-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UCDTyPBLgkDuocrOyYKxDZCvK1pVXV3cue1Z6BXSy/hVHIK1ELq5sPQoED0Rv7kr CvF18PQHWJVQAcC03A7e6Q== 0000950116-98-001476.txt : 19980714 0000950116-98-001476.hdr.sgml : 19980714 ACCESSION NUMBER: 0000950116-98-001476 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19980710 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL TECH INVESTMENT GROUP INC /DE/ CENTRAL INDEX KEY: 0001003512 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132581640 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-53459 FILM NUMBER: 98664297 BUSINESS ADDRESS: STREET 1: 160 SUMMIT AVENUE CITY: MONTVALE STATE: NJ ZIP: 07645 S-1/A 1 S-1/A As filed with the Securities and Exchange Commission on July 10, 1998 REGISTRATION NO. 333-53459 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- Amendment No. 1 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- ALL-TECH INVESTMENT GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7372 13-2581640 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) 160 SUMMIT AVENUE MONTVALE, NEW JERSEY 07645 (201) 782-0200 (Address and Telephone Number of Registrant's Principal Executive Offices) HARVEY I. HOUTKIN CHIEF EXECUTIVE OFFICER ALL-TECH INVESTMENT GROUP, INC. 160 SUMMIT AVENUE MONTVALE, NEW JERSEY 07645 (201) 782-0200 (Name, Address, Telephone Number of Agent for Service) --------------------- Copies to: RICHARD A. FRIEDMAN, ESQ. LAWRENCE B. FISHER, ESQ. SICHENZIA, ROSS & FRIEDMAN LLP. ORRICK, HERRINGTON & SUTCLIFFE LLP 135 WEST 50TH STREET 666 FIFTH AVENUE NEW YORK, NEW YORK 10020 NEW YORK, NEW YORK 10103 Telephone No.: (212) 664-1200 Telephone No.: (212) 506-5000 Facsimile No.: (212) 664-7329 Facsimile No.: (212) 506-5151 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. --------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OF DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ CALCULATION OF REGISTRATION FEE ================================================================================
Class of Amount Maximum Maximum Securities Title of Each to to be Offering Price Aggregate Registration be Registered Registered Per Security(1) Offering Price(1) Fee - -------------------------------------------------------------------------------------------------------------- Units, each Unit consisting of two shares of Common Stock, $.001 par value, and one Redeemable Common Stock Purchase Warrant (2) ......................... 3,593,750 $ 16.10 $ 57,859,375 $ 17,068.52 - -------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value per share (3) ....................... 7,187,500 $ -- $ -- $ -- - -------------------------------------------------------------------------------------------------------------- Redeemable Common Stock Purchase Warrants (4) ............... 3,593,750 $ -- $ -- $ -- - -------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value, per share (5) ....................... 3,593,750 $ 12.00 $ 43,125,000 $ 12,721.88 - -------------------------------------------------------------------------------------------------------------- Representative's Warrants (6) ........ 625,000 $ .0001 $ 62.50 (7) - -------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value (8) ................................. 625,000 $ 9.60 $ 6,000,000 $ 1,770.00 - -------------------------------------------------------------------------------------------------------------- Common Stock Purchase Warrants (9) ................................. 312,500 $ .12 $ 37,500 $ 11.06 - -------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value (10) ................................ 312,500 $ 12.00 $ 3,750,000 $ 1,106.25 - -------------------------------------------------------------------------------------------------------------- Totals .............................................................. $ 110,771,937.50 $ 32,677.71 - --------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee pursuant to rule 457(a) of the Securities Act of 1933, as amended. (2) Includes 468,750 Units issuable upon exercise of the Underwriters' Over-Allotment Option. (3) Includes 937,500 shares of Common Stock (the "Common Stock") subject to sale upon exercise of the Underwriters' Over-Allotment Option granted to the Underwriters. (4) Includes 468,750 redeemable Common Stock purchase warrants (the "Warrants") subject to sale upon exercise of the Underwriters' Over-Allotment Option granted to the Underwriters. (5) Issuable upon exercise of the Warrants, together with such indeterminate number of securities as may be issuable by reason of anti-dilution provisions contained therein. (6) Represents warrants to be issued to the Representative of the several Underwriters to purchase 625,000 shares of Common Stock and/or 312,500 Warrants (the "Representative's Warrants"). See "Underwriting." (7) No fee due pursuant to Rule 457(g). (8) Represents shares of Common Stock issuable upon the exercise of the Representative's Warrants, together with such indeterminate number of securities as may be issuable by reason of anti-dilution provisions contained therein. (9) Represents Warrants issuable upon exercise of the Representative's Warrants. (10) Represents shares of Common Stock issuable upon the exercise of Warrants issuable upon exercise of the Representative's Warrants, together with such indeterminate number of securities as may be issuable by reason of anti-dilution provisions contained therein. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JULY 10, 1998 PROSPECTUS [GRAPHIC OMITTED] ALL-TECH INVESTMENT GROUP, INC. 6,250,000 Shares of Common Stock 3,125,000 Redeemable Common Stock Purchase Warrants (as units, each consisting of two shares of Common Stock and one Redeemable Common Stock Purchase Warrant) Of the 6,250,000 shares of Common Stock $.001 par value (the "Common Stock") of All-Tech Investment Group, Inc., a Delaware corporation ("All-Tech" or the "Company") offered hereby, 5,625,000 shares of Common Stock are being issued and sold by All-Tech and 625,000 shares of Common Stock are being sold by certain shareholders (the "Selling Shareholders") of All-Tech. All-Tech will not receive any of the proceeds from the sale of Common Stock by the Selling Shareholders. See "Use of Proceeds." All of the 3,125,000 Warrants (the "Warrants") offered hereby are being issued and sold by All-Tech. The shares of Common Stock and the Warrants will initially be sold as units, each unit consisting of two shares of Common Stock and one Warrant. The shares of Common Stock and the Warrants are sometimes hereinafter collectively referred to as the "Securities." Until the completion of this offering (the "Offering"), the Common Stock and Warrants may only be purchased together on the basis of two shares of Common Stock and one Warrant, but will be transferable separately immediately following completion of this Offering. Each Warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $12.00, subject to adjustment, at any time from , 1999 (six months after the date of this Prospectus) until , 2001 (30 months after the date of this Prospectus) and from such date until , 2004 (60 months after the date of this Prospectus) at an exercise price of $14.00 per share, subject to adjustment. Commencing , 2000, the Warrants will be subject to redemption by the Company, in whole but not in part, at $0.10 per Warrant on 30 days prior written notice, provided that the average closing sale price of the Common Stock as reported on the American Stock Exchange (the "Amex") equals or exceeds $20.00 per share of Common Stock, subject to adjustment, for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. See "Description of Capital Stock-Warrants." Prior to the Offering, there has been no public market for the Common Stock or the Warrants and there can be no assurance that such a market will develop after the Offering or, if developed, that it will be sustained. It is currently anticipated that the initial public offering price of the Units will be $16.10 per Unit or $8.00 per share and $.10 per Warrant. See "Underwriting" for a discussion of the factors considered in determining the initial public offering prices of the Securities and the terms of the Warrants. All-Tech has applied to include the Common Stock and Warrants on the Amex under the symbols "ATN" and "ATNW," respectively. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================
Underwriting Proceeds to Price to Discounts and Proceeds to Selling Public Commissions(1) Company(2) Shareholders(3) - ------------------------------------------------------------------------------------------------ Per Unit (comprised of) ........ $ $ $ $ - ------------------------------------------------------------------------------------------------ Per share of Common Stock ..... $ $ $ $ - ------------------------------------------------------------------------------------------------ Per Warrant ................... $ $ $ $ - ------------------------------------------------------------------------------------------------ Total (4) ...................... $ $ $ $
================================================================================ (1) Does not include additional compensation payable to Security Capital Trading, Inc., the representative (the "Representative") of the several underwriters (the "Underwriters"), consisting of (i) a non-accountable expense allowance equal to 1 1/2% of the gross offering proceeds, or $754,687.50 ($867,890.62 if the Underwriter's over-allotment option is exercised in full), of which $50,000 has been paid to date, and (ii) warrants ("Representative's Warrants") to be sold to the Representative for nominal consideration to purchase up to 625,000 shares of Common Stock and/or 312,500 Warrants, at a price of $9.60 per share of Common Stock and $.12 per Warrant, subject to anti-dilution provisions thereof, exercisable during the four year period commencing one year after the effective date of this Offering. In addition, see "Underwriting" for information concerning indemnification and contribution arrangements with the several Underwriters and other compensation payable to the Representative. (2) After deducting Underwriting discounts and commissions, but before deducting estimated expenses payable by the Company of $1,054,688, including the Representative's non-accountable expense allowance on the Units being sold by the Company. (3) After deducting Underwriting discounts and commissions, but before deducting the non-accountable expense allowance upon the shares sold by the Selling Shareholders payable by the Selling Shareholders to the Representative. (4) The Company and the Selling Shareholders have granted the Underwriters an option (the "Over-Allotment Option") exercisable for a period of 45 days after the date of this Prospectus to purchase an aggregate of up to an additional 937,500 shares of Common Stock and 468,750 Warrants upon the same terms and conditions set forth above, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ , and $ , respectively. The Securities are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by their counsel and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify this Offering and to reject any order in whole or in part. It is expected that delivery of the Securities offered hereby will be made against payment at the offices of Security Capital Trading, Inc., New York, New York on or about , 1998. Security Capital Trading, Inc. The date of this Prospectus is , 1998 INSIDE COVER OF PROSPECTUS-EDGAR VERSION ONLY [Trading Room and ATTAIN Screen] [Map Showing Location of All-Tech's Principal and Branch Offices and Remote Customers] [Picture of Harvey I. Houtkin and Mark D. Shefts] ATTAIN(R) is a registered trademark of All-Tech. This Prospectus also contains trademarks and trade names of other companies. - -------------------------------------------------------------------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AND WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." INFORMATION ON THE COMPANY'S WEBSITE SHALL NOT BE DEEMED TO BE PART OF THIS PROSPECTUS. ------------ The Company intends to mail to all of its shareholders an annual report containing financial statements audited by its independent accountants for each fiscal year and shall make available to all of its shareholders quarterly reports containing unaudited financial information for each of the first three quarters of each fiscal year. PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, including "Risk Factors" and the financial statements and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results suggested by the forward-looking statements and from the results historically experienced. Factors that may cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors" and elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus gives effect to a 68.75 for 1 forward stock split of the outstanding shares of Common Stock effected in May 1998 as part of the Company's reincorporation into Delaware and assumes (i) no exercise of the Underwriters' Over-Allotment Option, (ii) no exercise of the Warrants, (iii) no exercise of the Representative's Warrants and (iv) no exercise of any outstanding options. The Company All-Tech Investment Group, Inc. ("All-Tech" or the "Company"), a registereed broker-dealer, through its proprietary ATTAIN(R) trading system software, provides its customers with real-time computerized access to comprehensive price information for over-the-counter ("OTC") securities traded on The Nasdaq Stock Market ("Nasdaq") and securities traded on various national and regional exchanges, and enables its customers to instantaneously transmit buy and sell orders for execution. All-Tech also provides its customers with discounted commissions, electronic reports regarding the customer's orders and account status, customizable display screens, analytical modeling tools and news media reports. The Company has also developed and commenced operation of its ATTAIN(R) ECN (the "ATTAIN ECN"), an electronic communications network ("ECN"). ECNs provide investors an alternative trading system to traditional Nasdaq trading. Through the ATTAIN(R) trading system, subscribers can directly place buy and sell orders for Nasdaq traded stocks. Matching orders are paired off and the trade is executed by the ATTAIN ECN. Additionally, the best bid and offer in each security which is placed on the ATTAIN ECN will be displayed automatically and dynamically on a real-time basis on Nasdaq along with market maker quotations. The ATTAIN trading system permits the customer to eliminate the need to have the customer's order placed through a market maker, therefore eliminating the market maker and the costs associated with such market maker. The Company's services are primarily utilized by self-directed "day traders." Day traders actively engage in the buying and selling of securities, based on short-term price volatility, many times during the course of a day. They typically close out all open positions by the end of the day in order to manage risk when the markets are closed. Frequently, a position may be closed within minutes of the initial purchase or sale. All-Tech has over 1,500 active customers, consisting of day traders and active retail customers. The Company's average aggregate customer transaction volume has ranged between 2,500 and 3,000 trades per trading day for the last 12 months. All-Tech's customers can access All-Tech's ATTAIN trading system at All-Tech's main office, at one of its 21 branch offices or in their homes or offices through a computer connected to the ATTAIN trading system via dedicated telephone lines or the Internet. Access to the Company's ATTAIN trading system from remote locations requires the use of the Company's proprietary software, which the Company provides to its customers free of charge. All-Tech's objectives are to become the leading provider of electronic brokerage services to self-directed traders and investors and to expand the range of services and business activities engaged in by the Company. The Company's strategy to accomplish its objectives includes (i) enhancing awareness of the Company's ATTAIN trading system and ATTAIN ECN through marketing and advertising, (ii) expanding its customer base through an aggressive marketing campaign, opening additional branch offices and expanding services to attract less active traders, (iii) analyzing and exploring opportunities to commence new business activities, including electronic trading of financial instruments other than stocks and options, underwriting securities offerings, and other traditional investment banking and merchant banking activities, (iv) expanding proprietary trading and (v) pursuing opportunities to offer the Company's services internationally through use of the Internet and telecommunications systems. 3 All-Tech was incorporated in New York under the name Concord Capital Corp. in 1981. The Company changed its name to All-State Investment Group, Inc. in March 1988 and changed its name to All- Tech Investment Group, Inc. in December 1988. In May 1998, the Company reincorporated in the State of Delaware. Its principal executive offices are located at 160 Summit Avenue, Montvale, New Jersey 07645. The Company's telephone number is (201) 782-0200; its world-wide website is located at www.attain.com. Information contained in the Company's website shall not be deemed to be part of this Prospectus. The Offering Securities offered by the Company ...................... 5,625,000 shares of Common Stock and 3,125,000 Warrants. The Common Stock and the Warrants will be separately tradeable immediately following completion of this Offering. Securities offered by the Selling Shareholders ......... 625,000 shares of Common Stock. Terms of Warrants ...................................... Each Warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $12.00, subject to adjustment, at any time from , 1999 (six months after the date of this Prospectus) until , 2001 (30 months after the date of this Prospectus) and from such date until , 2004 (60 months after the date of this Prospectus) at an exercise price of $14.00 per share. Commencing , 2000 (18 months after the date of this Prospectus), the Warrants will be subject to redemption by the Company, in whole but not in part, at $0.10 per Warrant on 30 days prior written notice, provided that the average closing sale price of the Common Stock as reported on the Amex equals or exceeds $20.00 per share of Common Stock, subject to adjustment, for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemp- tion. See "Description of Capital Stock-Warrants." Securities Outstanding after the Offering: (1) Common Stock ......................................... 21,093,750 Warrants ............................................. 3,125,000 Use of Proceeds ........................................ For working capital and other general corporate pur- poses, development or acquisition of new areas of brokerage business, marketing and proprietary trading. See "Use of Proceeds." The Company will not receive any proceeds from the sale of shares of Com- mon Stock by the Selling Shareholders. See "Use of Proceeds." Proposed Amex symbols .................................. Common Stock ATN Warrants ATNW
- ------------- (1) Excludes (i) 1,500,000 shares of Common Stock issuable upon exercise of options pursuant to grants effective on the effective date of this Offering under the Company's 1998 Stock Option Plan (the "Plan") at an exercise price equal to the initial public offering price of the Common Stock and (ii) 750,000 shares of Common Stock issuable pursuant to options which may be granted under the Plan. See "Management-1998 Stock Option Plan." 4 Summary Financial Data The following summary financial data is qualified by the more detailed financial statements of the Company and the notes thereto included elsewhere in this Prospectus and should be read in conjunction with such financial statements and notes thereto and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
Years Ended June 30, -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------------- -------------- ---------------- -------------- -------------- (In thousands, except share data) Statement of Operations Data: Total revenues ............ $ 11,268 $ 14,738 $ 2,962 $ 11,075 $ 16,064 Total costs and expenses .. 10,707 14,968 2,973 9,714 14,462 Pre-tax income (loss) ..... 561 (230) (11) 1,361 1,602 Net income (loss) ......... 286 (230) (3) 751 937 Basic earnings (loss) per common share .. .02 (.02) (.00) .05 .06 Weighted average shares outstanding........ 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750 Nine Months Ended March 31, ------------------------------ 1997 1998 -------------- -------------- Statement of Operations Data: Total revenues ............ $ 11,887 $ 13,149 Total costs and expenses .. 9,551 12,920 Pre-tax income (loss) ..... 2,336 229 Net income (loss) ......... 1,727 202 Basic earnings (loss) per common share .. .11 .01 Weighted average shares outstanding........ 15,468,750 15,468,750
