITALS:
WHEREAS, the parties previously entered into a Stockholders' Agreement
effective as of January 22, 1999 (the "Original Agreement").
WHEREAS, as of the date of the Original Agreement, the Company entered into
an Exchange Agreement (the "Exchange Agreement") with the other parties.
<PAGE>
WHEREAS, in connection with the Company's issuance of shares of its Series
C Convertible Preferred Stock, par value $.01 per share (the "Series C Stock"),
the parties desire to amend the terms and provisions of the Original Agreement
(the Original Agreement, as so amended hereby and as further amended from time
to time in accordance with its terms being referred to as this "Agreement").
WHEREAS, the Company is authorized by its Restated Certificate of
Incorporation (the "Certificate of Incorporation") to issue (i) 50,000,000
shares of its Common Stock, par value $.0001 per share (the "Common Stock") and
(ii) 10,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), of which (a) 10,000 shares are designated as Series A
Convertible Preferred Stock (the "Series A Stock"), of which 4,905 shares are
issued and outstanding, (b) 1,300,000 shares are designated as Redeemable Series
B Convertible Preferred Stock ("Series B Stock"), of which 1,100,000 shares are
issued and outstanding and (c) 6,000,000 shares are designated as Series C
Stock, of which no shares were issued and outstanding as of November 2, 1999.
WHEREAS, the parties wish to (i) provide for the voting of the Shares
(as defined herein), certain rights and obligations relating to the transfer of
Shares and certain other arrangements concerning the governance of the Company
and related business matters, and (ii) provide registration rights with respect
to certain shares of Common Stock, all as set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual agreements contained herein, the parties agree as follows:
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<PAGE>
1. Construction.
1.1 Definitions. As used herein the following terms shall have the
following meanings:
Affiliate: with respect to a specified Person, an officer or director
of such Person, or a Person who, directly or indirectly through one or more
intermediaries, owns, Controls, is owned or Controlled by, or is under common
ownership or Control with, the Person specified.
Agreement: the meaning set forth in the Recitals.
Appraiser: the meaning set forth in Section 6.3.
Ashton Executives: together, Rittereiser, Gothner, Bacci and any other
person who, after the date of the Original Agreement, purchases shares of Common
Stock pursuant to Section 6.3 of the Exchange Agreement.
Ashton Executive Shares: all shares of Common Stock owned now or in
the future by the Ashton Executives and their Permitted Transferees, and any
Common Stock issued with respect to such Common Stock by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
Ashton Shares: all shares of Common Stock owned now or in the future
by Ashton, the Ashton Executives and their Permitted Transferees, the shares of
Common Stock issued upon conversion of the Series A Stock and any Common Stock
issued with respect to such Common Stock by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
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<PAGE>
ATG Shares: all shares of Common Stock owned now or in the future by
Ashton and its Permitted Transferees, the shares of Common Stock issued upon
conversion of the Series A Stock and any Common Stock issued with respect to
such Common Stock by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
Board: the Board of Directors of the Company.
Certificate of Incorporation: the meaning set forth in the Recitals.
Common Stock: the meaning set forth in the Recitals.
Company: the meaning set forth in the introductory paragraph.
Control: (including, with correlative meaning, the terms "Controlled
by" and "under common Control with"), as used with respect to any Person, 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 the
ownership of voting securities, by contract or otherwise.
Disability: an individual's inability, due to physical or mental
incapacity or impairment, to fully perform the tasks usually encountered in such
individual's employment with the Company for at least 90 consecutive days, or
for a period shorter than 90 consecutive days as determined by the Board after
consultation with a medical expert.
for cause: with respect to any Stockholder who has an employment
agreement with the Company, as set forth in such employment agreement;
otherwise, any of the following: (i) the
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<PAGE>
willful failure or refusal, after notice thereof, to perform specific directives
of the Board, Chief Executive Officer or President of the Company, when such
directives are consistent with the scope and nature of the employee's duties and
responsibilities; (ii) willful dishonesty of the employee affecting the Company;
(iii) chronic alcoholism or drug abuse; (iv) the employee's conviction for
committing a felony or any crime involving moral turpitude or fraud; (iv)
engagement in negligence or conduct injurious to the Company or its affiliates;
or (v) substantial and repeated failure of the employee to adequately perform
the employee's duties and responsibilities to the Company, continuing after
notice thereof.
Gomez Shares: all shares of Common Stock owned now or in the future by
the Gomez Principals and their Permitted Transferees, the shares of Common Stock
issued upon exercise of the Gomez Principals Options (as defined in the Exchange
Agreement) and any Common Stock issued with respect to such Common Stock by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
IPO: an initial underwritten public offering pursuant to an effective
registration statement under the Securities Act covering the offer and sale of
Common Stock to the public.
Nominee: the meaning set forth in Section 2.1.
Note: a subordinated promissory note of the Company with the
following terms: (i) a maturity date four years after the Note Issue Date (but
which may be prepaid at any time without penalty); (ii) principal and interest
payments to commence on the first anniversary of the Note Issue Date; (iii)
principal and interest payable in annual installments comprising 25% of the
original principal amount of the Note plus interest accrued on
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<PAGE>
the unpaid principal amount of the Note to the date of such payment; (iv)
interest to accrue on all unpaid principal from the date of the Note at a rate
equal to the lowest rate that would not cause the recognition of imputed or
deemed interest pursuant to the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder; and (v) payment subordinated to the
payment of all other indebtedness of the Company except Notes (all of which
shall rank pari passu).
Note Issue Date: the date of issuance by the Company of any Note.
Permitted Transferee: the issue, spouse or family trust of a
Stockholder to whom Shares are transferred by such Stockholder (i) by will or
the laws of descent or distribution or (ii) by gift without consideration of any
kind.
Person: an individual, firm, corporation, trust, joint venture,
partnership, limited liability company, association, unincorporated organization
or other entity or any governmental body or subdivision, agency, commission or
authority thereof.
Preferred Stock: the meaning set forth in the Recitals.
Securities Act: the Securities Act of 1933, as amended.
Series A Stock: the meaning set forth in the Recitals.
Shares: outstanding shares of Common Stock and Series A Stock,
including, without limitation, any shares of Common Stock or other securities
resulting from the exercise of stock options, a conversion, split-up,
combination, recapitalization, dividend or exchange.
6
<PAGE>
Stockholder: Each Person (other than the Company) who shall be a
party to this Agreement whether in connection with the execution and delivery
hereof as of the date hereof, as a purchaser of any shares of Common Stock
pursuant to Section 6.3 of the Exchange Agreement, as a transferee of Shares who
becomes bound by the provisions hereof pursuant to Section 6 of this Agreement
or otherwise, so long as such Person shall beneficially own any Shares.
Subsidiary: as to any Person, a corporation, limited liability
company or other entity of which shares or other rights or securities having
voting power to elect a majority of the board of directors or other governing
body are at the time owned, directly or indirectly, through one or more
intermediaries, by such Person.
Termination Date: the earlier to occur of (i) the date that is two
years following the date hereof and (ii) the consummation of the IPO.
Transfer: the meaning set forth in Section 5.1.
1.2 Interpretation. When the context in which words are used in
this Agreement indicates that such is the intent, singular words include the
plural and vice versa and masculine words include the feminine and the neuter
and vice versa. References herein to Sections are to the appropriate sections
of this Agreement unless otherwise expressly so stated. The words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section or other subdivision.
1.3 Headings. The headings or captions included in this Agreement
are inserted for convenience of reference only and
7
<PAGE>
shall not be construed to define or limit the scope, extent or intent of this
Agreement or any of its provisions.
2. [INTENTIONALLY OMITTED].
3. Voting of Ashton Executives Shares. From the date of the Original
Agreement until the Termination Date, each Ashton Executive shall cause the
shares of Common Stock owned by such Ashton Executive to be voted at any meeting
of the stockholders of the Company or in any consent in lieu of such a meeting
for and/or against any proposal in the same proportion as all other Shares are
voted at such meeting or consent in lieu of meeting, as the case may be.