June 30, 1997 March 31, 1998 March 31, 1998 Actual Actual As Adjusted(1) --------------- ---------------- --------------- Balance Sheet Data: Cash and cash equivalents ......... $ 641 $ 604 $41,966 Total assets ...................... 3,799 3,046 44,358 Shareholders' equity .............. 1,855 1,886 43,199
- ------------- (1) As adjusted to give effect to the sale of 5,625,000 shares of Common Stock and 3,125,000 Warrants offered by the Company hereby at an assumed initial public offering price of $8.00 per share of Common Stock and $.10 per Warrant and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. Words or phrases such as "should result, are expected to, we anticipate, we estimate, we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. Caution should be taken not to place undue reliance on any such forward-looking statements, since such statements speak only as of the date of the making of such statements. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Prospectus. The following risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock and Warrants offered hereby. Growth of ECN; Risks of Collection of ECN Accounts Receivable All-Tech has recently developed and commenced operation of its ATTAIN ECN. The ATTAIN ECN began to generate revenues in February 1998 and is expected to become a significant source of revenues. All-Tech engages in trading for its own account, primarily utilizing the ATTAIN ECN. Any discontinuance of trading on the ATTAIN ECN by All-Tech, whether voluntarily or as a result of government regulation, could have a material adverse effect on the Company's business, financial condition and operating results. Revenues are recognized by the Company with respect to its ATTAIN ECN on a transaction date basis; users are billed monthly. The Company's accounts receivable have dramatically increased since the commencement of the operation of its ATTAIN ECN. For the period from February 1998 (commencement of the ECN) through June 15, 1998, the Company recognized ECN fee revenues of approximately $1,637,000, of which approximately $434,000, $510,000, $491,000 and $202,000 were recognized as of March 31, 1998, April 30, 1998, May 31, 1998 and June 15, 1998, respectively. As of June 15, 1998, approximately $357,000 of such ECN fees have been paid to the Company and approximately $1,280,000 of such ECN fees were unpaid outstanding accounts receivable of the Company. In addition, as of May 31, 1998, the Company had established a doubtful account reserve for ECN fees in the amount of approximately $335,000. The Company is continuously monitoring the fees it charges and such fees may either be reduced as a result of competitive pressures or to adhere to maximum fees permitted pursuant to the SEC no-action letter under which the Company operates the ATTAIN ECN. A reduction in rates unaccompanied by a rise in usage would negatively impact ATTAIN ECN revenues. The Company currently has only three (3) active ECN subscribers, one of which is owned and operated by Harry Lefkowitz, a director of the Company. However, the Company has accepted applications from an additional eight (8) broker-dealers to become ECN subscribers, and the Company is currently in the process of arranging for the necessary communication links which will allow such subscribers to access the ATTAIN ECN. As a result of the new subscribers, with respect to which the Company has agreed to charge fees which will effectively be no higher than $.005 per share, the Company may be required to lower its per transaction fee to non-subscribers to approximately $.005 once such new subscribers commence their trading activity. See "Business -- The ATTAIN ECN." There has been a great deal of discussion in the industry regarding the amount of fees non-subscribers are charged to utilize ECNs and the fact that such fees are charged upon usage and not pursuant to a contract. The Company is currently denying access to 26 former ATTAIN ECN users because they have stated to the Company that they would not pay their ATTAIN ECN bills. The Company has requested that the U.S. Department of Justice investigate what the Company believes to be misconduct of Nasdaq market making participants in their refusal to pay the Company's ECN fees. In addition, the Company has commenced an arbitration against a former significant ATTAIN ECN user to collect unpaid ECN fees. The Company has been informed by the National Association of Securities Dealers, Inc. (the "NASD") that, based upon complaints lodged by two broker-dealers, it is conducting an investigation as to whether the Company's denial of access to the ATTAIN ECN constituted "backing away." Although the Company does not believe that there is any merit to such claims, 6 and it intends to vigorously contest any such charge, there can be no assurance that such claims would not result in a formal investigation being commenced or that the Company would not incur substantial fees in contesting such claims. The Company believes that it maintains adequate reserves to account for the non-collection of its accounts receivable. However, the Company has only recently commenced billing users of the ATTAIN ECN and has very limited actual experience on which to base the amount of doubtful accounts receivable relating to revenues from the ATTAIN ECN. There can be no assurance that the rate of non-collection of accounts receivable will not increase as the level of usage of the ATTAIN ECN increases. Such an increase could materially adversely affect the Company's business, financial condition and results of operations. Although the Company intends to vigorously pursue its legal remedies to recover unpaid accounts receivable, there can be no assurance that such efforts will be successful. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Associated with Securities Business The Company, like other securities firms, is directly affected by national and international economic and political conditions, broad trends in business and finance, the level and volatility of interest rates, legislative and regulatory changes, tax law changes, currency fluctuations, inflation, flows of funds into and out of mutual and pension funds, the availability of short-term and long-term funding and capital and substantial fluctuations in volume of securities transactions, all of which may negatively affect trading volume levels generally and by the Company's customers specifically. In recent months, the U.S. securities markets have established record levels of trading which, the Company believes, has favorably impacted its business. A general decrease in trading activity on these markets could adversely affect the level of individual trading activity by All-Tech's customers, which would materially adversely affect the Company's operating results because certain expenses, consisting primarily of salaries and benefits, computer hardware and software costs and occupancy expenses, remain relatively fixed. Certain of the Company's competitors with more diverse product and service offerings may be better positioned to withstand decreased volatility in the securities markets. See "Risk Factors--Competition." Since 1988, the U.S. equity markets have generally risen and have not experienced an extended bear market. There can be no assurance that volume of trading and volatility will not substantially diminish, thereby negatively affecting the Company's commission income. All-Tech's brokerage business, by its nature, is subject to various other risks, including customer default, fraud, employees' misconduct and errors, failures in connection with the processing of securities transactions and litigation. The Company guarantees all customer transactions to its clearing broker, which extends margin credit to the Company's customers. To the extent All-Tech's customers purchase securities on margin, the Company is subject to risks inherent in the extension of credit, especially during periods of rapidly declining markets in which the value of the collateral held by the clearing firm could fall below the amount of a customer's indebtedness. Failure of customers to maintain cash deposit levels at all times at least equal to the value of the related securities could subject All-Tech to risk of loss, should the parties to the borrowing and lending transactions fail to honor their commitments. Risk can be increased dramatically during periods of volatility. Any such losses could have a material adverse effect on the Company's business, financial condition and operating results. Concentration of Services Substantially all of the Company's revenues since inception have been derived from commissions on the intraday trading activity of the Company's customers through the Company's electronic brokerage services. The Company expects that a substantial portion of its future revenues will continue to be derived from customers' day trading activity. As a result, any factor resulting in reductions in commissions received by the Company or declines in demand for the Company's electronic brokerage services would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will continue to be successful in marketing its electronic brokerage services offered through its ATTAIN trading system or any new or enhanced versions thereof. Competitive pressures or other factors in the day trading area of the securities industry may result in significant declines in the Company's commissions, which would have a material adverse effect on the Company's business, financial condition and results of operations. Policy of Regulating Authorities "Day trading" involves the buying and selling of securities based upon short-term volatility in the price of a security and closing out that position on the same trading day, perhaps within minutes of the initial purchase 7 or sale. To the extent there is a lack of intra-day volatility, the opportunities to profit from day trading will be diminished. The Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers, Inc. ("NASD") generally seek opportunities to adopt rules which tend to decrease volatility in the securities markets. To the extent that new rules or regulations or market conditions generally decrease volatility, opportunities for the Company's customers to profit from day trading will decline. Additionally, any regulatory change which limits the ability of individual investors to engage in active day trading or which disadvantages investors who participate in day trading would materially adversely affect the Company's business and results of operations. Lack of liquidity could also affect volatility. A Nasdaq proposal presently before the SEC could reduce the liquidity available from market makers to order entry firms such as All-Tech by allowing market makers to reduce the number of shares they are obligated to trade from 1,000 to 100 in all Nasdaq quoted stocks. If the proposal is approved in its present form by the SEC, such potential reduction in liquidity could be substantial. A substantial decrease in overall liquidity in the OTC market could materially adversely affect All-Tech's customers' ability to obtain execution of their orders and therefore could result in a decline in the Company's commission revenues. In addition, any decrease in trading activities of individual investors in equity securities due to tax law changes, recession, depression, increased interest rates on fixed income investments or otherwise could have a material adverse effect on the Company's business, financial condition or results of operations. Management of Growth and Changing Business Over the past several years, the Company has experienced significant growth and change in its business activities and operations. Such changes have involved the Company's brokerage business and have included providing the Company's customers with computerized access to securities price information and analysis and enabling the Company's customers to transmit buy and sell orders for execution via computer, as well as opening branch offices. The Company also commenced operating the ATTAIN ECN in February 1998. The Company is still assessing the full demands of the ATTAIN ECN on the Company's management and the Company's financial and management systems and controls. The Company's growth has required, and will continue to require, increased investment in management personnel, financial and management systems and controls and facilities. The Company's past expansion has placed, and any future expansion would place, significant demands on the Company's administrative, operational, financial and other resources. The Company intends to continue to expand its business and operations, including entry into new markets, which will place additional strain on the Company's management and operations. The Company's future operating results will depend, in part, on its ability to continue to broaden the Company's senior management group and administrative infrastructure, and its ability to attract, hire and retain skilled employees. The Company's success will also depend on the ability of its officers and key employees to continue to implement and improve the Company's operational and financial control systems and to expand, train and manage its employee base. In addition, the Company's future operating results will depend on its ability to expand its sales and marketing capabilities and expand its customer support operations commensurate with its growth, should such growth occur. If the Company's revenues do not increase in proportion to its operating expenses, the Company's management systems do not expand to meet increasing demands, the Company fails to attract, assimilate and retain qualified personnel, or the Company's management otherwise fails to manage the Company's expansion effectively, there would be a material adverse effect on the Company's business, financial condition and operating results. Dependence on Third Party Vendors The Company's viability depends on its ability to obtain for itself and its customers access to a breadth of quality and comprehensive real-time and historical financial market data from third party vendors whose products are technically compatible with the Company's ATTAIN software and its future products and services. The Company currently depends substantially upon relationships with third-party data vendors to ensure such access, including PC Quote, Inc. ("PC Quote"), Dow Jones & Company, Inc., the Nasdaq Stock Market, Inc., and other trading systems or ECNs, including Datek Securities Corp.'s Island system and Terra Nova Trading LLC's Archipelago system. Although the Company has written agreements with each of such third party vendors, if the Company's access to or use of the data provided by any of these third party vendors were interrupted or terminated, the Company would have to make alternative arrangements, either to produce such data itself or with a 8 third party or to obtain comparable data from a different third party. It has been publicly reported that PC Quote is experiencing severe financial difficulties. With respect to obtaining quotation information, which the Company currently receives from PC Quote, the Company has entered into an agreement with Standard & Poors Comstock, Inc. in order to have a readily available alternative source for quotation information. There can be no assurance, however, that similar arrangements could be accomplished in a timely and cost effective manner, if at all, or that alternative sources would be available on commercially reasonable terms, if at all. To the extent the Company experiences disruptions, its customers will be inconvenienced and may be adversely affected. As a result, the Company's relationship with such customers would be adversely affected. There is also the risk that such contractual relationships will not be renewed on terms favorable to the Company, if at all. Vendors may also strengthen their alliances with the Company's competitors, discontinue their relationships with the Company, or develop strategic initiatives which involve eliminating or limiting compatibility between the Company's services and the vendor's services. There can be no assurance that the Company will be able to increase the number of compatible data vendors available to it or encourage other trading systems to become compatible with the ATTAIN ECN, or that the Company's existing data sources will continue to exist or cooperate in maintaining technical compatibility with the Company's ATTAIN trading system or the ATTAIN ECN. If the Company were unable to secure additional key data sources and compatibility with other trading systems, or were to lose access to significant amounts of data or to significant trading systems or ECNs, the Company's business, financial condition and results of operations would be materially adversely affected. To the extent third party vendor trading systems do not timely program their trading systems to be compatible with the ATTAIN ECN, the Company's business opportunities would be adversely affected. See "Business--All-Tech's Strategy" and "--Competition." Lack of Access to Instinet ECN Instinet Corporation currently operates the largest ECN ("Instinet"), which is responsible for over 15% of all Nasdaq trading and a more significant portion of trading in the 100 most actively traded Nasdaq stocks. Historically, Instinet has offered and continues to offer its subscribers access to better stock prices than are available on Nasdaq. Instinet's customers' orders are not displayed by Instinet on Nasdaq unless the Instinet subscriber affirmatively requests that its order be displayed on Nasdaq. Additionally, only the best bid and asked quotations with respect to a specific Nasdaq traded security and for which Nasdaq display is requested by the Instinet subscriber are accessible to non-subscribers on Nasdaq. Moreover, the comprehensive list of bid and ask orders of all Instinet subscribers at any time may be viewed only by Instinet subscribers. This lack of access results in better prices for Instinet subscribers and limits the ability of individual investors, including the Company's customers, to discover trends or the magnitude of trends. Finally, Instinet subscribers are offered price improvement, while non-subscribers who access Instinet through Nasdaq do not receive price improvement. All-Tech has applied to Instinet for subscriber privileges in order to provide access to Instinet to the Company's customers, but Instinet has refused to grant privileges to All-Tech, severely limiting All-Tech's ability to offer these better execution prices to its customers. All-Tech has instituted an arbitration proceeding against Instinet, seeking to become an Instinet subscriber, as well as monetary damages, claiming that Instinet's denial of access was illegal and violates state and federal laws as well as NASD rules. Although the Company believes it has meritorious claims, there can be no assurance as to the outcome of such arbitration. Competition The marketplace for electronic trading brokerage firms is intensely competitive and rapidly changing. All-Tech believes that due to anticipated growth of the market for electronic brokerage services, active stock trading facilities and other factors, competition will substantially increase and intensify in the future. The Company believes its ability to compete will depend upon many factors both within and outside its control, including the timing and market acceptance of new services, products and enhancements developed by the Company and its competitors, functionality of such services and products, data availability, ease of use, pricing, reliability, customer service and support and sales and marketing efforts. The Company faces direct competition from a number of publicly-traded and privately-held companies. It competes directly with other firms whose customers engage in active electronic day trading, other ECN systems, large Wall Street securities firms, securities subsidiaries of major commercial bank holding companies, major 9 regional firms and smaller niche players. This competition is based primarily on the quality of services offered and price. The Company's principal competitors in providing electronic brokerage services to day traders currently include such firms as Datek Securities Corp., Terra Nova Trading, LLC. and Block Trading Corp. The Company's ATTAIN ECN competes principally with market makers, Instinet, Datek Securities Corp.'s Island ECN, Terra Nova Trading, LLC's Archipelago ECN, Bloomberg Tradebook LLC's Tradebook System ECN, Spear, Leeds & Kellogg's REDI ECN and Brass Utility Inc.'s BRUTE ECN. The Company also competes with on-line trading systems available on the Internet, such as Charles Schwab & Co., Inc., E*Trade Capital Inc. and Accutrade Inc. In addition, the Company faces competition from data vendors, which offer investment analysis software, news quotations and other securities industry products. Nasdaq has recently filed a new rule proposal with the SEC to operate a limit order file (essentially an ECN). Should this proposal be adopted and Nasdaq offers a low-cost alternative to privately operated ECNs on which substantial