4. Forfeiture of Shares by Ashton Executives. Notwithstanding the
provisions of Section 6 of this Agreement, if any Ashton Executive is no longer
employed (as a direct employee or as a consultant) by Ashton or any of its
Subsidiaries (including the Company) on or after the date hereof and prior to
the Termination Date, then such Ashton Executive shall forfeit his Shares to the
Company and the Company shall have the right and obligation to purchase from
such Ashton Executive (including any Permitted Transferees of such Ashton
Executive) or his or her estate, and such Ashton Executive (including any
Permitted Transferees of such Ashton Executive) or his or her estate shall have
the right and obligation to sell to the Company, all of the Shares owned by such
Ashton Executive (and such Ashton Executive's Permitted Transferees) promptly
after such event at a purchase price equal to the purchase price paid by such
Ashton Executive for such Shares.
5. [INTENTIONALLY OMMITTED].
6. Mandatory Purchase on Death, Disability, or Termination of
Employment.
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<PAGE>
6.1 Death or Disability. Subject to the provisions of Section 4 of
this Agreement, in the event of the death or Disability of a Stockholder prior
to the IPO, the Company shall have the right and obligation to purchase from
such Stockholder (including any Permitted Transferees of such Stockholder) or
his or her estate, and such Stockholder (including any Permitted Transferees of
such Stockholder) or his or her estate shall have the right and obligation to
sell to the Company, all of the Shares held by such Stockholder (and such
Stockholder's Permitted Transferees) at the time of such event at a purchase
price equal to the Share Value (as defined in Section 6.3) of such Shares. The
purchase price for the Shares to be purchased shall be paid, at the option of
the Company in its sole discretion, in cash or by delivery of cash (equal to at
least 20% of the purchase price) and a Note in principal amount equal to the
balance of such purchase price, against receipt by the Company of all duly
executed instruments and documents necessary to transfer all right, title and
interest of the sellers in the Shares to the Company, free and clear of all
liens, claims and encumbrances. Except as provided in the next sentence, the
closing of such purchase and sale shall take place within 10 business days of
the event giving rise to such purchase and sale, except that in the event of an
appraisal as contemplated by the first sentence of Section 6.3, such closing
shall take place within 10 business days after the issuance of the report of the
Appraiser. Notwithstanding the previous sentence, if the event giving rise to
the purchase and sale is the death of the Stockholder, then the closing of such
purchase and sale shall take place as promptly as practicable (including, if
possible, within the periods specified in the previous sentence), but in no
event more than five business days after the appointment of the legal
representative of the deceased Stockholder.
9
<PAGE>
6.2 Termination of Employment. Subject to the provisions of Section
4 of this Agreement, in the event that, prior to the IPO, any Stockholder's
employment with Ashton and/or its Subsidiaries (including the Company) is (i)
terminated by Ashton and/or its Subsidiaries for cause, or (ii) voluntarily
terminated by a Stockholder other than as a result of such Stockholder's death
or Disability, then the Company shall have the right and obligation to purchase
from the Stockholder (including any Permitted Transferees of such Stockholder),
and such Stockholder (including any Permitted Transferees of such Stockholder)
shall have the right and obligation to sell to the Company, all of the Shares
held by such Stockholder (and such Stockholder's Permitted Transferees) promptly
after such event. The purchase price for such Shares shall be determined as
follows: (i) if such Stockholder voluntarily terminates his employment with the
Company other than because of a Disability, then the purchase price shall be the
Share Value for such Shares, provided, that, in determining the Share Value, the
Appraiser (as defined in Section 6.3) shall take into account the diminution in
value of the Company resulting from the termination of employment of such
Stockholder; or (ii) if the employment of such Stockholder is terminated by the
Company for cause, then the purchase price shall be for an amount equal to the
lesser of (X) the Share Value for such Shares or (Y) the purchase price paid by
such Stockholder for such Shares. The purchase price for the Shares to be so
purchased shall be paid, at the option of the Company in its sole discretion, in
cash or by delivery at the closing of cash (equal to at least 20% of the
purchase price) and a Note in principal amount equal to the balance of such
purchase price, against receipt by the Company of all duly executed instruments
and documents necessary to transfer all right, title and interest of the sellers
in the Shares to the Company, free and clear of all liens, claims and
encumbrances. The closing of such purchase and sale shall take place within 10
business days of the event giving rise to such purchase and sale, except that
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<PAGE>
in the event of an appraisal as contemplated by the first sentence of Section
6.3, such closing shall take place within 10 business days after the issuance of
the report of the Appraiser.
6.3 Determination of Share Value. Subject to the provisions set
forth below, for purposes of this Agreement, "Share Value" shall be determined
by an appraisal of the Shares made by an independent accountant or investment
banking professional selected by the Board who shall be knowledgeable in valuing
the capital stock of companies engaged in businesses similar to the business
engaged in by the Company (the "Appraiser"); provided, however, that if such an
appraisal shall have been issued at any time during the preceding 12 months,
then, unless the Board elects to make a new appraisal of the Shares, the Share
Value shall be as set forth in such appraisal and no new appraisal shall be
required. Notwithstanding the preceding sentences, the Board may order an
appraisal of the Shares to determine Share Value at any time if the Board
believes that there has been, since the date of the last determination of Share
Value, a material adverse change in the business, operations, assets or
liabilities, employee relationships, customer relationships, results of
operations, prospects or the condition (financial or otherwise) of the Company.
The fees and disbursements of the Appraiser shall be paid by the Company. Within
30 days after being retained by the Company, the Appraiser shall issue a report
setting forth the value of the Shares and a reasonably detailed explanation of
the methods used to determine such value.
6.4 Voting of Shares. Notwithstanding anything to the contrary
contained in this Agreement, in the event of a Stockholder's death, Disability
or termination of employment with the Company (for any reason), such Stockholder
and such Stockholder's Permitted Transferees, if any, shall be required to vote
all Shares held by such Stockholder and such Permitted
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<PAGE>
Transferees (including, without limitation, abstaining from voting) as directed
by the Board.
7. Registration Rights.
7.1 Registration of the Gomez Shares in the IPO. (a) Holders of
the Gomez Shares have the right to request that such Gomez Shares be registered
in the registration statement (other than a registration statement on Form S-4,
S-8 or similar form) (the "IPO Registration Statement") that the Company files
with the Securities and Exchange Commission (the "Commission") for the purpose
of effecting the IPO; provided, however, that the maximum number of Gomez Shares
to be included in the IPO Registration Statement shall equal 10% of the total
number of shares of Common Stock offered in the IPO (exclusive of any
overallotment). The inclusion of such Gomez Shares in the IPO Registration
Statement is subject to any restrictions, cutbacks, lockups or other conditions
imposed by the managing underwriter of the Company's IPO (the "Underwriter")
which the Underwriter determines in its sole discretion are necessary to effect
the IPO.
(b) If the Underwriter informs the Company in writing that in the
Underwriter's opinion the total number of shares of the Common Stock which the
Company, the holders of the Gomez Shares and any other holders of shares of the
Common Stock entitled to participate in the IPO Registration Statement request
to include in the IPO Registration Statement is an amount which would adversely
affect the success of the IPO including, without limitation, the price at which
the Common Stock can be offered, then the Company will be required to include in
the IPO Registration Statement only the amount of shares of Common Stock which
it is so advised by the Underwriter. In such event, the shares shall be included
on the IPO Registration Statement pursuant to the following priority: first, the
shares of the
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Common Stock to be sold for the account of the Company (including any shares to
be sold pursuant to any overallotment); and second, pro rata among the Gomez
Shares and shares of Common Stock to be sold for the account of such holders who
in the future may be granted incidental registration rights in the IPO
Registration Statement. In the event that the Underwriter determines that some,
but less than all, of the Gomez Shares requested for inclusion can be included
in the IPO Registration Statement, then a pro rata amount of the Gomez Shares
requested by each holder shall be included in the IPO Registration Statement
(subject to the rights of the Company to include all of its shares in the IPO
Registration Statement as provided above). The Underwriter may determine in its
sole discretion that none of the Gomez Shares should be included in the IPO
Registration Statement.
(c) Other than pursuant to Section 7.3, the Gomez Principals shall not
have any additional registration rights with respect to the Gomez Shares if all
or any portion of the Gomez Shares are cutback or not otherwise permitted to be
included in the IPO Registration Statement in accordance with this Agreement.
(d) If requested by the Underwriter, each holder of the Gomez Shares
participating in the IPO Registration Statement will enter into an underwriting
agreement with the Underwriter and the Company. Each holder of the Gomez Shares
will be required to make such representations and warranties to, and agreements
with, the Company and the Underwriter as are customarily contained in an
underwriting agreement of this type including, without limitation,
representations, warranties and agreements, including indemnities, regarding the
holders of the Gomez Shares, the Gomez Shares and the holders' of the Gomez
Shares intended method of distribution and any other representations required by
law.
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<PAGE>
(e) Each holder of the Gomez Shares hereby agrees that it/he will not
sell or otherwise dispose of any of the Gomez Shares during the period beginning
seven days prior to the effective date of the IPO Registration Statement and
ending 180 days after the effective date of the IPO Registration Statement;
provided, however, this Section 7.1(e) shall not apply to any of the Gomez
Shares which are included in the IPO Registration Statement.
(f) The Company shall notify each holder of the Gomez Shares appearing
on the Company's records as a record holder of the Gomez Shares as of the date
10 business days prior to the filing of the preliminary IPO Registration
Statement with the Commission of their right to request registration of their
Gomez Shares in the IPO Registration Statement pursuant to the terms and
conditions of this Agreement within 10 business days prior to the filing of such
preliminary IPO Registration Statement. In order to exercise its registration
rights under this Section 7.1, holders of the Gomez Shares must notify the
Company in writing of its request to include its Gomez Shares in the IPO
Registration Statement within 10 business days after the Company has delivered
such notice.
7.2 Registration Rights of the Ashton Shares. (a) Commencing 180
days following the consummation of the IPO, holders of the Ashton Shares shall
have the right to require the Company (subject to (x) the shares of the Common
Stock to be sold for the account of such holders who in the future may be
granted demand registration rights expressly senior to those of the holders of
the Ashton Shares and (y) the conditions set forth in Section 7.4) on four
separate occasions, to exercise its reasonable best efforts to (i) cause a
registration statement (each, a "Demand Registration Statement") to be declared
effective for the public sale under the Securities Act of the
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Ashton Shares, and (ii) maintain the effectiveness of each such Demand
Registration Statement for at least 180 days.
(b) The Company shall include in each Demand Registration Statement at
least 25% of the total number of Ashton Shares outstanding as of the date of
this Agreement; provided, however, if market conditions allow, the Board may by
written resolution permit more than 25% of the total number of such shares to be
included in a Demand Registration Statement.
(c) Unless Ashton and each Ashton Executive otherwise unanimously
agree in writing:
(i) the first Demand Registration Statement shall contain (A) at least
50% of the Ashton Executive Shares, if so requested, and (B) a number of ATG
Shares which, when added to the Ashton Executive Shares equals at least 25% of
the total number of Ashton Shares outstanding as of the date of this Agreement;
(ii) the second Demand Registration Statement shall contain (A) the
remaining Ashton Executive Shares, if so requested, and (B) a number of ATG
Shares which, when added to the remaining Ashton Executive Shares, equals at
least 25% of the total number of Ashton Shares outstanding as of the date of
this Agreement;
(iii) the third Demand Registration Statement shall contain a number
of ATG Shares equal to at least 25% of the total number of Ashton Shares
outstanding as of the date of this Agreement; and
(iv) the fourth Demand Registration Statement shall contain all
remaining ATG Shares.
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Unless otherwise unanimously agreed to in writing by each Ashton Executive, the
number of Ashton Executive Shares to be included in a Demand Registration
Statement for the account of each Ashton Executive shall be proportionate to the
total number of Ashton Executive Shares outstanding.
(d) The first demand registration right granted hereunder may be
exercised no earlier than 180 days after the consummation of the IPO, and each
successive demand registration right may be exercised no earlier than one year
after the effective date of the preceding Demand Registration Statement.
(e) Ashton and the Ashton Executives shall be entitled to use an
underwriter to effect the offering of the Ashton Shares pursuant to the Demand
Registration Statements. Ashton shall select the underwriters, if any, to use
in connection therewith, subject to the approval of the Board, which shall not
be unreasonably withheld. Ashton shall be entitled to select the form of the
Demand Registration Statement for the Company to use in connection with the
offering of the Ashton Shares.
(f) Gomez, Robb and Stein agree not to sell any shares of Common Stock
for their respective accounts for a period beginning seven days prior to the
effective date of each Demand Registration Statement and ending on the earlier
of (i) 180 days after each such effective date, or (ii) the date that all shares
included in the Demand Registration Statement are sold.
(g) In order for the registration rights set forth in this Section 7.2
to be exercised, a written request with the signatures of holders of at least
67% of the Ashton Shares then outstanding must be delivered to the Company.
Upon the Company's receipt of such written request, which must include the
intended method of distribution of the Ashton Shares to be sold pursuant to such
registration statement, the Company within 20 business
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days shall give notice of the exercise of this registration right to each holder
(the "Non-Participating Ashton Holders") of the Ashton Shares (other than those
included in such request) appearing on the Company's records as a record holder
of Ashton Shares as of the date the Company receives such request. In order to
exercise registration rights under this Section 7.2, each Non-Participating
Ashton Holder must notify the Company in writing of its/his intention to be
included in the registration request within 10 business days after the Company
has delivered such notice.
7.3 Piggyback Registration. If, after one year following the
consummation of the IPO, the Company proposes to register Common Stock under the
Securities Act (otherwise than (i) in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan, (ii) pursuant to a merger, exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act, or (iii) in connection
with the first Demand Registration Statement requested by the holders of the
Ashton Shares pursuant to Section 7.2), the Company shall give each holder of
Ashton Shares and Gomez Shares notice of such proposed registration at least 30
days prior to the filing of a registration statement. At the written request of
any such holder within 15 days after the receipt of the notice from the Company,
any such request stating the number of Ashton Shares or Gomez Shares that such
holder wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its reasonable best
efforts to register under the Securities Act the sale of such Ashton Shares
and/or Gomez Shares (which, in the aggregate, shall not exceed 25% of the shares
being registered), and to cause such registration statement (the "Piggyback
Registration") to become and remain effective for 180 days; provided, however,
that the holders of the Gomez Shares shall not have the right to include any
such Gomez Shares in the
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first Demand Registration Statement requested by the holders of the Ashton
Shares pursuant to Section 7.2; and provided, further, that the holders of the
Ashton Shares shall not have the right to include any such Ashton Shares in the
first registration statement filed by the Company following the IPO which does
not involve an underwritten offering of the securities so being registered. The
Company may at any time withdraw or cease proceeding with the Piggyback
Registration if it shall at the same time withdraw or cease proceeding with the
registration of all the securities originally proposed to be registered.
If the Piggyback Registration involves an underwritten offering of the
securities so being registered and the managing underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, then the shares to be included in the registration and underwriting
shall be allocated (i) if the Piggyback Registration is also a Demand
Registration Statement (other than the first Demand Registration Statement)
initiated by the holders of the Ashton Shares pursuant to Section 7.2, first, to
shares of Common Stock to be sold for the account of such holders who in the
future may be granted registration rights expressly senior to those of the
holders of the Ashton Shares hereunder; second, to the minimum number of Ashton
Shares required to be included in such Demand Registration Statement pursuant to
Section 7.2(c), third, to the Company for shares being sold for its own account,
and fourth, in the ratio of one Ashton Share for every Gomez Share requested by
the holders thereof to be included in such registration statement, or (ii) if
the Piggyback Registration is not also a Demand Registration Statement, first,
to the Company for shares being sold for its own account, second, to shares of
Common Stock to be sold for the account of such holders who in the future may be
granted registration rights expressly senior to those of the holders of the
Ashton Shares and the Gomez Shares
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hereunder, and third, in the ratio of one Ashton Share for every Gomez Share
requested by the holders thereof to be included in such registration statement.