numbers of limit orders are reflected, this could have a negative competitive impact on the ATTAIN ECN, which could materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance whether such proposal will be approved and, if approved, when Nasdaq's ECN might become operational. Many of the Company's existing and potential competitors have longer operating histories, significantly greater financial, technical and market resources, greater name recognition and a larger installed customer base than the Company. One or more of these competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements, or to devote greater resources to the development, promotion and sale of their services and products than the Company. There can be no assurance that the Company's existing or potential competitors will not develop services and products comparable or superior to those developed by the Company or adapt more quickly than the Company to new technologies, evolving industry trends or changing customer requirements. Larger competitors are also able to advertise their products and services on a national or regional basis and may have a greater number and variety of distribution outlets for their services. On-line discount brokerage firms market their services through aggressive pricing and promotional efforts. The Company's average commission per transaction has fallen from $24.32 for the year ended June 30, 1996 to $23.05 for the nine months ended March 31, 1998, due to competitive pressures. In addition, the Company is continuously monitoring the fees it charges and such fees may either be reduced as a result of competitive pressures or to adhere to maximum fees permitted pursuant to the SEC no-action letter under which the Company operates the ATTAIN ECN. A reduction in rates unaccompanied by a rise in usage would negatively impact ATTAIN ECN revenues. See "Business -- The ATTAIN ECN." Increased competition could result in additional price reductions, reduced margins or loss of market share, any one of which could materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully against current or future competitors, or that competitive pressures faced by the Company will not have a material adverse effect on its business, financial condition and results of operations. Competition from commercial banks may increase because of recent acquisitions of securities firms by commercial banks, as well as internal expansion by commercial banks into the securities business. In addition, the Company expects competition from domestic and international banks to increase as a result of recent and anticipated legislative and regulatory initiatives in the United States to remove or relieve certain restrictions on commercial banks. See "Business--Competition." Competition for Retaining and Recruiting Personnel The Company's business is dependent on the highly skilled, and often highly specialized, individuals it employs. Retention of sales, trading, management and administrative professionals is particularly important to the Company's prospects. From time to time, other companies in the securities industry have experienced losses of sales and trading personnel as well as management and administrative professionals. The level of competition for key personnel is expected to increase due to the increasing number of companies offering electronic brokerage services and ECNs. There can be no assurance that losses of key personnel due to such competition or otherwise will not occur in the future. The loss of such professionals, particularly a senior professional, could adversely affect the Company's growth and operating results. 10 The Company expects further growth in the number of its personnel. Additionally, the Company expects that continuing competition will cause its compensation costs to increase in the future. There can be no assurance that the Company will be able to recruit a sufficient number of new employees with the desired qualifications in a timely manner. The failure to recruit new employees could materially and adversely affect the Company's future operating results. While the Company generally does not have employment agreements with its employees, it attempts to retain its employees with incentives, such as bonuses. Additionally the Company intends to issue options to buy Company stock that vest over a number of years of employment. These incentives, however, may be insufficient in light of the increasing competition for experienced professionals in the securities industry, particularly if the value of the Company's stock declines or fails to appreciate sufficiently to be a competitive incentive for professional compensation. See "Business--Employees" and "Management." Dependence on Key Personnel The Company is substantially dependent upon the efforts and skills of its executive officers, particularly Harvey I. Houtkin and Mark D. Shefts, the Company's Chairman of the Board and Chief Executive Officer, and its President, Chief Operating Officer and Chief Financial Officer, respectively. The loss of the services of either of these executive officers would have a material adverse effect on the Company. The Company has entered into employment agreements with both Messrs. Houtkin and Shefts and is applying for key man life insurance on the lives of Messrs. Houtkin and Shefts in the amount of $1,000,000 each, payable to the Company. The benefits received under these policies would not be sufficient to compensate the Company for the loss of the services of Mr. Houtkin or Mr. Shefts should suitable replacements not be employed. There can be no assurance that key man insurance will be obtained in such amount, if at all. See "Management--Employment Agreements; Key Man Insurance." Significant Fluctuations in Quarterly Operating Results The Company's revenues and operating results may fluctuate from quarter to quarter and from year to year due to a combination of factors, including access to public markets, fluctuations in the valuation of securities in which the Company has invested as a principal, the level of retail and institutional brokerage transactions, variations in expenditures for personnel, litigation expenses and expenses of establishing new business units. In addition, the timing of the Company's recognition of revenue from a significant transaction can materially affect the Company's quarterly operating results. Due to the foregoing and other factors, there can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Securities Regulation in General The securities business is subject to extensive regulation under federal and state laws in the United States and the rules and regulations of self regulatory organizations ("SROs"), such as the NASD and the various exchanges, and is also subject to regulation in the foreign countries in which All-Tech may wish to conduct its activities. One of the most important regulations with which the Company must continually comply is Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the "Net Capital Rule"), which requires the Company to maintain a minimum amount of net capital, as defined under such Rule. Compliance with many of the regulations applicable to the Company involves a number of risks, particularly in areas where applicable regulations may be subject to interpretation. In the event of non-compliance with an applicable regulation, governmental regulators and the NASD may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), issuance of cease-and-desist orders, deregistration or suspension of the non-compliant broker-dealer or investment adviser, suspension or disqualification of the broker-dealer's officers or employees or other adverse consequences. The imposition of any such penalties or orders on the Company could have a material adverse effect on the Company's operating results and financial condition. 11 The Company's ability to engage in business is also regulated by the terms of its NASD membership agreement. The Company's membership agreement currently permits the Company to engage in the following business activities: broker or dealer retailing corporate equity securities over-the-counter; broker or dealer retailing corporate debt securities; mutual fund retailer; put and call broker or dealer or option writer; broker or dealer selling tax shelters or limited partnerships; non-exchange member arranging for transactions in listed securities by an exchange member; market maker in corporate OTC securities; municipal securities broker or dealer; underwriter or selling group member in firm commitment and best efforts offerings; and trading for the Company's account. Activities which are not currently permitted by the Company's membership agreement include the following: exchange member engaged in exchange commission business, other than floor activities; exchange member engaged in floor activities; mutual fund underwriter or sponsor; U.S. government securities dealer; broker or dealer selling variable life insurance or annuities; solicitor of time deposits in a financial institution; real estate syndicator; broker or dealer selling oil and gas interests; broker or dealer selling securities of only one issuer or associated issuers; broker or dealer selling securities of non-profit organizations; investment advisory services; and broker or dealer selling interests in mortgages or other receivables. To the extent new business activities are not already permitted under that agreement, the Company is required to seek modification of the agreement. While the Company is not currently seeking any modifications to its membership agreement, there can be no assurance that any modification which may be requested will be made on a timely basis, if at all. The failure to obtain such modification would prohibit the Company from engaging in the activity at issue and could impair the Company's ability to grow or to expand into other areas or business. Underwriting commitments, should the Company engage in underwriting and they be incurred, require a charge against net capital and, accordingly, the Company's ability to make underwriting commitments in the future, should it determine to do so, may be limited by the requirement that it must at all times be in compliance with the applicable net capital regulations. See "Business--Government Regulation." The regulatory environment in which the Company operates is subject to change. The Company may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other United States or foreign governmental regulatory authorities or SROs. The Company also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and the NASD. Furthermore, the Company's businesses may be materially affected not only by regulations applicable to it as a financial market intermediary, but also by regulations of general application. Benefits of the Offering to Current Shareholders Upon completion of this Offering, the current shareholders of the Company will realize significant benefits, including, (i) the creation of a public market for their securities, (ii) assuming the Offering price of the Common Stock included in the Units is $8.00 per share, the receipt of approximately $4,600,000 in net proceeds from the sale of 625,000 shares of Common Stock included in the Units (and an additional $3,450,000 in net proceeds, assuming the Over-Allotment Option is exercised in full, from the sale of an additional 468,750 shares of Common Stock included in the Units subject to the underwriter's Over-Allotment Option), (iii) an unrealized gain of approximately $117.1 million with respect to the securities owned by the Company's parent, Rushmore, which is wholly-owned by Messrs. Mark D. Shefts and Harvey I. Houtkin, shareholders, officers and directors of the Company and (iv) the Company will repay $611,000 of borrowings to Rushmore. In addition, the current shareholders will experience an immediate increase in book value per share owned by them from $.12 per share to $1.93 per share, while the purchasers of Common Stock in this Offering will experience immediate substantial dilution as described above. Potential Conflicts of Interest The Company engages in proprietary trading and acts as a market maker. Therefore, the Company may be competing with its own customers with respect to certain trades. In addition, executive officers, directors and employees of the Company invest in public companies in which the Company acts as a market maker or in which the Company performs proprietary trading. Accordingly, there are certain risks that, as a result of such investment or profits interest, a director, officer or employee may take actions which would conflict with the best interests of the Company. All-Tech Training Group, Inc. ("ATTG") trains potential customers of the Company. The Company, if these trainees open All-Tech accounts, offers them per trade rebates up to, in the aggregate, the 12 amount a customer paid for his or her training. ATTG is owned by a company, Rushmore Financial Services, Inc. ("Rushmore"), which is wholly owned by Harvey I. Houtkin and Mark D. Shefts, officers and directors of the Company. Messrs. Houtkin and Shefts perform duties for other companies directly or indirectly owned by them, such as ATTG and various real estate companies, as well as trade for accounts owned or controlled by them. Although neither Mr. Houtkin nor Mr. Shefts spends a substantial amount of time on such activities at the present time, there can be no assurance that their duties as directors or officers of such other entities will not present conflicts of interest with their duties to the Company in the future. See "Business--Proprietary Trading" and "Certain Transactions." Risk Associated with Increased Trading The Company has recently executed a joint back office agreement and a stock purchase agreement with its clearing firm, which agreements have not yet been executed by the clearing firm or approved by the New York Stock Exchange. In the event that the agreements are executed by the clearing firm and are approved by the New York Stock Exchange, of which no assurance can be given, such agreements would permit All-Tech to trade the Company's proprietary account at increased margin levels. Such increased leverage will permit the Company to greatly increase the amount of proprietary trading it engages in. Proprietary trading subjects the Company to risk of loss of the capital invested; trading at such a highly leveraged rate increases the risk of loss proportionately. Any losses, if significant, would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Proprietary Trading." Risks Associated with Entry into Institutional Market The Company has historically sold its services primarily to individuals and has little experience in marketing its services directly to institutions. The Company believes its future success will depend in part on its ability to move beyond its traditional customer base and market its services to institutions, including brokerage firms with whom the Company currently competes. There can be no assurance that the Company's services will be accepted by institutional investors, which could have a material adverse effect on the Company's business growth. See "Business--All-Tech's Strategy." Rapid Technological Change and Dependence on New Services Electronic stock trading is characterized by rapidly changing technology, evolving industry standards in computer hardware, programming tools, programming languages, operating systems, database technology and information delivery systems, changes in customer requirements and frequent new service introductions and enhancements. The Company's future success will depend upon its ability to maintain and develop competitive technologies, to continue to enhance its current services and to develop and introduce new services in a timely and cost-effective manner that meets changing conditions such as evolving customer needs, new competitive service offerings, emerging industry standards and changing technology. Any failure by the Company to anticipate or to respond quickly to changing market conditions, or any significant delays in development or introduction of new services, could cause potential customers to delay or decide against utilizing the Company's services and existing customers to conduct their trading at competitors of the Company, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--All-Tech's Strategy" and "--Future Growth and Development." Risks Associated with Future Reliance on the Internet The Company believes that future development of its service and customer base, and the future growth of the Company, particularly outside of the United States, depends in part upon the utilization of the Internet as a widely used medium for communication of trading information and the delivery of high-quality financial market data, orders, account status information and customer support. The Company currently has a limited number of customers who communicate with the Company via the Internet. If the number of customers accessing All-Tech through the Internet increases, the Company will have to develop additional Internet technical compatibility and adjust its marketing and customer support approaches accordingly. There can be no assurance that the 13 Company will accomplish any of such tasks on a timely, cost-effective basis, if at all. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by this continued growth. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of Internet activity, or due to governmental regulation. Global commerce and online exchange of information on the Internet and other similar open wide area networks are new and evolving; therefore, it is difficult to predict whether Internet technology developments will keep pace with the demand for Internet services. If the necessary infrastructure or complementary services do not continue to be developed, or if the Internet does not continue as a viable commercial marketplace, or if the Company does not adequately and timely develop the necessary technical compatibility and adjust its marketing and customer support approaches accordingly, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--Regulatory Background and Development of Active Electronic Trading" and "--All-Tech's Strategy." Risk of Software Defects As a result of their complexity, all software products, including the Company's software, may contain errors. Despite testing by the Company and initial use by customers, when new services and products are introduced or new versions of services and products are released, there can be no assurance that errors will not be found and persist after commencement of use, resulting in loss of revenues, delay in market acceptance or damage to the Company's reputation, any of which could have a material adverse effect upon the Company's business, financial condition and results of operations. All software is inherently limited by the accuracy of the data utilized. The monitoring, collection, storage and delivery of financial market data by data vendors and by the Company's software is inherently complex; therefore, it is subject to delay and to containing errors. The effectiveness of the Company's services is limited by the accuracy of such data. See "Business--Services--ATTAIN Trading System." Risk of Litigation; Lack of Insurance Coverage There has been substantial litigation in the software industry involving intellectual property rights. Although the Company does not believe that it is infringing the intellectual property rights of others, or that others are infringing on its intellectual property rights, there can be no assurance that infringement claims, if asserted against the Company, would not have a material adverse effect on the Company's business, financial condition and results of operations, or that any infringement claim asserted by the Company would be successfully resolved. The Company and an affiliate instituted an arbitration against Instinet Corporation for wrongful denial of service, seeking access to the Instinet ECN as well as monetary damages. The Company has limited access to Instinet, the largest ECN, through Nasdaq and through its clearing firm. The Company's failure to obtain full access to Instinet could have a material adverse effect on the Company's ability to provide the best trading opportunities to its customers and on the Company's business, financial condition and results of operations. There can be no assurance as to the outcome of this arbitration. In June 1998, the Company instituted an arbitration against Knight Securities, Inc. ("Knight") by filing a Statement of Claim with the NASD. The arbitration seeks compensatory damages in the amount of $97,537.50, punitive damages in the amount of $500,000, as well as interest, costs, and disbursements and attorneys fees. The arbitration was commenced as a result of Knight's refusal to pay the Company's ECN fees arising from Knight's entering trades involving OTC securities with the ATTAIN ECN. The allegations set forth in the Statement of Claim include claims based upon breach of contract, quantum meruit and fraud. The Company is also currently