7.4 General Registration Rights Provisions. The following
provisions, unless otherwise stated, shall be applicable to any registration to
be effected pursuant to the rights exercised under Section 7.1, 7.2 or 7.3
hereof.
(a) The holders whose Ashton Shares or Gomez Shares are to be included
in any registration statement as provided in Section 7.1 or 7.2 (the "Sellers")
agree to furnish the Company with such information regarding the Sellers and the
distribution of the Ashton Shares or Gomez Shares, as the case may be, as the
Company shall from time to time reasonably request in writing and as shall be
required by applicable federal or state law or the Commission in connection
therewith.
(b) Following the effective date of the applicable registration
statement, the Company shall upon the request of any Seller supply a reasonable
number of prospectuses meeting the requirements of the Securities Act as shall
be requested by such Seller to permit such Seller to make a public offering of
the securities of such Seller included therein.
(c) The Company shall use reasonable efforts (i) to qualify the
securities included in an applicable registration statement for sale in such
states as the Sellers shall reasonably designate, provided that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is not then
subject and (ii) to qualify such offering with the National Association of
Securities Dealers, Inc., if applicable.
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(d) The Company's obligations under Section 7.2 to exercise reasonable
best efforts to cause a registration statement to be declared effective by the
Commission for the public sale of Ashton Shares under the Securities Act are
limited to the following:
(i) The Company will prepare and file with the Commission the form
of registration statement selected by Ashton pursuant to Section 7.2(e) to
effect such registration and thereafter use reasonable best efforts in good
faith to cause such registration statement to become effective; provided,
however, that the Company may discontinue any registration of securities or
suspend the effectiveness of any registration statement in accordance with
Section 7.4(i); and
(ii) The Company will prepare and file with the Commission such
amendments and supplements to the applicable registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Ashton Shares covered by
such registration statement for 180 days or such earlier time as all of such
Ashton Shares included in such registration statement have been disposed of in
accordance with the intended methods of disposition by the Sellers set forth in
such registration statement; provided, however, that the Company may discontinue
any registration of securities or suspend the effectiveness of any registration
statement in accordance with Section 7.4(i).
(e) The Company shall indemnify and hold harmless each Seller and each
underwriter (if applicable), within the meaning of the Securities Act, who may
purchase from or sell for any Seller any Gomez Shares or Ashton Shares, as the
case may be, from and against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all
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expenses reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
any untrue statement or alleged untrue statement of a material fact contained in
the applicable registration statement or any prospectus included therein
required to be filed or furnished by reason of this Section 7 or any amendment
or supplement thereto, or caused by any omission or alleged omission to state
therein a 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, except insofar as such loss, liability, claim, damage or expense
is caused by any such untrue statement or alleged untrue statement or omission
or alleged omission based upon written information furnished to the Company by a
Seller or underwriter expressly for use therein. This indemnification shall
include each person, if any, who controls a Seller or underwriter within the
meaning of the Securities Act; provided, however, that the indemnity agreement
set forth in this Section 7 with respect to any registration statement or
prospectus which shall be subsequently amended prior to the written confirmation
of the sale of any Ashton Shares or Gomez Shares, as the case may be, pursuant
thereto, shall not inure to the benefit of any Seller or underwriter from whom
the person asserting any such loss, liability, claim, damage or expense
purchased the Ashton Shares or Gomez Shares, as the case may be, which are the
subject thereof (or to the benefit of any person controlling such Seller or
underwriter), if such Seller or underwriter failed to send or give a copy of the
prospectus as so amended to such person at or prior to the written confirmation
of the sale of such Ashton Shares or Gomez Shares, as the case may be, and if
the amended prospectus did not contain any untrue statement or alleged untrue
statement or omission or alleged omission giving rise to such loss, liability,
claim, damage or expense.
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(f) Each Seller and underwriter (if applicable) shall at the same
time indemnify the Company, its directors, its executive officers, each officer
signing the applicable registration statement and each person who controls the
Company, within the meaning of the Securities Act, from and against any and all
loss, liability, claim, damage and expense whatsoever (including, but not
limited to, any and all expenses reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement of a material fact contained in
the applicable registration statement or any prospectus included therein
required to be filed or furnished by reason of this Section 7 or any amendment
or supplement thereto, or caused by any omission or alleged omission to state
therein a material fact to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, insofar as such loss, liability, claim, damage or expense is caused
by any untrue statement or alleged untrue statement or omission or alleged
omission based upon written information furnished to the Company by any such
Seller or underwriter expressly for use therein.
(g) If for any reason the foregoing indemnity is unavailable under
either Section 7.4(e) or 7.4(f), then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such losses,
liabilities, claims, damages or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
on the one hand and the indemnified party on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law or
provides a lesser sum to the indemnified party than is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well
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<PAGE>
as any other relevant equitable considerations, then in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party as well as any other equitable considerations. Notwithstanding
the foregoing, neither party shall be required to contribute any amount in
excess of the amount the indemnifying party would have been required to pay to
an indemnified party if the indemnity under this Section 7.4(e) or 7.4(f) was
available. No person guilty of fraudulent misrepresentation (within the meaning
of the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(h) In their applicable request for registration of their Ashton
Shares or Gomez Shares, the Sellers must inform the Company of their intended
method of distribution of the Ashton Shares or Gomez Shares, as the case may be.
In the event that Ashton and/or the Ashton Executives request pursuant to
Section 7.2 an underwritten offering of the Ashton Shares, each Seller selling
Ashton Shares pursuant to such underwritten offering hereby agrees to enter into
an underwriting agreement with the underwriter and the Company whereby such
Seller will be required to make such representations and warranties to, and
agreements with, the Company and the underwriter as are customarily contained in
an underwriting agreement of this type, including without limitation,
representations, warranties and agreements, including indemnities, regarding the
Sellers, the Ashton Shares and the Seller's intended method of distribution and
any other representations required by law.
(i) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Sellers to make sales pursuant
to, any registration statement otherwise required to be prepared, filed and kept
effective by it under this Section 7; provided, however, that the
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<PAGE>
duration of such postponement or suspension may not exceed the earlier to occur
of (A) 15 business days after the cessation of the circumstances described in
the next sentence of this paragraph on which such postponement or suspension is
based or (B) 180 days after the date of the determination of the Board referred
to in the next sentence, or if the Company is filing a registration statement
under the Securities Act for the purpose of raising capital, 180 days after the
effective date of such registration statement. Such postponement or suspension
may only be effected if the Board determines in good faith that the filing or
effectiveness of, or sales pursuant to, the applicable registration statement
would materially impede, delay or interfere with any financing, offer or sale of
securities, acquisition, corporate reorganization or other significant
transaction involving the Company or any of its affiliates (whether or not
planned, proposed or authorized prior to an exercise of registration rights
hereunder or any other registration rights agreement) or require disclosure of
material information which the Company has a bona fide business purpose for
preserving as confidential. If (i) the Company shall postpone the filing or
effectiveness of a Demand Registration Statement or suspend the rights of
Sellers to make sales thereunder, (ii) a Demand Registration Statement does not
continue in effect for at least 180 days or until the sale of all Ashton Shares
included thereunder, or (iii) a Demand Registration Statement is interfered with
by a stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason not the fault of Ashton or the
Ashton Executives, the Company shall as promptly as practicable notify any
participating Sellers of such determination, and the holders of the Ashton
Shares shall have the right, upon the affirmative vote of such holders holding
not less than 51% of the Ashton Shares to be included in such registration
statement which are not sold, to withdraw the request for registration by giving
written notice to the Company within 10 business days after
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receipt of such notice. Any registration right as to which the withdrawal
election referred to in the preceding sentence has been effected shall not be
counted for purposes of the registration rights which Ashton and the Ashton
Executives have been granted pursuant to Section 7.2.