denying access to Knight, as well as approximately 25 other ATTAIN ECN users, because they have stated to the Company that they will not pay their ATTAIN ECN bills. The Company intends to vigorously pursue its legal remedies to recover unpaid accounts receivable. However, there can be no assurance that such efforts will be successful. The Company has requested that the U.S. Department of Justice investigate what the Company believes to be misconduct of the market making participants in their refusal to pay the Company's ECN fees. In addition, 14 the Company has been informed by the NASD that, based upon complaints lodged by two broker-dealers, it is conducting an investigation as to whether the Company's denial of access to the ATTAIN ECN constituted "backing away." Although the Company does not believe that there is any merit to such claims, and it intends to vigorously contest any such charge, there can be no assurance that such claims would not result in a formal investigation being commenced or that the Company would not incur substantial fees in contesting such claims. As the Company's services are designed to enable investors to make improved investment and trading decisions, an investor who uses the Company's services and sustains losses or fails to make profits in the securities or financial markets may allege that the Company's services contributed to or resulted in such losses or lost profits and that the Company should be held liable to the investor for such losses. While the Company's account documentation contains certain warnings and disclaimers, they may not be effective in certain jurisdictions or under certain circumstances. The Company currently does not maintain errors and omissions insurance to cover such liability risks, and there can be no assurance that such insurance would be available to the Company on reasonable terms, or at all, or, if obtained, that such insurance would be adequate to cover the amount of such liabilities, if imposed on the Company, or that such insurance would cover the types of claims which might be asserted against the Company. While the Company has never had such a claim successfully asserted against it, there can be no assurance that such claims will not be asserted and that, if asserted, the results will not materially adversely affect the Company's business, financial condition and results of operations. See "Business--Services." Risks Associated with International Expansion A component of the Company's strategy is its planned expansion into international markets. This strategy is dependent, in part, on international customers having access to the appropriate financial market data and on the Company's ability to provide such potential customers with brokerage services under the laws of that jurisdiction. To date, the Company has only limited experience in marketing, selling and delivering its services internationally. There can be no assurance that the Company will be able to successfully market, sell and deliver its services in international markets. In addition, there are certain risks inherent in doing business on an international level, including unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, dependence upon strategic partners needed to succeed in certain countries, difficulties in protecting intellectual property rights, longer payment cycles, problems in collecting accounts receivable, political instability, unfamiliarity with local laws and customs, fluctuations in currency exchange rates, and potentially adverse tax consequences. There can be no assurance that one or more of such or other factors will not have a material adverse effect on the Company's ability to expand into international markets or on the Company's future international operations if any, and, consequently, on the Company's business, financial condition and results of operations. There can be no assurance that the Company will expand into international markets. See "Business--Sales and Marketing." Dependence upon Microsoft's Windows Operating System The Company's services are currently designed for use on computers using Microsoft's 32-bit Windows operating system, requiring Windows 95 and Windows NT. The Company may attempt to modify its software to take advantage of later versions of the Windows operating system, such as Windows 98, by Microsoft. To the extent any such later version is not compatible with Windows 95, All-Tech's customers trading from their own locations ("remote customers") would be required to purchase such new version. Any factor adversely affecting the demand for, or the current trends of increasing and expanding use of, the current Windows operating system could have an impact on demand for the Company's services, causing a material adverse effect on the Company's business, financial condition and results of operations. Additionally, changes to the underlying components of the Windows operating system may require changes to the Company's ATTAIN trading system and ECN software. If the Company is not able to successfully develop or implement appropriate modifications to its ATTAIN trading system and ECN software in a timely fashion, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--Services--The ATTAIN Trading System." Emerging Market for Electronic Trading The market for computer-automated investment and trading on personal computers is relatively new and will be subject to frequent and continuing changes. Any future growth of this market depends upon continued 15 customer acceptance of this type of trading as a viable method of implementing trading strategies. Historically, the Company's policy has been that prospective customers be educated as to the potential advantages of the Company's services and be trained in the trading strategies appropriate for this type of trading. The Company expects that the need for such education will continue for the foreseeable future. There can be no assurance that the Company will be successful in obtaining a sufficient number of educated customers or that the Company will be able to respond effectively to changing customer preferences in this market. If the size of the market is substantially smaller than the Company believes, or if the market for electronic trading fails to grow or grows more slowly than the Company currently anticipates, or if the Company fails to respond effectively to the evolving requirements of this market, the Company's business, financial condition and results of operations would be materially adversely affected. See "Business--Overview." The education of prospective customers in electronic day trading strategies is conducted almost wholly by ATTG, a wholly-owned subsidiary of Rushmore, a company which is wholly owned by Messrs. Harvey Houtkin and Mark Shefts, Chairman of the Board, Chief Executive Officer and Secretary and President, Chief Operating Officer, Chief Financial Officer and Treasurer, respectively, of the Company. A substantial number of the Company's customers have received training from ATTG. Should ATTG determine to discontinue this business, the Company would have to develop its own educational capabilities or purchase ATTG's operations. The Company has no current intention of developing its own training capabilities. See "Certain Transactions." Protection of Intellectual Property The Company's success is heavily dependent upon its proprietary technology. The Company relies primar-ily on a combination of copyright, trade secret and trademark laws, non-disclosure and other contractual provisions and technical measures to protect its proprietary rights. The Company seeks to protect its software, documentation and other written materials through trade secret and copyright laws, which provide only limited protection. As part of its confidentiality procedures, the Company enters into non-disclosure agreements with its employees, consultants and third party vendors. The Company uses agreements with its customers and ATTAIN ECN subscribers in order to protect its copyrights and trade secrets and to prevent such users from commercially exploiting such copyrights and trade secrets for their own gain. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may copy or otherwise obtain, use or exploit the Company's products or technology independently. Policing unauthorized use of the Company's products is difficult, and the Company is unable to determine the extent to which unauthorized use, if any, of its software products exists. Piracy can be expected to be a persistent problem, particularly in international markets and as a result of the growing use of the Internet. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries, including some in which the Company may attempt to expand its sales efforts. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies or products, either of which could result in a material adverse effect on the Company's business, financial condition and results of operations. There has been substantial litigation in the software industry involving intellectual property rights. The Company does not believe that it is infringing the intellectual property rights of others. There can be no assurance that infringement claims would not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, to the extent that the Company acquires or licenses a portion of the software or data included in its software from third parties, its exposure to infringement actions may increase because the Company must rely upon such third parties for information as to the origin and ownership of such acquired or licensed software or data. In the future, litigation may be necessary to establish, enforce and protect trade secrets, copyrights, trademarks and other intellectual property rights of the Company. The Company may also be subject to litigation to defend against claimed infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. Any such litigation could be costly and divert management's attention, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties, which could be expensive, or prevent the Company from selling its services or using its trademarks, any one of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Intellectual Property and Other Proprietary Rights." 16 Risks Associated with Possible Acquisitions The Company may acquire businesses, assets, products and technologies that the Company believes could complement or expand the Company's business. The Company currently has no specific plan, commitments or agreements with respect to any acquisitions and there can be no assurance that the Company will be able to identify any appropriate acquisition candidates. If the Company identifies an acquisition candidate, there can be no assurance that the Company will be able to successfully negotiate the terms of any such acquisition, finance such acquisition or integrate such acquired business, assets, products or technologies into the Company's existing business. Furthermore, the negotiation of potential acquisitions as well as the integration of an acquired business could cause diversion of management's time and resources, and require the Company to use proceeds from this Offering to consummate a potential acquisition. See "Business--All-Tech's Strategy." Possibility of Losses Associated with Principal and Trading Activities The Company's securities trading and market-making activities as principal subject the Company's capital to significant risks, including market, credit, leverage, counter-party and liquidity risks. Sudden sharp declines in market values of securities can result in illiquid markets and the failure of issuers and counterparties to perform their obligations, as well as increases in claims and litigation. In such markets, the Company may incur reduced revenues or losses in its principal trading activities. These activities often involve the purchase, sale or short sale of securities as principal in markets that may be characterized by relative illiquidity or that may be particularly susceptible to rapid fluctuations in liquidity and price. The Company intends to use a portion of the net proceeds from this Offering for its proprietary trading activities. See "Business." Year 2000 The Company's review of its own operating systems does not indicate any Year 2000 problems. However, the Company is highly dependent on third party vendors. Failures and interruptions, if any, resulting from the inability of certain computing systems of third party vendors, including the Company's clearing broker, to recognize the Year 2000 could have a material adverse effect on the Company's results of operations. There can be no assurance that the Year 2000 issue can be resolved by any of such third parties prior to the upcoming change in the century. Although the Company may incur substantial costs, particularly costs resulting from increased charges by its third party service providers, as a result of such third party service providers correcting Year 2000 issues, such costs are not sufficiently certain to estimate at this time. Lack of Off-Site Disaster Recovery Facility The Company's principal disaster recovery system is located at the Company's principal offices. The Company's principal backup recovery system includes (i) backup computers which are standing by which have already been loaded with duplicate software to run the ATTAIN trading system and ATTAIN ECN, (ii) additional "shadow" T-1 communication lines which will be used in the event that the primary T-1 communication lines used by the Company's Internet customers fail, (iii) ISDN communications lines which serve as backup to the T-1 communication lines which connect the Company to its branch offices, and (iv) T-1 communication lines which serve as backups to the satellite transmission feeds from which the Company obtains its quotation information. Finally, all of the Company's servers, routers and communication equipment is connected to uninteruptable power supplies for protection in the event of short-term electrical outages. No off-site disaster recovery system exists at this time. Recently, the Company experienced certain systems failure resulting from the malfunctioning of two telecommunications satellites, which resulted in the Company being unable to obtain listed quotation information at all of its offices for that trading day and any quotation information at a majority of its branch offices for the trading day. The Company has since implemented a full high speed wire back-up system which will allow the Company to obtain quotations and other information in the event of any future satellite malfunctions. There can be no assurance that the Company will not suffer any other systems failure or interruption, including one caused by a fire, other natural disaster, power or telecommunications failure, act of God, act of war or otherwise, or that the Company's back-up procedures and capabilities in the event of any such failure or interruption, in light of the fact that they are not off-site, will be adequate. 17 Dependence upon Availability of Capital and Funding The Company's business is dependent upon the availability of adequate required capital under applicable regulatory requirements. Historically, the Company has satisfied these needs from internally generated funds. While the proceeds of the Offering can be expected to satisfy the Company's funding and capital needs for the next 12 months, there can be no assurance that any, or sufficient, funding or regulatory capital will continue to be available to the Company thereafter on terms that are acceptable to it. The Company's ability to expand and grow its business in accordance with its current plan, to make acquisitions and to meet its long-term capital requirements beyond any such 12-month period will depend on many factors, including, but not limited to, the receipt of the net proceeds of this Offering, the rate, if any, at which the Company's cash flow increases, the ability and willingness of the Company to accomplish acquisitions and develop new business areas with its capital stock, and the availability to the Company of additional public and private subordinated debt and/or equity financing. No assurance can be given that additional financing will be available or that, if available, it will be available on terms favorable to the Company. See "Use of Proceeds," "Business--Government Regulation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Broad Discretion of Management in Use of Proceeds The Company has not made specific allocations for the use of the net proceeds from the sale by the Company of the Common Stock and Warrants offered hereby. Rather, the Company intends to use the net proceeds primarily for general corporate purposes, including principal investments and working capital. Accordingly, management will have significant discretion in applying the net proceeds of the Offering. See "Use of Proceeds." Control by Insiders Prior to this Offering, all of the outstanding shares of Common Stock are held by Harvey I. Houtkin, Chairman, Chief Executive Officer and Secretary of the Company, Mark D. Shefts, President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company, and Rushmore, a company wholly owned by Messrs. Houtkin and Shefts. Upon completion of the Offering, Messrs. Houtkin and Shefts will beneficially own in the aggregate 70.4% of the outstanding Common Stock (and 66.7% of the Common Stock if the Over-Allotment Option is exercised in full) and therefore will be able to control the outcome of all corporate actions requiring shareholder approval. Therefore, investors' ownership of Common Stock will not provide them with any ability to determine the outcome of matters requiring a shareholder vote, including the election of directors, and any merger, consolidation or sale of all or substantially all of the Company's assets. Additionally Messrs. Houtkin and Shefts shall effectively retain control over the management and affairs of the Company through their significant stock ownership. Such concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company or a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. See "Management" and "Principal and Selling Shareholders." Speculative Nature of the Warrants The Warrants do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price for a limited period of time. Specifically, commencing , 1999 (six months after the date of this Prospectus), through , 2001 (30 months after the date of this Prospectus), holders of the Warrants may exercise their right to acquire Common Stock at an exercise price of $12.00 per share (150% of the initial public offering price of the Common Stock), and commencing , 2001 (30 months after the date of this Prospectus), holders of Warrants may exercise their right to acquire Common Stock at an exercise price of $14.00 per share (175% of the initial public offering price of the Common Stock), subject to adjustment upon the occurrence of certain dilutive events, until , 2004 (60 months after the date of this Prospectus), after which date any unexercised Warrants will expire and have no further value. Moreover, following the completion of the Offering, the market value of the Warrants will be uncertain and there can be no assurance that the market value of the Warrants will equal or exceed their initial public offering price. There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the Warrants and, consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants. 18 Potential Adverse Effect of Redemption of Warrants Commencing , 2000 (18 months after the date of this Prospectus), the Warrants will be subject to redemption by the Company at $.10 per Warrant on thirty days prior written notice to the warrantholders if the average closing sale price of the Common Stock as reported on the Amex equals or exceeds $20.00 per share of Common Stock for any 20 trading days within a period of thirty (30) consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. If the Warrants are redeemed, holders of the Warrants will lose their right to exercise the Warrants after the expiration of the 30-day notice of redemption period. Upon receipt of a notice of redemption, holders would be required to: (i) exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for them to do so, (ii) sell the Warrants at the current market price, if any, when they might otherwise wish to hold the Warrants or (iii) accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Capital Stock--Warrants." Legal Restrictions on Sale of Shares Underlying the Warrants The Warrants are not exercisable unless, at the time of the exercise, the Company has a current prospectus covering the shares of Common Stock issuable upon exercise of the Warrants, and such shares have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the exercising holder of the Warrants. Although the Company has agreed to use its best efforts to keep a registration statement covering the shares of Common Stock issuable upon the exercise of the Warrants effective for the term of the Warrants, if it fails to do so for any reason, the Warrants may be deprived of value. Additionally, the Company has the right, under certain circumstances, to redeem the Warrants. If the Company does not have a current prospectus on or before the redemption date, the Warrants may be deprived of value. The Shares and Warrants are detachable and separately transferable immediately following completion of the Offering. Purchasers may buy Warrants in the aftermarket in or may move to jurisdictions in which the shares underlying the Warrants are not so registered or qualified during the period that the Warrants are exercisable. In this event the Company would be unable to issue shares of Common Stock underlying the Warrants. Holders of Warrants would have no choice but to attempt to sell the Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. See "Description of Capital Stock." Possible Issuance of Preferred Stock; Barriers to Takeover The Company's Certificate of Incorporation and By-Laws, as well as Delaware corporate law, contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. Certain of these provisions impose various procedural and other requirements that could make it more difficult for shareholders to effect certain corporate actions. The Company's Certificate of Incorporation also authorizes the Board of Directors to issue, without shareholder approval, 5,000,000 shares of Preferred Stock with voting, conversion and other rights and preferences that could adversely affect the voting power or other rights of the holders of Common Stock. Following the Offering, no shares of Preferred Stock of the Company will be outstanding. Any issuances of Preferred Stock could be used for anti-takeover purposes or to discourage, delay or prevent a change of control of the Company. See "Description of Capital Stock." Absence of Prior Market; Possible Volatility of Securities Prices; Arbitrary Determination of Offering Prices Prior to the Offering, there has been no public market for the Common Stock or the Warrants, and there can be no assurance that an active public market will develop or, if developed, will be sustained following the Offering. Certain factors, such as sales of the Securities into the market by existing shareholders, fluctuations in operating results of the Company or its competitors, market conditions for similar stocks, and market conditions generally for other companies in the investment banking industry or in the financial services or technology industries, could cause the market price of the Common Stock and the Warrants to fluctuate substantially. In addition, the stock market has experienced significant price and volume fluctuations that have particularly 19 affected the market prices of equity securities of companies and that have often been unrelated to the operating performance of such companies. Accordingly, the market price of the Securities may decline even if the Company's operating results or prospects have not changed. The initial public offering prices of the Securities and the terms of the Warrants will be determined through negotiations among the Company, the Selling Shareholders and the Representative and shall not necessarily bear any relationship to the Company's book value, assets, past operating results, financial condition or any other established criteria of value. There can be no assurance that the Securities offered by this Prospectus will trade at market prices in excess of the initial public offering prices. See "Underwriting." Potential Decreases in the Market Price of Securities Resulting from Future Sales of Securities Sales of a substantial number of shares of Common Stock and Warrants in the public market, whether by purchasers in the Offering or other shareholders of the Company, could adversely affect the prevailing market price of the Securities and could impair the Company's future ability to raise capital through an offering of its equity securities. Without giving effect to exercise of the Underwriters' Over-Allotment Option, there will be 21,093,750 shares of Common Stock and 3,125,000 Warrants outstanding immediately after completion of the Offering, of which 6,250,000 shares of Common Stock and all of the Warrants will be freely tradeable in the public markets, subject, if purchased by "affiliates", to the volume and other limitations set forth in Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 14,843,750 shares of Common Stock outstanding immediately following the Offering will be "restricted" securities, as that term is defined under Rule 144. Under lock-up agreements (the "Lockup Agreements") each existing shareholder has agreed that such shareholder will not directly or indirectly sell, assign or otherwise transfer any shares of Common Stock for a period of twelve (12) months after the effective date of the Offering, unless released by the Representative. Any shares subject to the Lockup Agreements may be released by the Representative at any time without notice to the public. All of such 14,843,750 shares of Common Stock would be eligible for sale, subject to compliance with the volume limitations of Rule 144 by the holders of these shares commencing upon the later of (i) ninety (90) days after the effective date of the Offering or (ii) the expiration or waiver of the Lockup Agreements. See "Shares Eligible for Future Sale" and "Underwriting." Immediate and Substantial Dilution Purchasers of Common Stock in the Offering will experience immediate substantial dilution of $5.95 based on the net tangible book value of the Company at March 31, 1998, and on an initial public offering price of $8.00 per share and $.10 per Warrant. See "Dilution." Lack of Experience of Representative Security Capital Trading, Inc., the Representative, commenced operations in June 1995. The Representative has only co-managed two recent public offerings of securities; therefore, the Representative does not have extensive experience as a co-manager or underwriter of public offerings of securities. The Underwriters are required to make an independent investigation reasonably calculated to reveal all facts pertinent to a prudent investor regarding the Company and the price of the securities offered hereby. See "Underwriting." Limited Marketing Capabilities The Company's operating results will depend to a large extent on its ability to successfully market the ATTAIN trading system, the ATTAIN ECN and other services to public customers who are active traders and who require real-time market information. In addition, the Company also hopes to market its services to institutions, including brokerage firms. The Company currently has limited marketing capability. The Company intends to use a portion of the proceeds of the Offering to hire additional sales and marketing personnel and conduct additional advertising. There can be no assurance that any marketing efforts undertaken by the Company will be successful or will result in any significant increase in usage of the ATTAIN trading system, the ATTAIN ECN or other services of the Company. See "Business--All-Tech's Strategy." 20 No Dividends and None Anticipated Although the Company has paid dividends on the Common Stock in the past, it is anticipated that income received from operations, if any, will be retained for the Company's future operations. Accordingly, no dividends are anticipated in the future. See "Dividend Policy." Limitation on Liability of Directors The Company's Certificate of Incorporation limits personal liability of directors to the fullest extent permitted by the General Corporation Law of the State of Delaware. In addition, the Company's By-Laws provide for indemnification of directors, officers, employees or agents of the Company under certain circumstances. See "Description of Capital Stock." 21 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 5,625,000 of the shares of the Common Stock and 3,125,000 Warrants offered hereby by the Company, based on an assumed initial public offering price of $8.00 per share and $.10 per Warrant, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, are estimated to be $41,312,500 ($44,805,600 assuming exercise of the Over-Allotment Option in full). The net proceeds will be used for general corporate purposes, the development or acquisition of new areas of the brokerage business, advertising and marketing, principal investments, proprietary trading activities and working capital, including the repayment of a loan in the amount of $611,000 to the Company's parent, Rushmore. The Company will not receive any of the proceeds from the sale of the shares of Common Stock by the Selling Shareholders. See "Principal and Selling Shareholders." DIVIDEND POLICY The Company has declared and paid cash dividends on its capital stock in the past. The Company currently intends to retain all of its earnings, if any, for use in its business and does not anticipate paying any dividends in the foreseeable future. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon a number of factors, including future earnings, the success of the Company's business activities, regulatory capital requirements, the general financial condition and future prospects of the Company, general business conditions and such other factors as the Board of Directors may deem relevant. 22 DILUTION The pro forma net tangible book value of the Company as of March 31, 1998 (after giving effect to the Company's Delaware reincorporation and 68.75 for 1 forward stock split that occurred in May 1998), was approximately $1,835,000 or $.12 per share of Common Stock. Pro forma net tangible book value per share represents the Company's pro forma tangible assets less total liabilities divided by the number of shares of Common Stock outstanding as of March 31, 1998. Dilution per share represents the difference between the amount per share paid by purchasers of shares of Common Stock in the Offering made hereby and the pro forma net tangible book value per share of Common Stock immediately after completion of the Offering. Without taking into account any changes in such pro forma net tangible book value after March 31, 1998, other than to give effect to the sale of 5,625,000 shares of Common Stock and 3,125,000 Warrants (but not the Underwriters' Over-Allotment Option) by the Company in this Offering at an assumed initial pubic offering price of $8.00 per share and $.10 per Warrant and the application of the estimated net proceeds therefrom (after deducting the underwriting discount and commissions and estimated Offering expenses), the pro forma as adjusted net tangible book value of the Company as of March 31, 1998, would have been approximately $43,148,000, or $2.05 per share assuming no value is attributed to the Warrants. This represents an immediate increase an pro forma net tangible book value of $1.93 per share to existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of $5.95 per share to new investors. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share ................................... $8.00 Pro forma net tangible book value per share as of March 31, 1998........ $ .12 Increase per share attributable to Offering............................. 1.93 ----- Pro forma as adjusted net tangible book value per share after the Offering......... 2.05 ----- Dilution per share to new investors ............................................... $5.95 =====
The following table summarizes, on a pro forma basis as of March 31, 1998, the difference between the total consideration paid for the number of shares of Common Stock purchased from the Company and the average price per share paid by existing shareholders and by new investors purchasing shares of Common Stock pursuant to this Offering.
Shares Purchased Total Consideration ------------------------ ------------------------- Average Price Number Percent Amount Percent Per Share ------------ --------- ------------- --------- -------------- Existing Shareholders ......... 15,468,750 73.3% $ 1,682,595 3.6% $ .11 New Investors ................. 5,625,000 26.7 45,000,000 96.4 $ 8.00 ---------- ---- ----------- ---- Total ...................... 21,093,750 100% $46,682,595 100% ========== ==== =========== ====
23 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1998 (i) on an actual basis and (ii) as adjusted to reflect the sale by the Company of 5,625,000 shares of Common Stock and 3,125,000 Warrants offered hereby at an assumed initial public offering price of $8.00 per share and $.10 per Warrant, and the receipt of the estimated net proceeds therefrom, after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. This table should be read in conjunction with the financial statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
March 31, 1998 ----------------------------- Actual As Adjusted ------------ -------------- Shareholders' equity:(1) .......................................... Preferred Stock, $.01 par value, 5,000,000 shares authorized, none outstanding .................................................... $ -- $ -- Common Stock, $.001 par value, 55,000,000 shares authorized, 15,468,750 shares outstanding, actual; and 21,093,750 shares outstanding, as adjusted(2) .................................... 15,469 21,094 Additional paid-in capital ....................................... 1,548,299 42,855,174 Retained earnings ................................................ 321,757 321,757 ---------- ----------- Shareholders' equity ........................................... 1,885,525 43,198,025 ---------- ----------- Total capitalization ........................................ $1,885,525 $43,198,025 ========== ===========
- ------------ (1) After giving effect to the Delaware reincorporation and the recapitalization. (2) Excludes as of March 31, 1998: 2,250,000 shares of Common Stock reserved for issuance under the Company's 1998 Stock Option Plan, none of which had been granted. The Company intends to grant 1,500,000 of such options, such grant to be effective upon the effective date of this Offering. See "Management--1998 Stock Option Plan" and Note 11 of Notes to financial statements. 24 SELECTED FINANCIAL DATA The following table sets forth selected financial information with respect to the Company as of and for the periods indicated. The financial information as of and for the years ended June 30, 1993, June 30, 1994, 1995, 1996 and 1997, has been derived from the audited financial statements of the Company. The financial information as of and for the nine months ended March 31, 1997 and 1998 has been derived from unaudited financial statements of the Company, which in the opinion of Management have been prepared on the same basis as the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. The results of operations for the nine months ended March 31, 1998, are not necessarily indicative of results to be expected for the full fiscal year. This selected financial information should be read in conjunction with the financial statements and Notes thereto and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
Years Ended June 30, ---------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------------- ---------------- ---------------- -------------- -------------- (in thousands, except share data) STATEMENTS OF OPERATIONS DATA: Revenues: Brokerage ................... $ 12,524 $ 15,113 $ 2,826 $ 10,704 $ 15,393 Trading ..................... (1,256) (377) 115 64 132 ECN ......................... -- -- -- -- -- Other ....................... -- 2 21 307 539 ------------ ----------- ----------- ------------ ------------ Total revenues ............. 11,268 14,738 2,962 11,075 16,064 ------------ ----------- ----------- ------------ ------------ Costs and Expenses: Cost of services ............ 4,659 6,925 1,494 5,218 7,307 Technology development ................ 86 38 43 209 366 Selling, general and administrative expenses: Employee compensa- tion and benefits .......... 4,720 6,667 741 2,376 4,679 Occupancy costs ............. 55 96 67 106 386 Other ....................... 1,187 1,242 628 1,805 1,724 ------------ ----------- ----------- ------------ ------------ Total costs and expenses .................. 10,707 14,968 2,973 9,714 14,462 ------------ ----------- ----------- ------------ ------------ Income (loss) before provision for income taxes ....................... 561 (230) (11) 1,361 1,602 Provision (benefit) for income taxes ............ 275 (0) (8) 610 665 ------------ -------------- -------------- ------------ ------------ Net income (loss) ............ $ 286 $ (230) $ (3) $ 751 $ 937 ============ ============= ============= ============ ============ Earnings (loss) per share $ .02 $ (.02) $ (.00) $ .05 $ .06 ============ ============= ============= ============ ============ Weighted average shares outstanding ................. 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750 ============ ============= ============= ============ ============ Nine Months Ended March 31, -------------------------------- 1997 1998 -------------- -------------- STATEMENTS OF OPERATIONS DATA: Revenues: Brokerage ................... $ 11,267 $ 12,423 Trading ..................... 139 (147) ECN ......................... -- 434 Other ....................... 481 439 ------------ ------------ Total revenues ............. 11,887 13,149 ------------ ------------ Costs and Expenses: Cost of services ............ 5,118 5,585 Technology development ................ 232 344 Selling, general and administrative expenses: Employee compensa- tion and benefits .......... 2,507 3,857 Occupancy costs ............. 276 795 Other ....................... 1,418 2,339 ------------ ------------ Total costs and expenses .................. 9,551 12,920 ------------ ------------ Income (loss) before provision for income taxes ....................... 2,336 229 Provision (benefit) for income taxes ............ 609 27 ------------ ------------ Net income (loss) ............ $ 1,727 $ 202 ============ ============ Earnings (loss) per share $ .11 $ .01 ============ ============ Weighted average shares outstanding ................. 15,468,750 15,468,750 ============ ============
June 30, ---------------------------------------------------- 1993 1994 1995 1996 1997 March 31, 1998 -------- -------- -------- -------- -------- --------------- (in thousands) BALANCE SHEET DATA: Cash and cash equivalents ......... $ 106 $ 84 $ 37 $ 177 $ 641 $ 604 Total assets ...................... 2,906 1,716 1,657 3,263 3,799 3,046 Total liabilities ................. 1,157 197 141 996 1,944 1,161 Shareholders' equity .............. 1,749 1,519 1,516 2,267 1,855 1,886
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements. Words or phrases such as "should result, are expected to, we anticipate, we estimate, we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Prospectus that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. Caution should be taken not to place undue reliance on any such forward-looking statements, since such statements speak only as of the date of the making of such statements. General The Company is a registered securities broker/dealer which provides its customers with computerized access to securities price information and enables its customers to transmit buy and sell orders for execution. The Company also operates an electronic communications network, the ATTAIN ECN, on which subscribers may post bids and offers for OTC securities. Substantially all of the Company's revenues to date have been derived from commissions on customer transactions. In fiscal 1995, the Company temporarily substantially discontinued dealing with retail customers and its principals concentrated on market making activities in an affiliated company, Domestic Securities, Inc. ("DSI"), due to regulatory changes. DSI is a wholly-owned subsidiary of Rushmore, a company which is wholly-owned by Messrs. Harvey I. Houtkin and Mark D. Shefts, shareholders, officers and directors of the Company. The decision to discontinue the Company's retail business related to the drop in the amount of retail business generated by the Company following modifications to the SOES rules adopted by the NASD. The rule revisions limited the maximum SOES order to 500 shares, down from 1,000 shares and prohibited short selling on SOES. The principals of the Company assessed that these changes were detrimental to its operations and were advantageous to market makers. Accordingly, the principals of the Company determined to focus their efforts on market making activities through DSI. DSI competed on the basis of price rather than the more traditional practice of buying order flow. Due to certain price fixing conventions, the market making business engaged in by the Company's principals through DSI proved unsuccessful. Subsequently, in 1995, the SOES rules modifications were rescinded and thereafter, in fiscal 1996, the Company's principals returned their focus to All-Tech and its brokerage business. The Company's ATTAIN ECN began to generate revenues in February 1998 and is expected to become a significant source of revenues. Results of Operations The following table sets forth, for the periods indicated, the percentage of revenues represented by the items reflected in the Company's Statement of Operations.