(j) The registration rights set forth in Section 7.1 and 7.2 shall
terminate with respect to any holder of Ashton Shares and/or Gomez Shares at
such time as the Company receives a written opinion (the "Rule 144 Opinion")
from counsel to the Company that all of the Ashton Shares and/or Gomez Shares
owned by such holder will be eligible to be sold pursuant to Rule 144
promulgated under the Securities Act ("Rule 144") by the end of the calendar
quarter in which it receives such Rule 144 Opinion.
(k) The Company shall pay all expenses incurred in complying with
Section 7.1 and 7.2 including, without limitation, all registration and filing
fees, printing expenses, expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the Company and counsel for any
underwriters of such offerings, but excluding fees and disbursements of counsel
representing the Sellers), all fees and disbursements of counsel for the Company
and accountants' fees and expenses incident to the applicable registration
statement; provided, however, that the Sellers shall pay for all underwriting
fees and commissions, all fees and disbursements of counsel for any Seller and
any transfer and similar taxes to be incurred by any Seller (collectively, the
"Selling Expenses"). Unless the Sellers otherwise unanimously agree in writing,
the Sellers shall bear the Selling Expenses in direct proportion to the number
of Ashton Shares or Gomez Shares, as the case may be, that they are seeking to
register.
8. Amendments to Employment Agreements.
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8.1 Section 5 and Section 6 of the Employment Agreement between the
Company and Gomez, dated as of May 15, 1997, are hereby deleted.
8.2 Section 5 and Section 6 of the Employment Agreement between the
Company and Robb, dated as of May 15, 1997, are hereby deleted.
8.3 Section 5 and Section 6 of the Employment Agreement between the
Company and Stein, dated as of May 15, 1997, are hereby deleted.
9. Representations and Warranties by the Company. the Company
hereby represents and warrants to the Stockholders as follows:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) the Company has the full right, power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and is a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and general principles of equity.
(c) There is no material claim, and no legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding pending or threatened against, or
26
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relating to the Company or any of its respective material properties or
businesses, which would if adversely determined prevent or impede the
consummation of, or have a material adverse effect on, any of the transactions
contemplated by this Agreement nor is there any basis known to the Company for
any such action, investigation or proceeding.
10. Term and Termination.
10.1 Term. This Agreement is effective as of the date hereof and,
unless earlier terminated, shall continue in force until the earlier of (A) five
years from the date of the Original Agreement, (B) three years from the closing
date of the IPO and (C) dissolution or liquidation of the Company.
10.2 Effect of Termination. Termination of this Agreement shall
not affect or impair any rights or obligations that arise prior to or at the
time of the termination of this Agreement, or which may arise by reason of an
event causing the termination of this Agreement, and all such rights and
obligations, including the rights and obligations under any provision of this
Agreement, which by their terms are to survive termination, shall also survive.
The rights and remedies provided in this Agreement and in such other agreements
shall be cumulative and not exclusive and shall be in addition to any other
rights and remedies which the Stockholders may have under this Agreement or
otherwise.
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11.0 Miscellaneous.
11.1 Entire Agreement. This Agreement supersedes all prior oral and
written agreements between the parties with respect to the subject matter
hereof, and this Agreement and the other documents and agreements between the
parties which are referred to herein or executed contemporaneously herewith set
forth the entire agreement among the parties with respect to the transactions
contemplated hereby.
11.2 Amendment. Any term of this Agreement may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of (i) the Board and (ii) Stockholders holding at least 67% of the
outstanding Shares held by Stockholders and their Permitted Transferees (after
notice to all Stockholders of the proposal to adopt such amendment). Anything
in this Section 11.2 to the contrary notwithstanding, (i) none of the terms of
this Agreement may be amended in a manner that would adversely affect the rights
hereunder of the Gomez Principals under Sections 2 and 7 without their prior
written consent and (ii) none of the terms of this Agreement may be amended in a
manner that would adversely affect the rights hereunder of the Ashton Executives
and Ashton under Sections 2 and 7 without their prior written consent, as the
case may be. Any amendment so adopted shall become effective upon the giving of
notice of such adoption to all of the Stockholders. Each Stockholder shall be
bound by any amendment or waiver adopted in accordance with this Section 11.2,
whether or not such Stockholder shall have consented thereto.
11.3 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs and permitted
successors and assigns. Except as otherwise expressly provided herein, neither
this Agreement nor
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any rights or obligations hereunder shall be assignable or otherwise
transferable by any party, voluntarily or by operation of law, without the prior
written consent of the other parties hereto, and any assignment or transfer
without such consent shall be null and void.
11.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute a single agreement.
11.5 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Delaware
(without regard to the conflict of laws or principles thereof).
11.6 Further Assurances. Each party shall, at any time and from
time to time after the date hereof, do, execute, acknowledge and deliver, or
cause to be done, executed, acknowledged and delivered, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney, receipts,
acknowledgments, acceptances and assurances as may be reasonably required to
procure for any party, his, her or its successors and assigns, the benefits
intended to be conferred upon such party under this Agreement.
11.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by reason of any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions or agreements of the parties contemplated hereby
are not affected in any manner materially adverse to any party. Upon the
determination that any term or other provision is invalid, illegal or incapable
of being
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<PAGE>
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner.
11.8 Negotiation and Arbitration. (a) The parties shall attempt in
good faith to resolve any dispute arising out of or relating to this Agreement
promptly by negotiation. If a matter in dispute has not been resolved within 60
days of a party's request for negotiation, any of the parties to the dispute may
initiate arbitration as provided hereinafter. Any dispute arising out of or
relating to this Agreement or the breach, termination or validity thereof,
including, without limitation, the determination of the scope or applicability
of this agreement to arbitrate, which has not been resolved by negotiation
within 60 days after a party's request for negotiation shall be settled by
arbitration before a panel of three arbitrators in the State of Massachusetts.
The arbitration shall be governed by the Federal Arbitration Act and
administered by the American Arbitration Association under its Commercial
Arbitration Rules, provided that persons eligible to be selected as arbitrators
shall be limited to persons who are either (i) retired judges of the state or
Federal courts in New York or Massachusetts or (ii) attorneys-at-law who have
engaged in the private practice of law in the Borough of Manhattan or the city
of Boston for at least 10 years concentrating either in general commercial
litigation or general corporate and commercial matters. To assure the parties
that disputes and controversies subject to arbitration will be resolved
expeditiously, the arbitration hearing shall occur within 60 days after the
arbitration is initiated and any discovery prior to the arbitration hearing
shall be limited (including no more than two depositions per party). The
arbitrators shall not have authority to award punitive or exemplary damages.
Each of the parties shall, subject to the award of the arbitrators, pay an equal
share of the arbitrators' fees. The arbitrators shall have the
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power to award recovery of all costs (including attorneys' fees, administrative
fees, arbitrators' fees and court costs) to the prevailing party. Judgment upon
the award rendered may be entered in any court having jurisdiction.
(b) No provision of, nor the exercise of any rights under, this
Section 11.8 shall limit the right of any party to request and obtain from a
court of competent jurisdiction before, during or after the pendency of any
arbitration, provisional or ancillary remedies and relief including, but not
limited to, the remedies provided for in Section 11.9. The institution and
maintenance of an action or judicial proceeding for, or pursuit of, provisional
or ancillary remedies shall not constitute a waiver of the right of any party,
even if it is the plaintiff, to submit the dispute to arbitration if such party
would otherwise have such right. Each of the parties hereby, for purposes of
this provision, submits unconditionally to the non-exclusive jurisdiction of the
state and federal courts located in the State of New York, Borough of Manhattan,
waives objection to the venue of any proceeding in any such court or that any
such court provides an inconvenient forum and consents to the service of process
upon it in connection with any proceeding instituted under this Section 11.8 in
the same manner as provided for the giving of notice hereunder.