Nine Months Ended March Years Ended June 30, 31, -------------------------------------- ----------------------- 1995 1996 1997 1997 1998 ------------ ---------- ---------- ---------- ---------- Revenues: Brokerage commissions and fees ............... 95.4% 96.6% 95.8% 94.8% 94.5% Trading gains (losses) ....................... 3.9 0.6 0.8 1.2 ( 1.1) ECN fees ..................................... 0.0 0.0 0.0 0.0 3.3 Other ........................................ 0.7 2.8 3.4 4.0 3.3 ----- ----- ----- ----- ----- Total Revenues ................................ 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Costs and Expenses: Cost of services ............................. 50.4 47.1 45.5 43.0 42.5 Technology development ....................... 1.5 1.9 2.3 2.0 2.6 Selling, general and administrative expenses: Employee compensation and benefits ......... 25.0 21.5 29.1 21.1 29.3 Occupancy costs ............................ 2.3 0.9 2.4 2.3 6.1 Other ...................................... 21.2 16.3 10.7 11.9 17.8 ----- ----- ----- ----- ----- Total Costs and Expenses ...................... 100.4 87.7 90.0 80.3 98.3 ----- ----- ----- ----- ----- Income (loss) before provision for income taxes ................... ( 0.4) 12.3 10.0 19.7 1.7 Provision (benefit) for income taxes .......... ( 0.3) 5.5 4.2 5.1 .2 ----- ----- ----- ----- ----- Net income (loss) ............................. ( 0.1)% 6.8% 5.8% 14.6% 1.5% ===== ===== ===== ===== =====
26 Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997 Revenues. Total revenues increased approximately $1.2 million or 10.1% to $13.1 million for the nine months ended March 31, 1998 from $11.9 million for the nine months ended March 31, 1997. This increase resulted primarily from an increase in brokerage commissions and fees of approximately $.4 million from the Company's ATTAIN ECN which the Company commenced operating on February 17, 1998, offset by trading losses of approximately $.3 million. The Company believes that it has established adequate doubtful account reserves for non-collection of ECN fees receivable as of March 31, 1998. Since the Company has very limited actual experience on which to base the amount of doubtful account reserve, there can be no assurance that such reserve will be sufficient. Brokerage commissions and fees increased approximately $1.1 million or 10% to $12.4 million for the nine months ended March 31, 1998, from $11.3 million for the same period in fiscal 1997. The increase in brokerage commissions and fees resulted primarily from an increase in the number of customer transactions processed by the Company. Customer transactions for the nine months ended March 31, 1998 were approximately 539,000 compared to 472,000 for the comparable period in fiscal 1997, an increase of 14%. Average commissions per transaction declined from $23.88 for the nine months ended March 31, 1997, to $ 23.05 for the same period in fiscal 1998. Trading revenue declined approximately $286,000 or 206% from $139,000 for the nine months ended March 31, 1997 to $(147,000) for the nine months ended March 31, 1998. Other income decreased by approximately $42,000 or 9% to $439,000 from $481,000. This decrease is primarily attributable to a decrease in branch office and remote set-up fees of $71,000 or 16% to $366,000 from $437,000 and a decrease in book sales of $34,000 or 100%, offset by an increase in interest income of $22,000 or 220% from $10,000 to $32,000 and a net increase of other miscellaneous income of $41,000. Cost of Services. Cost of services increased approximately $.5 million or 10% to $5.6 million for the nine months ended March 31, 1998 from $5.1 million for the comparable period in fiscal 1997. This increase is primarily attributable to the increase in customer transactions processed in the nine months ended March 31, 1998 and to the increase in lower margin customer transactions generated by the branch offices. Technology Development. Technology development costs increased approximately $112,000 or 48% to $344,000 for the nine months ended March 31, 1998, from $232,000 for the comparable period in fiscal 1997. This increase is primarily attributable to the hiring of additional personnel to enhance, improve and maintain the Company's extensive data processing activities and the ATTAIN trading system and ECN software. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $2.8 million or 67% to $7.0 million for the nine months ended March 31, 1998 from $4.2 million for the comparable period in fiscal 1997. The increase was primarily attributable to (i) an increase in employee compensation and benefits of $1.4 million or 56%, of which executive officers' salaries increased $.2 million or 13% (of which the entire $.2 million is attributable to executive officers' bonuses), (ii) an increase in occupancy costs of $.5 million or 167% and (iii) increases in other selling, general and administrative expenses of $.8 million or 57% consisting primarily of increases in data processing costs, professional fees and other general office and operating expenses. These overall increases in selling, general and administrative expenses were primarily the result of the openings of additional branch offices. Provision for Income Taxes. Provision for income taxes represents the expense recognized by the Company for federal and state income taxes at an effective rate of 12% for the nine months ended March 31, 1998, and 26% for the comparable period in fiscal 1997. Provision for income taxes decreased approximately $583,000 or 96% to $27,000 for the nine months ended March 31, 1998 from $610,000 for the nine months ended March 31, 1997. Net Income. Net income decreased approximately $1.5 million or 88% to $.2 million for the nine months ended March 31, 1998 from $1.7 million for the nine months ended March 31, 1997. Year Ended June 30, 1997 Compared to Year Ended June 30, 1996 Revenues. Total revenues increased approximately $5.0 million or 45% to $16.1 million for the year ended June 30, 1997 from $11.1 million for the year ended June 30, 1996. Brokerage commissions and fees increased 44% to $15.4 million for the year ended June 30, 1997 from $10.7 million for fiscal 1996. The increase in brokerage commissions and fees resulted primarily from an increase in the number of customer 27 transactions processed by the Company. The Company processed approximately 653,000 customer transactions for the year ended June 30, 1997, compared to 444,000 for fiscal 1996, or an increase of 47%. Average commissions per transaction declined from $24.32 for the year ended June 30, 1996, to $23.79 for fiscal 1997. Other income increased by approximately $232,000 or 76% to $539,000 from $307,000. This increase is primarily attributable to an increase in branch office and remote set-up fees of $264,000 or 122% to $480,000 from $216,000, an increase in interest income of $9,000 or 150% from $6,000 to $15,000, and an increase in other miscellaneous income of $8,000, offset by a decrease in book sales of $49,000 or 59% from $83,000 to $34,000. Cost of Services. Cost of services increased approximately $2.1 million or 40% to $7.3 million in fiscal 1997 from $5.2 million in fiscal 1996. The increase in cost of services is attributable to an increase in customer transactions processed by the Company. Technology Development. Technology development costs increased approximately $157,000 or 75% to $366,000 in fiscal 1997 from $209,000 in fiscal 1996. This increase is primarily attributable to the hiring of additional personnel to enhance, improve and maintain the Company's data processing activities and ATTAIN trading system and ECN software. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $2.5 million or 58% to $6.8 million in fiscal 1997 from $4.3 million in fiscal 1996. The increase was primarily attributable to (i) an increase in employee compensation and benefits of $2.3 million or 96%, of which executive officers' salaries increased $1.4 million or 88%, (of which the entire $1.4 million or 467% increase is attributable to executive officers' bonuses) (ii) an increase in occupancy costs of $.3 million or 300% and (iii) a net decrease in other selling, general and administrative expenses of $.1 million or 6%. These overall increases in selling, general and administrative expenses were primarily the result of the openings of additional branch offices. Provision for Income Taxes. Provision for income taxes represents the expense recognized by the Company for federal and state income taxes at an effective rate of 41% for fiscal 1997 and 45% for fiscal 1996. Provision for income taxes increased approximately $55,000 or 9.0% to $665,000 for the year ended June 30, 1997 from $610,000 for the year ended June 30, 1996. Net Income. Net income increased approximately $186,000 or 25% to $937,000 for fiscal 1997 from $751,000 for fiscal 1996. Year Ended June 30, 1996 Compared to Year Ended June 30, 1995 Revenues. Total revenues increased approximately $8.1 million to $11.1 million for the year ended June 30, 1996 from $3.0 million for the year ended June 30, 1995. Brokerage commissions and fees increased approximately $7.9 million to $10.7 million in fiscal 1996 from $2.8 million in fiscal 1995. This increase in brokerage commissions and fees in fiscal 1996 is primarily attributable to the resumption of active retail brokerage services. In fiscal 1995 the Company temporarily discontinued its retail brokerage business due to regulatory changes in the rules governing SOES trading. Other income increased by approximately $286,000 to $307,000 from $21,000. This increase is primarily attributable to an increase in branch office and remote set-up fees of $216,000 from $0 to $216,000, and an increase in book sales of $70,000 to $83,000 from $13,000. Cost of Services. Cost of services increased approximately $3.7 million or 247% to $5.2 million in fiscal 1996 from $1.5 million in fiscal 1995. The increase in cost of services is attributable to an overall increase in customer transactions processed by the Company due to the resumption of active retail brokerage activities in fiscal 1996. Technology Development. Technology development costs increased approximately $166,000 or 386% to $209,000 in fiscal 1996 from $43,000 in fiscal 1995. This increase was primarily attributable to the hiring of additional personnel to enhance, improve and maintain the Company's continuously expanding data processing operations. 28 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $2.9 million or 207% to $4.3 million in fiscal 1996 from $1.4 million in fiscal 1995. The increase was primarily attributable to (i) an increase in employee compensation and benefits of $1.7 million or 243%, of which executive officers' salaries increased $1.0 million or 167%, (including an increase in executive officers' bonuses of $.3 million, or 300%) and (ii) increases in other selling, general and administrative expenses of $1.2 million or 200%, consisting primarily of increases in data processing costs, professional fees and other general office and operating expenses. These increases in selling, general and administrative expenses were the result of the resumption of retail brokerage activities in fiscal 1996. Provision (Benefit) for Income Taxes. Provision for income taxes represents the expense recognized by the Company for federal and state income taxes at an effective rate of 45% for fiscal 1996 and 0% for fiscal 1995. Provision (benefit) for income taxes increased approximately $617,000 to $610,000 for the year ended June 30, 1996 from ($7,000) for the year ended June 30, 1995. Net Income (Loss). Net income (loss) increased approximately $754,000 to $751,000 for fiscal 1996 from ($3,000) for fiscal 1995. 29 Quarterly Results The following table sets forth certain unaudited quarterly financial data for the seven quarters ended March 31, 1998. In the opinion of the Company's management, this unaudited information has been prepared on the same basis as the audited financial statements contained herein and includes all adjustments (consisting of normal recurring adjustments) necessary to present fairly the information set forth therein when read in conjunction with the Financial Statements and Notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period.
Three Months Ended September 30, December 31, March 31, 1996 1996 1997 --------------- -------------- ----------- (In thousands) Revenues: Brokerage commissions and fees .................... $ 3,152 $ 3,946 $ 4,168 Trading gains (losses) ....... 77 204 (142) ECN fees ..................... -- -- -- Other ........................ 79 225 177 -------- -------- ------- Total revenues .............. 3,308 4,375 4,203 -------- -------- ------- Costs and expenses: Cost of services ............. 1,420 1,857 1,840 Technology development ................. 77 78 76 Selling, general and administrative expenses: Employee compensation and benefits ............... 367 833 1,305 Occupancy costs ............. 55 105 116 Other ....................... 306 460 654 -------- -------- ------- Total costs and expenses 2,225 3,333 3,991 -------- -------- ------- Income (loss) before provision for income taxes ........................ 1,083 1,042 212 Provision (benefit) for income taxes ................. 305 305 -- -------- -------- ------- Net income (loss) ............. $ 778 $ 737 $ 212 ======== ======== ======= As a Percentage of Total Revenues ---------------------------------------------- Revenues: Brokerage commissions and fees .................... 95.3% 90.2% 99.2% Trading gains (losses) ....... 2.3 4.7 ( 3.4) ECN fees ..................... -- -- -- Other ........................ 2.4 5.1 4.2 ----------- -------- ------- Total revenues .............. 100.0 100.0 100.0 ----------- -------- ------- Costs and expenses: Cost of services ............. 42.9 42.4 43.8 Technology development ....... 2.4 1.8 1.8 Selling, general and administrative expenses: Employee compensation and benefits ............... 11.1 19.1 31.0 Occupancy costs ............. 1.7 2.4 2.8 Other ....................... 9.2 10.5 15.6 ----------- -------- ------- Total costs and expenses 67.3 76.2 95.0 ----------- -------- ------- Income (loss) before provision for income taxes ........................ 32.7 23.8 5.0 Provision (benefit) for income taxes ................. 9.2 7.0 -- ----------- -------- ------- Net income (loss) ............. 23.5% 16.8% 5.0% =========== ======== ======= Three Months Ended June 30, September 30, December 31, March 31, 1997 1997 1997 1998 ------------ --------------- -------------- ------------ (In thousands) Revenues: Brokerage commissions and fees .................... $ 4,126 $ 4,041 $ 4,518 $ 3,864 Trading gains (losses) ....... (6) 68 (34) (181) ECN fees ..................... -- -- -- 434 Other ........................ 57 176 260 3 ---------- -------- ------- -------- Total revenues .............. 4,177 4,285 4,744 4,120 ---------- -------- ------- -------- Costs and expenses: Cost of services ............. 2,190 1,755 1,705 2,125 Technology development ................. 134 121 129 95 Selling, general and administrative expenses: Employee compensation and benefits ............... 2,174 1,202 1,494 1,161 Occupancy costs ............. 110 240 288 267 Other ....................... 304 632 675 1,032 ---------- -------- ------- -------- Total costs and expenses 4,912 3,950 4,291 4,680 ---------- -------- ------- -------- Income (loss) before provision for income taxes ........................ (735) 335 453 (560) Provision (benefit) for income taxes ................. 55 80 92 (145) ---------- -------- ------- -------- Net income (loss) ............. $ (790) $ 255 $ 361 $ (415) ========== ======== ======= ======== Revenues: Brokerage commissions and fees .................... 98.8% 94.3% 95.2% 93.8% Trading gains (losses) ....... (0.2) 1.6 (0.7) (4.4) ECN fees ..................... -- -- -- 10.5 Other ........................ 1.4 4.1 5.5 .1 ---------- -------- ------- -------- Total revenues .............. 100.0 100.0 100.0 100.0 ---------- -------- ------- -------- Costs and expenses: Cost of services ............. 52.4 41.0 35.9 51.6 Technology development ....... 3.2 2.8 2.7 2.3 Selling, general and administrative expenses: Employee compensation and benefits ............... 52.1 28.1 31.5 28.2 Occupancy costs ............. 2.6 5.6 6.1 6.5 Other ....................... 7.3 14.7 14.2 25.0 ---------- -------- ------- -------- Total costs and expenses 117.6 92.2 90.4 113.6 ---------- -------- ------- -------- Income (loss) before provision for income taxes ........................ (17.6) 7.8 9.6 (13.6) Provision (benefit) for income taxes ................. 1.3 1.9 2.0 ( 3.5) ---------- -------- ------- -------- Net income (loss) ............. (18.9)% 5.9% 7.6% (10.1)% ========== ======== ======= ========
30 The Company expects to experience significant fluctuations in future quarterly operating results that may be caused by many factors, including, but not limited to, the timing of introductions of enhancements to financial services and products offered by the Company or its competitors; market acceptance of financial services and products; changes in transaction volume on the securities markets; trends in the securities markets; domestic and international regulation of the brokerage industry; changes in pricing policies by the Company or its competitors; changes in strategy; the success of or costs associated with acquisitions or other strategic relationships; changes in key personnel; seasonal trends; the extent of expansion; the mix of sales; changes in the level of operating expenses to support projected growth; and general economic conditions. Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast, and the Company believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. It is likely that the Company's future quarterly operating results from time to time will not meet the expectations of securities analysts or investors, which may have an adverse effect on the market price of the Company's Common Stock and the Warrants. The securities industry is subject to extensive regulation under federal, state and applicable international laws. As a result, the Company is required to comply with many complex laws and rules and its ability to do so is dependent in large part upon the establishment and maintenance of a qualified compliance system. See "Risk Factors--Securities Regulation in General." Liquidity and Capital Resources The Company has financed its activities in the periods discussed above from cash provided by operations. The Company currently anticipates that its available cash resources from operations and the net proceeds of this Offering will be sufficient to meet its presently anticipated working capital and capital expenditure requirements for at least the next 12 months. During April 1998, the Company borrowed, on an interest-free basis, an aggregate of $611,000 from its parent, Rushmore, in order to provide additional funds for the Company's proprietary trading activities. The loan remains outstanding as of the date hereof and is payable on demand. The Company intends to repay such loan with a portion of the net proceeds of the Offering. For the period from February 1998 (commencement of the ECN) through June 15, 1998, the Company recognized ECN fee revenues of approximately $1,637,000, of which approximately $434,000, $510,000, $491,000 and $202,000 were recognized as of March 31, 1998, April 30, 1998, May 31, 1998 and June 15, 1998, respectively. As of June 15, 1998, approximately $357,000 of such ECN fees have been paid to the Company and approximately $1,280,000 of such ECN fees are unpaid outstanding accounts receivable of the Company. In addition, as of June 15, 1998, the Company had established a doubtful account reserve in the amount of approximately $335,000. The Company is continuously monitoring the fees it charges and such fees may either be reduced as a result of competitive pressures or to adhere to maximum fees permitted pursuant to the SEC no-action letter under which the Company operates the ATTAIN ECN. A reduction in rates unaccompanied by a rise in usage would negatively impact ATTAIN ECN revenues. See "Business -- The ATTAIN ECN." To the extent that the Company continues to have difficulty in realizing its ECN receivables, the Company's liquidity and results of operations could be adversely impacted. Cash provided by operating activities was $257,000 for the nine months ended March 31, 1998, compared to $2,185,000 for the nine months ended March 31, 1997. This decrease in cash provided by operating activities of $1,928,000 was primarily attributable to a decrease in net income of $1,525,000, and a net increase in operating assets over liabilities of $686,000, offset by an increase in depreciation of $139,000 and an increase in allowance for doubtful accounts of $144,000. Cash provided by operating activities was $1,312,000 for the year ended June 30, 1997, compared to $195,000 for the year ended June 30, 1996. This increase in cash provided by operating activities of $1,525,000 was primarily attributable to an increase in net income of $187,000, a net decrease in operating assets over liabilities of $851,000, an increase in depreciation of $35,000 and a non-cash charge for abandoned equipment of $44,000. Cash provided by operating activities was $195,000 for the year ended June 30, 1996 compared to $1,000 for the year ended June 30, 1995. This increase in cash provided by operating activities of $194,000 was primar-ily attributable to an increase in net income of $754,000 and an increase in operating assets over liabilities of $569,000, offset by an increase in depreciation of $9,000. Cash used by investing activities was $283,000 for the nine months ended March 31, 1998, compared to $243,000 for the nine months ended March 31, 1997. Cash used in investing activities for the years ended June 30, 1997, 1996 and 1995 was $381,000, $43,000 and $97,000, respectively. Cash used in investing activities is attributable to purchases of property and equipment. 