11.9 Equitable Relief. Since a party may sustain irreparable harm in
the event there is a breach of any of the covenants contained in this Agreement,
in addition to any other rights or remedies which a party may have under this
Agreement or otherwise (including the rights to require negotiation and
arbitration in accordance with Section 11.8), a party shall be entitled to
obtain specific performance or injunctive relief against any other party in any
court of competent jurisdiction for the purposes of restraining the other party
from any actual or threatened breach of any of such covenants or to compel such
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other party to perform any of such covenants, without the necessity of proving
irreparable injury or the inadequacy of remedies at law or posting bond or other
security.
11.10 Notices. Any and all notices, requests, demands, consents and
other communications required or permitted under this Agreement shall be in
writing, signed by or on behalf of the party by which given, and shall be
considered to have been duly given when (i) delivered by hand, (ii) sent by
telecopier (with receipt confirmed), provided that a copy is mailed (on the same
date) by first class mail, postage prepaid, or (iii) received by the addressee,
if sent by Express Mail, Federal Express or other reputable express delivery
service (receipt requested), or by first class certified or registered mail,
return receipt requested, postage prepaid, in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may from time to time designate as to itself by
notice similarly given to the other parties in accordance herewith). A notice
of change of address shall not be deemed given until received by the addressee.
Notice shall be given:
(1) to the Company at:
Gomez Advisors, Inc.
55 Old Bedford Road
Lincoln, MA 01773
Attn: President
Telecopier: (781) 257-2550
(2) to Ashton at:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
(3) to the Ashton Executives at:
c/o The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
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Philadelphia, PA 19103
Attn: President
Telecopier: (215) 636-3560
(4) to the Gomez Principals at:
c/o Gomez Advisors, Inc.
55 Old Bedford Road
Lincoln, MA 01773
Attn: President
Telecopier: (781) 257-2550
11.11 Additional Stockholders. Notwithstanding anything to the
contrary contained herein, in connection with the issuance of Common Stock to an
employee of Ashton pursuant to Section 6.3 of the Exchange Agreement, the
parties agree to permit such person to become a party to this Agreement and
succeed to all of the rights and obligations of a "Stockholder" and "Ashton
Executive" under this Agreement by obtaining an executed counterpart signature
page to this Agreement, and, upon such execution, such person shall for all
purposes be a "Stockholder" and "Ashton Executive" party to this Agreement.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, and the Stockholders have executed this Agreement, as of the date of
the Original Agreement.
GOMEZ ADVISORS, INC.
By: /s/ Julio Gomez
----------------------------
Name: Julio Gomez
Title: President & CEO
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric Rittereiser
----------------------------
Name: Fredric Rittereiser
Title: President & CEO
/s/ Julio Gomez
----------------------------
JULIO GOMEZ
/s/ John M. Robb
----------------------------
JOHN M. ROBB
/s/ Alexander Stein
----------------------------
ALEXANDER STEIN
/s/ Fredric W. Rittereiser
----------------------------
FREDRIC W. RITTEREISER
/s/ K. Ivan F. Gothner
----------------------------
K. IVAN F. GOTHNER
/s/ Arthur J. Bacci
----------------------------
ARTHUR J. BACCI
34
<PAGE>
/s/ William Uchimoto
----------------------------
WILLIAM UCHIMOTO
/s/ Richard Butler
----------------------------
RICHARD BUTLER
/s/ Fred Weingard
----------------------------
FRED WEINGARD
35
<PAGE>
EXHIBIT 10.39
TAX ALLOCATION AGREEMENT
Agreement dated October 27, 1999, by and among The Ashton Technology Group,
Inc. (Parent) and its subsidiary, Universal Trading Technologies Corporation,
Inc. (UTTC).
WITNESSETH
Whereas, the parties hereto are members of an affiliated group (Affiliated
Group) as defined in Section 1504(a); and
Whereas, such Affiliated Group will file a U.S. consolidated income tax
return for its taxable year ended March 31, 1999 and is required to file
consolidated tax returns for subsequent years; and
Whereas, it is the intent and desire of the parties hereto that a method be
established for allocating the consolidated tax liability of the Affiliated
Group among its members, for reimbursing the Parent for payment of such tax
liability, for compensating any party for use of its losses or tax credits, and
to provide for the allocation and payment of any refund arising from a carryback
of losses or tax credits from subsequent tax years.
Now, Therefore, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return shall be filed by the Parent for
the tax year ended March 31, 1999, and for each subsequent taxable period in
respect of which this Agreement is in effect and for which the Affiliated Group
is required or permitted to file a consolidated tax return. UTTC shall execute
and file such consent, elections, and other documents that may be required or
appropriate for the proper filing of such returns.
2. For each tax period, each member of the Affiliated Group shall compute
its tax liability in accordance with the provisions of Regulation
(S) 1.1502-33(d)(3) with a fixed percentage of 100 percent and shall pay such
amount (including any increased liability allocated pursuant to such regulation
above any liability allocated pursuant to section 1552 of the Internal Revenue
Code) to the Parent. For purposes of this Agreement, any liability for
alternative minimum tax shall be treated as a tax liability subject to this
paragraph.
3. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable period,
and UTTC shall pay to the Parent its share of each payment within ten days of
receiving notice of such payment from the Parent, but in no event later than the
due date for each such payment. Any amounts paid by UTTC on account of a
separate return or separate estimated tax payments that are credited against the
consolidated tax liability of the Affiliated Group shall be included in
determining the payments due from UTTC. Any overpayment of estimated tax should
be refunded to UTTC. Any payments owed by UTTC to the Parent under this
Agreement, including payments by UTTC to the Parent of any estimated tax
installments due for each taxable period, shall be paid to the Parent, even if
the Affiliated Group as a whole does not have any consolidated estimated tax
liability for such period.
4. To the extent payments received in respect of a taxable year by Parent
pursuant to paragraph 2, above, exceed the consolidated tax liability for such
period as a result of the absorption or utilization of losses, deductions,
credits or similar items of UTTC against the Parent's income, gain or similar
items, then the Parent shall pay such excess amount received to UTTC in a manner
that reasonably reflects such utilization or absorption within 10 days of filing
its consolidated federal income tax return for such period.
<PAGE>
5. If part or all of an unused loss or tax credit is allocated to a member
of the Affiliated Group pursuant to Regulation (S) 1.1502-79, and is carried
back or forward to a year in which such member filed a separate return or a
consolidated return with another affiliated group, any refund or reduction in
tax liability arising from the carryback or carryover shall be retained by such
member. Notwithstanding the above, the Parent shall determine whether an
election shall be made not to carry back part or all of a consolidated net
operating loss for any tax year in accordance with Section 172(b)(3).
6. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax audit by
the Internal Revenue Service, the liability of each member shall be recomputed
to give effect to such adjustments, and in the case of a refund, the Parent
shall make payment to UTTC for its share of the refund, determined in the same
manner as in paragraphs 2 and 4 above, within ten days after the refund is
received by the Parent, and in the case of an increase in tax liability, UTTC
shall pay to the Parent its allocable share of such increased tax liability
within ten days after receiving notice of such liability from the Parent.
7. If during a consolidated return period the Parent or UTTC acquires or
organizes another corporation that is required to be included in the
consolidated return, then such corporation shall join in and be bound by this
Agreement.
8. This Agreement shall apply to the tax year ending March 31, 1999, and
all subsequent taxable periods unless the Parent and UTTC agree to terminate the
Agreement. Notwithstanding such termination, this Agreement shall continue in
effect with respect to any payment or refunds due for all taxable periods prior
to termination.
9. Notwithstanding any other provisions of this Agreement, payment of any
estimated tax installment by UTTC to the Parent under this Agreement for the tax
year ending March 31, 1999 shall be made on or before October 15, 1999.
10. This Agreement shall be binding upon and inure to the benefit of any
successor, whether by statutory merger, acquisition of assets, or otherwise, to
any of the parties hereto, to the same extent as if the successor had been an
original party to the Agreement.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on October 27, 1999.
THE ASHTON TECHNOLOGY GROUP, INC.
/s/ Arthur J. Bacci
- -------------------
Arthur J. Bacci
President & Chief Financial Officer
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
/s/ Fred S. Weingard
- --------------------
Fred S. Weingard
President
<PAGE>
EXHIBIT 10.40
MANAGEMENT SERVICES AGREEMENT
Management Services Agreement made October 27, 1999 ("Effective Date") by and
between Ashton Technology Group ("ATG") and Universal Trading Technologies
Corporation ("UTTC(TM)") (hereinafter referred to as "Parties");
WHEREAS ATG(TM) wishes to make available to UTTC(TM) certain management
services;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises,
the mutual covenants and agreements hereinafter set forth and for good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the Parties have agreed as follows:
ARTICLE 1
1. DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
(a) "AFFILIATE" means, as to any person, any other person, which directly
or indirectly, Controls, is Controlled by or is under common Control
with such person;
(b) "CONTROL" means:
(i) when applied to a relationship between a person and a
corporation, the beneficial ownership by such person at the
relevant time of shares of such corporation carrying more than
the greater of 50% of the voting rights ordinarily exercisable at
meetings of shareholders of such corporation and the percentage
of voting rights ordinarily exercisable at meetings of
shareholders of such corporation that are sufficient to elect a
majority of the directors of such corporation; and
(ii) when applied to a relationship between a person and a partnership
or joint venture, the beneficial ownership by such person at the
relevant time of more than 50% of the ownership interest of the
partnership or such joint venture in circumstances where it can
reasonably be expected that such person directs the affairs of
the partnership or joint venture;
(c) "CONTROLLED BY", "CONTROLLING" and similar words have corresponding
meanings; provided that a person (the "first-mentioned person") who
Controls a corporation, partnership or joint venture (the "second-
mentioned person") shall be deemed to Control (i) a corporation,
partnership or joint venture (the "third-mentioned person") which is
Controlled by the second-mentioned person, (ii) a corporation,
<PAGE>
partnership or joint venture which is Controlled by the third-
mentioned person, and (iii) so on;
(d) "GROUP" shall mean either ATG or UTTC(TM) and its officers, directors,
employees and affiliates;
(e) "LOSSES" shall mean any losses, liabilities, claims, damages, costs
and expenses, including counsel's and accountant's fees, disbursements
and court costs, judgements, fines and other amounts paid in
settlement;
(f) "SUBSIDIARY" shall mean UTTC(TM)
(g) "THIRD PARTY" shall mean any business entity or persons other than
ATG(TM) and its Affiliates or Subsidiary and its Affiliates.
ARTICLE 2
2. SERVICES AND COMPENSATION
2.1 SERVICES PROVIDED
Upon the terms and subject to the conditions set forth in this
Agreement, ATG(TM) ("Service Provider") will provide or cause to
be provided to UTTC(TM) ("Service Receiver") the services
(collectively, the "Services" and individually, a "Service") set
forth in Exhibit A (including any schedules to such exhibits or
other exhibits as may be added to this Agreement by amendment
from time to time) attached hereto and incorporated herein by
reference (collectively, the "Exhibits" and individually, an
"Exhibit"). Each Service shall be subject to the terms identified
in the Exhibit A related thereto. In the event any Service is
terminated, this management services agreement (the "Agreement")
shall remain in effect, unless otherwise terminated as provided
in Article 6 hereof. In the event of any conflict between the
terms of this Agreement and any Exhibit, the terms of this
Agreement shall govern, unless the terms of such Exhibit are
expressly stated to override the terms of this Agreement.
2.2 PERFORMANCE OF SERVICES
2.2.1 Service Provider shall perform Services with the same
degree of care, skill and prudence customarily exercised by it
for its own operations. In the event Service Provider changes the
degree of care, skill and prudence customarily exercised for its
own operations, the Services performed by it hereunder may be
modified by Service Provider to meet its revised internal
performance standards for the Services it provides hereunder.
2
<PAGE>
2.2.2 Any input or information reasonably required by Service
Provider to perform Services pursuant to the provisions of this
Agreement shall be provided by the Service Receiver in a manner
consistent with the practices employed by the Parties during the
normal course of business. Should the failure to provide such
input or information render the performance of the Services
impossible or unreasonably difficult, the Service Provider may,
upon written notice to the Service Receiver, refuse to provide
such Services until such input or information is provided. To the
extent reasonably required for the Service Provider's personnel
to perform the Services, the Service Receiver shall provide the
Service Provider's personnel with access to its equipment, office
space and any other areas and equipment necessary for the
provision of Services; provided that such access shall not
unreasonably interfere with the Service Receiver's conduct of its
business.
2.2.3 In providing Services, a Service Provider may, as it in
its sole discretion deems necessary or appropriate, (i) use its
personnel or that of other members of its Group, and (ii) employ
the services of third Parties to the extent such third Party
services are routinely utilized to provide similar services to
other Service Provider businesses or are reasonably necessary for
the efficient performance of any Services.
2.2.4 Nothing in this Agreement shall require a Service Provider
to favor a Service Receiver over a business of the Service
Provider or those of any member of its Group.
2.3 COMPENSATION
2.3.1 Service Provider shall be compensated for the Services
rendered by it under this Agreement as set forth in the
applicable Exhibit hereto. Payments shall be made by the Service
Receiver following the end of each quarter in which such Services
were performed either by check, wire transfer, intra-company
netting or at such other times or by such other method(s) agreed
to by the Parties. The fees and charges to be set out in the
Exhibit will be determined as follows:
(a) charges for Services performed by a third Party shall
be based upon the incremental costs charged by such third
Party to the Service Provider to perform those Services
for the Service Receiver;
(b) fees for Services provided by a Service Provider
shall be based upon the estimated or actual costs of
providing such Services to the applicable Service
Receiver, which shall include a reasonable allocation of
Service Provider's direct and indirect overhead costs
(including, without limitation, employee salaries,
benefits and other costs) which Service Provider estimates
will be incurred or which are incurred in connection
therewith;
3
<PAGE>
(c) such other charges, fees, or commissions for Services
provided shall be based on the methodology as set forth in
the Exhibit or Exhibits for such Services.
ARTICLE 3
3. CONFIDENTIALITY OF INFORMATION
3.1 All Confidential Information (as hereinafter defined) disclosed by
either of the Parties to the other Party hereunder is confidential and
proprietary to such disclosing Party. Each Party, its affiliates, and
subsidiaries and its or their officers, directors, employees, agents,
consultants and contractors shall not use any of the Confidential
Information for any purpose other than as expressly permitted
hereunder. Confidential Information furnished by either of the Parties
to the other Party in connection with this Agreement (or previously
disclosed prior to execution of this Agreement) and the transactions
contemplated hereby will be kept in confidence by such other Party,
including its affiliates and subsidiaries and its or their officers,
directors, employees, agents, consultants and contractors, in
accordance with the policies of ATG(TM) and UTTC(TM), as applicable,
for maintaining the confidence of its own information of similar
content.
3.2 The term "Confidential Information" shall mean and include:
(a) All trade secrets, other confidential business information
and other confidential information learned in the course of
performance by either Party of its obligations hereunder; and
(b) Any information, data, software or computer programs and all
technology which are disclosed by either Party to the other Party
under or in contemplation of this Agreement.
Confidential Information may be either the property of the disclosing
Party or information provided to the disclosing Party by a corporate
affiliate of the disclosing Party or by a third Party.