31 Cash used by financing activities was $12,000 for the nine months ended March 31, 1998, compared to $694,000 for the nine months ended March 31, 1997. This decrease in cash used is primarily attributable to decreased loan activities with the Company's parent, affiliate and related parties during 1998, offset by deferred offering costs in 1998. Cash used in financing activities was $466,000 in fiscal 1997, an increase from $12,000 in fiscal 1996. This increase is primarily attributable to dividends paid of $1,350,000 and a net repayment of a loan to the parent in the amount of $900,000. Cash used in financing activities was $12,000 in fiscal 1996, an increase from cash provided of $49,000 in fiscal 1995. This increase is primarily attributable to decreased loan activity. Recently Issued Accounting Standards Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Since the Company intends to set the exercise price of the Company's employee stock options to be granted prior to this Offering equal to the market price of the underlying stock on the date of grant, no compensation expense will be recognized. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The new rules are effective for both interim and annual financial statements for the periods ending after December 15, 1997. SFAS 128 supersedes APB No. 15 to conform earnings per share with international standards as well as to simplify the complexity of the computation under APB No. 15. The previous primary earnings per share ("EPS") calculation is replaced with a basic EPS calculation. The basic EPS differs from the primary EPS calculation in that the basic EPS does not include any potentially dilutive securities. Fully dilutive EPS is replaced with diluted EPS and should be disclosed regardless of dilutive impact to basic EPS. Accordingly, the Company has adopted SFAS 128 effective December 31, 1997. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement, which is effective for fiscal years beginning after December 15, 1997, expands or modifies disclosures and should have no impact on the Company's financial position, results of operations or cash flows. Year 2000 The Company's review of its own operating systems does not indicate any Year 2000 problems. However, the Company is highly dependent on third party vendors. Failures and interruptions, if any, resulting from the inability of certain computing systems of third party vendors, including the Company's clearing broker to recognize the Year 2000 could have material adverse effect on the Company's results of operations. There can be no assurance that the Year 2000 issue can be resolved by any of such third parties prior to the upcoming change in the century. Although the Company may incur substantial costs, particularly costs resulting from increased charges by its third party service providers, as a result of such third party service providers correcting Year 2000 issues, such costs are not sufficiently certain to estimate at this time. Trends The Company anticipates that its average commission per customer transaction will continue to decline in order to remain competitive. 32 BUSINESS The following discussion of the Company's business contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Prospectus. Overview All-Tech, a registerd broker dealer, through its proprietary ATTAIN trading system software, provides its customers with real-time computerized access to comprehensive price information for OTC securities traded on Nasdaq and securities traded on various national and regional exchanges, and enables its customers to instantaneously transmit buy and sell orders for execution. All-Tech also provides its customers with discounted commissions, electronic reports regarding the customer's orders and account status, customizable display screens, analytical modeling tools and news media reports. The Company has also developed and commenced operation of its ATTAIN ECN, an electronic communications network ("ECN"). ECNs provide investors an alternative trading system to traditional Nasdaq trading. Through the ATTAIN trading system, subscribers can directly place buy and sell orders for Nasdaq traded stocks. Matching orders are paired off and the trade is executed by the ATTAIN ECN. Additionally, the best bid and offer in each Security which is placed on the ATTAIN ECN will be displayed automatically and dynamically on a real-time basis on Nasdaq along with market maker quotations. The ATTAIN trading system permits the customer to eliminate the need to have the customer's order placed through a market maker, therefore eliminating the market maker and the costs associated with such market maker. The Company's services are primarily utilized by self-directed traders who engage in "day trading." Day traders engage in the buying and selling of securities many times during the course of a day based on short-term price volatility. They typically close out all open positions by the end of the day in order to manage risk when the markets are closed. Frequently, a position may be closed within minutes of the initial purchase or sale. All-Tech has over 1,500 active customers, consisting of day traders and active retail customers. The Company's average aggregate customer transaction volume has ranged between 2,500 and 3,000 trades per trading day for the last 12 months. All-Tech's customers can access All-Tech's ATTAIN trading system at All-Tech's main office, at one of its 21 branch offices or in their homes or offices through a computer connected to the ATTAIN trading system via dedicated telephone lines or the Internet. Access to the Company's ATTAIN trading system from remote locations requires the use of the Company's proprietary software, which the Company provides to its customers free of charge. All-Tech's objectives are to become the leading provider of electronic brokerage services to self-directed traders and investors and to expand the range of services and business activities engaged in by the Company. The Company's strategy to accomplish its objectives includes (i) enhancing awareness of the Company's ATTAIN trading system and ATTAIN ECN through marketing and advertising, (ii) expanding its customer base through an aggressive marketing campaign, opening additional branch offices and expanding services to attract less active traders, (iii) analyzing and exploring opportunities to commence new business activities, including electronic trading of financial instruments other than stocks and options, underwriting securities offerings, and other traditional investment banking and merchant banking activities, and (iv) pursuing opportunities to offer the Company's services internationally through use of the Internet and telecommunications systems. Regulatory Background and Development of Active Electronic Trading The National Association of Securities Dealers Automated Quotations System was developed by Harris Corporation and commenced operating in the early 1970s. For the first time there was a uniform public display of over-the-counter securities prices. This ability to discover prices is called transparency. Several years later the NASD purchased this system from Harris. Today, Nasdaq provides a dynamic display of quotes from both market makers (broker/dealers which agree to continuously buy and sell securities at their posted prices) and ECNs (electronic trading systems which display bids to buy and offers to sell Nasdaq securities received from subscribers of the ECN and which match bids and offers for the same security at the same price). 33 In 1984, Nasdaq developed the Small Order Execution System ("SOES"). SOES is a computerized, order execution system which automatically executes small retail orders to buy or sell securities against market makers quoting the best price available. Each market maker is required to execute orders received, up to the size of its quotation, while that quotation is outstanding (the "Firm Quote Rule", a violation of which is called "backing away"). During the market break of October 1987, many Nasdaq market makers informally withdrew from their markets by refusing to answer the telephone. In the illiquid Nasdaq market which resulted, prices then declined precipitously as customers were left with no way to obtain execution of their orders. Following a number of governmental studies of the problem, the NASD required market maker participation in SOES. Market makers could no longer back away because they would receive up to five automatic executions of up to 1,000 shares each. At about the same time All-Tech began to utilize SOES to execute customer orders. The sudden receipt by market makers of these executed orders upset them because they could no longer engage in backing away. The market makers pressured the NASD to eliminate SOES trading, and for several years the Company and other firms utilizing SOES in this manner were subjected to the highest level of scrutiny by the NASD. As a result, the NASD found that the Company had violated certain SOES rules and imposed fines and the NASD suspended the Company from utilizing SOES for seven months in 1988. Additionally, as a result of market maker pressure, the NASD adopted rules designed to severely curtail active trading on SOES. These rules negatively impacted the Company's earnings in the fiscal years ended June 30, 1992 through 1994 by causing the Company to incur significant legal expenditures in connection with its legal battles with the NASD and in the fiscal year ended June 30, 1995, by substantially reducing the number of shares which could be traded via SOES. The Company and its principals opposed entrenched industry interests and undertook to enhance the Company's business outlook by bringing pressure to bear to level the playing field for public investors, which the Company believed would encourage them to risk becoming active traders. In 1996, the United States Department of Justice ("DOJ") and the SEC entered into agreements with 24 major market makers and with the NASD, respectively. The DOJ and SEC concluded that these market makers had colluded to fix prices and maintain artificially wide spreads in the over-the-counter market and found that the NASD had, at the urging of market makers, subjected firms such as the Company to disparate treatment, to their detriment. In 1996, the SEC adopted rules which brought about sweeping changes in the structure of the over-the-counter market and were very beneficial for the Company and its customers, as well as to public companies and their shareholders. These rules, known as the Order Handling Rules, permitted the creation and operation of electronic communication networks (ECNs). The Order Handling Rules require market makers to display certain limit orders in their quotations or to send those orders to an ECN for display. The increased regulatory emphasis on enforcing compliance with the duty of brokers to obtain the best execution for their customers has fostered the growing importance of ECNs, which provide an ever-increasing source of liquidity (having a ready market to buy or sell stock) in the over-the-counter market. See "--Government Regulation." The growth in importance of the ECNs reduces the reliance of the market on quotes from market makers, who continue to lobby the NASD, the SEC and the Congress for ways to reduce their Firm Quote Rule obligations. Applicable Nasdaq Rules Active trading is dependent upon liquidity -- the ability to buy or sell stock at any given time. Until recently, this liquidity was primarily provided by Nasdaq and an alternative trading system called Instinet. Both systems display quoted bid and ask prices for stock and have automatic execution capacity. However, the liquidity on Instinet is available only to institutional customers and certain brokerage firms. In addition, until recently, liquidity on Nasdaq was defined by certain SOES rules, and was either 1,000, 500 or 200 shares, depending on the trading characteristics of each particular stock. Thus, active electronic traders generally traded the most highly capitalized stocks with high trading volume, the Nasdaq 100, trading at least 1,000 shares at a time (the maximum permitted by applicable SOES rules). When active electronic trading was first popularized, each market maker was obligated for five trades of 1,000 shares each at its posted bid or ask quote (the number regulatory officials thought necessary after the 1987 market break). As a result of pressure by market makers, that number of trades has been brought down to two trades of 1,000 shares each, and for 150 Nasdaq selected stocks, market makers are obligated to trade only 100 shares at their posted quote before being given 17 seconds 34 to change that quote. Since the adoption of the Order Handling Rules, ECNs have provided an increasing share of liquidity to the public, lessening, to a certain extent, dependence on market maker quotations. Simultaneously, market makers have continued to press their case to be able to quote all stocks for as little as 100 shares and at their urging the NASD has submitted a rule proposal to the SEC for its approval to accomplish this goal. Services The Company's services are offered to its customers through its proprietary trading system, ATTAIN, which was designed to serve the person actively trading his or her own account. Customers can trade securities at All-Tech's main office, at one of its 21 nationwide branch offices, or from their home or office "remotely." The ATTAIN Trading System Trading. The Company's proprietary ATTAIN trading system is a fully automated system by which a customer can transmit an order for exchange listed or OTC stocks and for equity and index options to the Company for execution. Through the ATTAIN trading system, the customer can place a long or short, market or limit order (good til canceled, day or limited time period). The Company then, through the ATTAIN trading system, instantaneously reviews the order for compliance with regulatory, margin and risk management guidelines, transmits the order to the customer selected marketplace for execution and immediately and dynamically notifies the customer of the status of that order, as well as of the customer's account generally. With just three mouse clicks a customer can place an order to buy or sell a security. In a fraction of a second the order is sent to the marketplace chosen by the customer--a Nasdaq electronic trading system, an ECN such as ATTAIN or a stock exchange. Because All-Tech's customers generally choose a marketplace with automatic execution capacity, the execution frequently takes place within several seconds. The customer electronically receives immediate confirmation of the trade execution. Executions through the ATTAIN trading system always take place at the price and on the market the customer, not the Company, deems best. The Company does not participate in payment for order flow arrangements. Broker/dealers that participate in payment for order flow arrangements receive a per share fee for all orders sent to a particular market maker. The Company believes that the sale of its customers' orders for a fee would represent a conflict of interest and influence the choice of where these orders are sent, perhaps not in the customer's best interest. All-Tech's customers therefore frequently receive price improvement (executions at better than the National Best Bid/Offer ("NBBO" or "inside price")). The ATTAIN trading system was developed for the active, self-directed trader. However, the Company intends to adapt the ATTAIN trading system for use by less active investors who wish to avail themselves of a point and click system for their occasional trades. All-Tech can provide an easy to use graphical interface used via the Internet. Although active traders generally purchase dedicated telecommunications service for the communication of their orders, the service is available through the Internet as well. All-Tech continually makes improvements to its ATTAIN trading system, adding features and additional instruments to trade, such as exchange traded index options, and additional information to assist them with their trading decisions. All-Tech's goal is to enable investors everywhere to trade any instrument traded on any marketplace in the world and to make the financial markets readily accessible anywhere, anytime they are open. Market Information. The Company currently purchases quotation information and news through PC Quote and other vendors. All on-site customers receive, free of charge, real-time, dynamically updated information regarding the inside prices for all securities. Some of the Company's well-known on-line competitors require the customer to wait until an order is placed to receive such information. All-Tech believes the customer cannot intelligently place an order without this information. Customers who trade at All-Tech's main office or one of its branch offices receive at no charge, on ATTAIN's easy to use point and click system, detailed real-time, dynamically updated information regarding all quotations of all market makers in OTC securities, as well as trade data, a ticker of trades effected by All-Tech for its customers, all bid and offer quotations in the ATTAIN ECN, news, and real-time analytic charts and graphs. Remote customers must pay $250 monthly for such service plus an additional charge for news, but high volume traders have their monthly fees waived. 