3.3 Notwithstanding the foregoing, the term "Confidential Information"
shall not include information which:
(a) is contained in SEC filings and/or federal, state, and local
tax filings of any Party;
(b) is or becomes part of the public domain other than by way of
a breach of this Agreement or through the fault of the receiving
Party;
4
<PAGE>
(c) is or becomes available to the receiving Party from a source
other than the disclosing Party, which source has no obligation
of confidentiality to the disclosing Party in respect thereof;
(d) is required by law, regulation or court order to be
disclosed by such Party, in the opinion of its counsel, provided
that prior notice of such disclosure has been given to the other
Party when legally permissible, upon sufficient notice in order
to permit the other Party to take such legal action to prevent
the disclosure as it deems reasonable, appropriate or necessary;
or
(e) the Parties have mutually agreed the Confidential
Information may be disclosed by amendment under Section 7.10.
3.4 This Section 2 shall survive any termination of this Agreement, in
whole or in part, for five (5) years from the date of termination.
3.5 Upon the discovery of any inadvertent disclosure or unauthorized use
of Confidential Information, or upon receiving notice of a prohibited
disclosure or unauthorized use from the other Party to this Agreement,
the receiving Party shall take all necessary actions to prevent any
further inadvertent or prohibited disclosure or unauthorized use and,
subject to Article 4, the disclosing Party shall be entitled to pursue
any remedy which may be available to it.
ARTICLE 4
4. CONFLICT RESOLUTION
4.1 Any dispute, controversy or claim relating to this Agreement (a
"Dispute") shall initially be referred to the executive management of
the Parties to the Dispute who shall attempt to resolve such Dispute
in good faith.
ARTICLE 5
5. LIMITATION OF LIABILITY AND WARRANTY
5.1 LIMITATION
5.1.1 In the absence of gross negligence or reckless or willful
misconduct on Service Provider's part, and whether or not it is
negligent, such Service Provider shall not be liable for any Losses
arising out of any actual or alleged injury, loss or damage of any
nature whatsoever in providing or failing to provide Services to
Service Receiver. Notwithstanding anything to the contrary contained
herein, in the event a Service Provider commits an error with respect
to or incorrectly performs or fails to perform any Service, at Service
Receiver's request, Service
5
<PAGE>
Provider shall use reasonable efforts to correct such error, re-
perform or perform such Service; provided that Service Provider shall
have no obligation to recreate any lost or destroyed data to the
extent the same cannot be cured by the re-performance of the Service
in question.
5.1.2 Service Provider's liability for damages to Service Receiver
for any cause whatsoever, and regardless of the form of action,
whether in contract or in tort, including negligence, gross negligence
or willful misconduct, shall be limited to the payments made hereunder
for the specified Service that allegedly caused the damage during the
period in which the alleged damage was incurred by Service Receiver.
In no event shall Service Provider be liable for any damages caused by
Service Receiver's failure to perform the Service Receiver's
responsibilities hereunder. Service Provider will not be liable to a
Service Receiver for any act or omission of any other entity (other
than due to a default by Service Provider in any agreement between
Service Provider and such other entity) furnishing any Service.
5.1.3 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR AT
LAW OR IN EQUITY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION OR ANY OTHER LOSS) ARISING FROM OR RELATING TO
ANY CLAIM MADE UNDER THIS AGREEMENT OR REGARDING THE PROVISION OF OR
THE FAILURE TO PROVIDE THE SERVICES.
ARTICLE 6
6. TERM AND TERMINATION
6.1 Unless earlier terminated as provided below, this Agreement shall take
effect upon the date first written above and shall remain in effect
until the date specified by Service Provider for the termination of
this Agreement in a notice given by Service Provider as applicable, to
Service Receiver.
6.2 In addition, this Agreement may be terminated, in whole or in part,
upon the following conditions (but reserving all other remedies and
rights hereunder, in whole or in part, and otherwise available in law
or in equity) immediately by Service Provider by the giving of written
notice to Service Receiver, without any prior notice, upon the
occurrence of one or more of the following events:
(a) the other entering into proceedings in bankruptcy or
insolvency;
(b) the other making an assignment for the benefit of creditors;
6
<PAGE>
(c) a petition being filed in respect of the other under a
bankruptcy law, a corporate reorganization law, or any other law
for relief as a debtor or having a similar purpose or effect and
such petition is not vacated within thirty (30) business days
from the date of filing; or
(d) the other enters into liquidation, dissolution or other
similar proceedings.
ARTICLE 7
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES
Each Party will, from time to time and at all times after the
Effective Date, without further consideration, do such further acts
and deliver all such further assurances, deeds and documents as shall
be reasonably required in order to fully perform and carry out the
terms of this Agreement.
7.2 ENTIRE AGREEMENT
The provisions contained in any and all documents and agreements
collateral hereto shall at all times be read subject to the provisions
of this Agreement and, in the event of conflict, the provisions of
this Agreement shall prevail.
7.3 GOVERNING LAW
This Agreement shall be subject to and interpreted, construed and
enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
7.4 ASSIGNMENT
No Party to this Agreement shall have the right to assign or otherwise
transfer its rights or obligations under this Agreement, except with
the prior written consent of the other Party hereto.
7.5 TIME OF ESSENCE
Time shall be of the essence in this Agreement.
7.6 NOTICES
The addresses and fax number of each Party for notices shall be as
follows:
7
<PAGE>
ATG(TM)
Attention: Arthur J. Bacci
UTTC(TM)
Attention: Fred S. Weingard
Any notice, communication or statement (a "Notice") required,
permitted or contemplated hereunder shall be in writing and shall be
delivered as follows:
(a) by delivery to a Party between 9:00 a.m. and 5:00 p.m. local
time on a Business Day at the address of such Party for notices,
in which case the notice shall be deemed to have been received by
that Party when it is delivered; or
(b) by telecopier to a Party to the telecopier number of such
Party for notices, in which case, if the notice was telecopied
prior to 5:00 p.m. local time on a Business Day the notice shall
be deemed to have been received by that Party when it was
telecopied and if it was faxed on a day which is not a Business
Day or is faxed after 5:00 p.m. local time on a Business Day, it
shall be deemed to have been received on the next following
Business Day.
A Party may from time to time change its address for Notice or its fax
number for Notice by giving written notice of such change to the other
Party.
7.7 INVALIDITY OF PROVISIONS
If at any time any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any respect under the law of any
jurisdiction, that shall not affect or impair:
(a) the legality, validity or enforceability in that
jurisdiction of any other provision of this Agreement; or
(b) the legality, validity or enforceability under the law
of any other jurisdiction of that or any other provision of this
Agreement.
7.8 WAIVER
No waiver by any Party of any breach (whether actual or anticipated)
of any of the provisions contained herein shall take effect or be
binding upon that Party unless the waiver is expressed in writing by a
duly authorized representative of that Party. Any waiver so given
shall extend only to the particular breach so
8
<PAGE>
waived and shall not limit or affect any rights with respect to any
other or future breach.
7.9 REMEDIES GENERALLY
No failure on the part of any Party in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy
hereunder or in law or in equity or by statute or otherwise conferred.
7.10 AMENDMENT
This Agreement including any Exhibits hereto, shall not be varied in
its terms or amended by oral agreement or by representations or
otherwise other than by an instrument in writing dated subsequent to
the date hereof, executed by a duly authorized representative of each
Party.
7.11 COUNTERPART EXECUTION
This Agreement may be executed in counterpart and all executed
counterparts together shall constitute one agreement.
7.12 FORCE MAJEURE
No Party shall be liable for any failure of or delay in the
performance of this Agreement or any Services hereunder for the period
that such failure or delay is due to acts of God, public enemy, war,
strikes or labor disputes, or any other cause beyond the Parties'
reasonable control.
7.13 SERVICES NOT TRANSFER
For the avoidance of all doubt, the Parties hereto acknowledge and
agree that this Agreement is for the provision of services and no
transfer or conveyance of property of one Party to another arises
hereunder.
IN WITNESS WHEREOF, the Parties have executed this Agreement.
For ATG(TM) For UTTC(TM)
/s/ Arthur J. Bacci /s/ Fred S. Weingard
- ------------------------------ ------------------------
By: Arthur J. Bacci By: Fred S. Weingard
Title: President/CFO Title: President
Date: Date:
9
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