35 Account Information. Through the ATTAIN trading system, each All-Tech customer can receive, on a continuous basis, account information setting forth all open positions and, on an intra-day basis, realized and unrealized profit and loss. In addition to screen displays of account activity and profit and loss, active customers receive a daily printout of trade confirmations and buying power, and receive detailed monthly statements. Account Security. All-Tech utilizes a combination of proprietary and industry standard security measures to protect customers assets. Customers are assigned unique account numbers and user identifications and select their own passwords that must be used each time they log on to the ATTAIN trading system. The Company relies on encryption and authentication technology, including technology licensed from Check Point Software Technologies Ltd., to provide the security and authentication necessary to effect the secure exchange of information. In addition, the Company uses secure socket layer technology for data encryption (the system will permit communications only from recognized account sources) to protect the ATTAIN trading system. A second level of password protection must be used prior to order placement. Telephone transactions are secured through a personal identification number. The ATTAIN ECN All-Tech's proprietary ATTAIN ECN is a system by which subscribers (broker/dealers) can post bids and offers expressing their customer's trading interest in a particular over-the-counter security. The best bid and offer for each security is posted on Nasdaq. Customers frequently utilize the ATTAIN ECN to post a new "inside" buy or sell order (at a price better than the current NBBO) on Nasdaq and thereby attract any party interested in buying or selling at that price. All-Tech attracts customers by offering its ATTAIN ECN service free of charge to All-Tech accounts. Pursuant to the no-action letter issued by the SEC to the Company, the Company is permitted to charge NASD members who execute against the ATTAIN ECN order displayed in Nasdaq no more than the fee the Company charges a substantial portion of its broker-dealer subscribers, and in any event, no more than $.015 per share. Accordingly, subscribers of the ATTAIN ECN are charged from $1.00 per transaction up to $.015 per share for using the ATTAIN ECN and non-subscribers who access the ATTAIN ECN through Nasdaq are charged up to $.015 per share for each executed order. In light of the requirements of the SEC no-action letter and competitive pressures, the Company is continuously monitoring the fees its charges and such charges may be voluntarily, or may be required to be, reduced. All-Tech has recognized approximately $1,637,000 in revenues through June 15, 1998, from the operation of the ATTAIN ECN since it commenced operating in February 1998. Of such revenues, approximately 2% has been generated by ECN subscribers, while 98% has been generated by non-subscribers who access the ECN through Nasdaq. The Company is continuously monitoring the fees it charges and such fees may either be voluntarily reduced or be required to be reduced as a result of competitive pressures or the SEC's no-action position. A reduction in rates unaccompanied by a rise in usage would negatively impact ATTAIN ECN revenues. The Company currently has only three (3) active ECN subscribers, one of which is owned and operated by Harry Lefkowitz, a director of the Company. However, the Company has accepted applications from an additional eight (8) broker-dealers to become ECN subscribers, and the Company is currently in the process of arranging for the necessary communication links which will allow such subscribers to access the ATTAIN ECN. As a result of the new subscribers, with respect to which the Company has agreed to charge fees which will effectively be no higher than $.005 per share, the Company may be required to lower its per transaction fee to non-subscribers to approximately $.005 once such new subscribers commence their trading activity. Controversy as well as competitive pressures exist regarding the fees charged by various ECNs to non-subscribers, and, as discussed above, All-Tech may not continue to charge its current rates. The Company has experienced some resistance and delay in collecting these fees. See "Business--Legal Proceedings." For the period from February 1998 (commencement of the ECN) through June 15, 1998, the Company recognized ECN fee revenues of approximately $1,637,000, of which approximately $434,000, $510,000, $491,000 and $202,000 were recognized as of March 31, 1998, April 30, 1998, May 31, 1998 and June 15, 1998, respectively. As of June 15, 1998, approximately $357,000 of such ECN fees have been paid to the Company and approximately $1,280,000 of such ECN fees are unpaid outstanding accounts receivable of the Company. In addition, as of May 31, 1998, the Company had established a doubtful account reserve in the amount of approximately $335,000. The resistance to paying the ECN fees has been primarily generated by non-subscriber, broker-dealers, especially 36 marker makers, who feel that they should not be required to pay for access to ECN's. All-Tech is pursuing vigorously its legal remedies to enforce such collection. Additionally, Nasdaq itself has proposed that it be permitted to operate a limit order book (essentially an ECN). Should this proposal be adopted and Nasdaq offer a low-cost alternative to privately operated ECNs on which substantial numbers of limit orders were reflected, this could have a negative competitive impact on the ATTAIN ECN. There can be no assurance whether such proposal will be approved and, if approved, when Nasdaq' s ECN might become operational. This proposal is vigorously opposed by a number of industry participants, including All-Tech, as potentially anti-competitive. There can be no assurance as to when, if at all, such proposal will be approved by the SEC. See "--Government Regulation." Branch Offices The Company conducts retail business at its 21 branch offices located throughout the United States, one of which is located in property owned by Mark D. Shefts, President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company, and is not as active as the other 20 branch offices. Each branch office is managed by one or more branch managers, who are employees of the Company. In general, branch managers pay a one-time, non-refundable, negotiated fee for the opportunity to manage a branch. All operational policies and procedures of the branch offices are controlled by the Company. The branch office and branch office managers operate pursuant to a standard branch office management agreement, which agreement is for a three (3) year term, and is automatically renewed for two additional three year terms unless terminated earlier. All orders received by or generated from any of the Company's branch offices are transmitted to the Company's main office for execution. The branch office manager bears complete financial responsibility for opening and operating the branch office, including entering into a lease agreement, as the lessee, for the space in which the branch office is located. The Company, in turn, subleases the branch office from the manager pursuant to an oral agreement. In addition, the branch office may be required to maintain an error account fund which fund is established by the Company withholding a fee on each transaction effected by the branch office until the fund reaches the required amount. Upon termination of the branch office agreement, the fund may be used to offset any amounts owed by the branch office under the agreement. The Company also may charge the branch office a ticket charge for each ticket for national advertising, marketing and public relations. In consideration of agreeing to operate the branch office, the branch office manager receives all of the "monthly gross revenue" (which includes all commission revenue generated during a month through the efforts of the branch office personnel and received by the Company prior to the 20th day of the immediately succeeding month) generated by the branch office less the branch expenses for the monthly gross revenues generated in the immediately preceding month. Finally, the branch office management agreement subjects the branch office manager to certain non-compete and confidentiality provisions. Proprietary Trading All-Tech engages in trading for its own account, primarily utilizing the ATTAIN ECN. All-Tech has recently executed a joint back office agreement and a stock purchase agreement with Southwest Securities, Inc. ("Southwest"), its clearing firm, which agreements are subject to execution by Southwest and review and approval by the New York Stock Exchange. No assurance can be given as to when, or if, the joint back office arrangement will be executed by Southwest or approved by the New York Stock Exchange. Pursuant to the proposed joint back office arrangement All-Tech would become a shareholder of Southwest. As a result, All-Tech would no longer be deemed a customer of Southwest, and would qualify for an exemption available under Regulation T promulgated by the Board of Governors of the Federal Reserve System, which exemption would allow the Company to trade its proprietary account at increased margin levels. All-Tech also acts as a market maker in a limited number of securities. All-Tech's Strategy The Company's objective is to maintain a leadership position in the electronic trading industry and to increase the range of the Company's business activities. The key elements of the Company's strategy to accomplish this objective include: (1) Enhancing awareness of the Company's identity and its ATTAIN trading system and ATTAIN ECN services through a significant advertising and marketing campaign; 37 (2) Expanding the customer base through an aggressive marketing campaign, the opening of additional branch offices and attracting less active traders through aggressive promotion of the Company as an electronic trading company which provides many additional profit enhancing features for average investors; (3) Broadening the range of the Company's activities. The Company is analyzing a number of business options which it could pursue, such as underwriting, investment banking, merchant banking, entering additional domestic and foreign markets and promoting electronic trading on exchanges and in instruments other than stocks, general retail business, market data vending and market making; and (4) Expanding internationally by obtaining permission to offer brokerage services around the world, utilizing Internet or private telecommunications systems. The Company's strategy will require substantial investment of time and money by the Company. The Company's ability to engage in business is regulated by the terms of its NASD membership agreement. There can be no assurance that the Company will obtain any necessary NASD, SEC or other regulatory approvals to engage in new activities or undertake any new activities or that any new activities can be accomplished or will be successful. Strategic Relationships The Company has a number of relationships with third party vendors which are essential to the operation of its business. All-Tech clears on a fully disclosed basis through Southwest, a large regional brokerage firm, pursuant to a written clearing agreement. The Company enjoys a good relationship with Southwest, which also offers its correspondents connection to All-Tech's ATTAIN ECN. While alternative clearing firms are available at competitive rates, there can be no assurance that All-Tech would achieve the same level of credit availability, financial security or service with another firm. The Company obtains quotation information from PC Quote, which in turn obtains its quotations from exchanges and Nasdaq. While the Company is satisfied with its service from PC Quote, it has been publicly reported that PC Quote has been experiencing severe financing difficulties. Any interruption in quotation service would materially adversely affect the Company. There can be no assurance that PC Quote will not continue to experience such difficulties or that they will continue to offer their quotation service. The Company has arranged back-up quotation service from Standard & Poor's Comstock, and is developing its own back-up service directly from Nasdaq. The Company utilizes the news service of Dow Jones & Company, Inc. ("Dow Jones"), which recently has been offered for sale by its current owner. If Dow Jones is sold there can be no assurance that service prices and/or reliability will remain the same for service currently provided by Dow Jones. The Company also utilizes the services of Nasdaq. Nasdaq has experienced operating problems in the past and there can be no assurance that such problems will not worsen or that rates will not be increased. The Company's success also depends on its ability to obtain for itself and its customers access to a breadth of quality and comprehensive real-time and historical financial market data from vendors whose products are technically compatible with the Company's ATTAIN trading system software and its future products and services. The Company believes that satisfactory alternative arrangements are available from other firms, but there can be no assurance that the terms or level of service would be as satisfactory. The Company subscribes to the Island and Archipelago ECNs. Instinet has not permitted the Company to subscribe to its services. Instinet is currently the largest ECN (responsible for over 15% of Nasdaq trading and a greater percentage of trading in the largest, most actively traded Nasdaq stocks). Instinet executions can be more economically advantageous to its subscribers than to non-subscribers who access Instinet through Nasdaq's SelectNet system. The Company's business has been negatively affected by the inability to offer Instinet to its subscribers; therefore, the Company has commenced, together with an affiliated company, an arbitration against Instinet for wrongful denial of service in violation of federal and state law and NASD rules. The Company is seeking access to Instinet service, as well as monetary damages. There can be no assurance that the Company will be successful in its arbitration or that it will obtain Instinet service. A failure to obtain such service would continue to have a material adverse effect on the Company's business, financial condition and results of operations. 38 Risk Management The Company has established various policies and procedures to manage its exposure to risk. The Company closely monitors its core business, which consists of servicing active day traders and operating its ATTAIN ECN. Specifically, the Company requires each day trading customer to open his or her day trading account with a minimum balance of $50,000. In addition, the Company monitors each of its customers via computer analysis to assess the risk of each trade and the customer's overall account position. The Company takes appropriate steps with respect to customers who appear to hold overly concentrated or risky positions, including limiting or rejecting undercapitalized trades or requiring a customer to close out a position or, if required, liquidate securities. Although the Company has established certain risk policies and procedures, there can be no assurance that such procedures will prevent or substantially limit all losses to the Company. In addition, if the Company diversifies its activities following completion of the Offering, as it intends to do, the Company will become subject to new risk management concerns. The Company may be required to incur substantial expenditures and to implement significant management controls to address such new risk management concerns. Similar to other broker/dealers, the Company faces operating, principal and credit risks. Operating risk arises out of the daily conduct of the Company's business and relates to the possibility that one or more of the Company's personnel could cause the Company to engage in imprudent business activities. Principal risk relates to the fact that the Company holds securities that are subject to changes in value and could result in the Company incurring material losses. Credit risk occurs because the Company guarantees credit extended through its clearing broker to various of its customers in the form of margin loans, activities which constitute normal industry practice. All-Tech also engages in trading for its own account, primarily utilizing the ATTAIN ECN. Pursuant to a proposed joint back office arrangement with the Company's clearing firm, the Company would be permitted to trade its proprietary account at increased margin levels. The monetary risks associated with proprietary trading are managed through real-time monitoring of the amount and types of securities held from time to time by the Company and limiting the exposure to any one investment or type of investment. These risks are monitored both by the Company's own operations personnel and by the Company's clearing broker. See "Business--Proprietary Trading." Sales and Marketing The Company markets its services directly, through its own sales personnel, and on its Website at www.attain.com. All-Tech advertises in national and regional print and radio and television media. The Company intends to increase its sales and marketing expenditures and efforts following the completion of the Offering. The most significant source of customers for the Company has been the All-Tech Training Group, Inc. ("ATTG") day trading training program. ATTG is an affiliate of the Company and a wholly-owned subsidiary of Rushmore. Rushmore, a principal shareholder of the Company and a Selling Shareholder in this Offering, is owned by Harvey I. Houtkin, the Chairman, Chief Executive Officer and Secretary of the Company, and Mark D. Shefts, the President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company. See "Certain Transactions" and "Principal and Selling Shareholders." ATTG students are not required to become customers of All-Tech, but the majority of them do so. All-Tech offers ATTG students a discounted commission equal, in the aggregate, up to the amount of their tuition. All-Tech strongly encourages all of its customers to take training at ATTG or elsewhere if they are not experienced traders, but no training is required. ATTG attracts its students through national and local advertising. ATTG offers an intensive three week training course in electronic day trading on All-Tech's ATTAIN trading system and the ATTAIN ECN adjacent to the Company's offices in Montvale, New Jersey and Seattle, Washington. ATTG also offers two-day weekend courses from time to time at each of the Company's branch office locations. ATTG does not charge All-Tech for offering its training course at All-Tech's facilities and All-Tech does not charge ATTG for use of its facilities. There can be no assurance that ATTG and the Company will continue these arrangements, or that ATTG will continue to train people who wish to become active day traders. Although the Company could commence its own training program, it has no plan to do so at this time. 39 Competition The marketplace for electronic trading firms is intensely competitive and rapidly changing. All-Tech believes that due to the anticipated growth of the market for electronic brokerage services, active stock trading facilities, and other factors, competition will increase in the future, even if there is a consolidation among electronic trading firms. The Company believes its ability to compete will depend upon many factors, both within and outside its control, including the timing and market acceptance of new services and enhancements developed by the Company and its competitors, functionality of such services, data availability, ease of use, customer service and support, pricing, reliability, and sales and marketing efforts. All-Tech faces direct competition from a number of publicly-traded and privately-held companies. It competes directly with other firms whose customers engage in active day trading, other ECN systems, large Wall Street securities firms, securities subsidiaries of major commercial bank holding companies and major regional firms, as well as small niche players. The Company's principal competitors in providing electronic brokerage services currently include such firms as Datek Securities Corp., Terra Nova Trading, LLC, Block Trading Corp. and Instinet Corporation, a division of Reuters. The Company's ATTAIN ECN competes principally with Nasdaq market makers, Instinet, Datek Securities Corp.'s Island ECN, Terra Nova Trading, LLC's Archipelago ECN, Bloomberg Tradebook LLC's System ECN and Spear, Leeds & Kellogg's REDI ECN. The Company also competes with on-line trading systems available on the Internet, such as Charles Schwab & Co. Inc., E*Trade Capital Inc. and Accutrade Inc. In addition, the Company faces competition from data vendors which offer investment analysis software, news, quotations and other securities industry products. Additionally, Nasdaq recently made a rule filing with the SEC which contains a proposal to operate a limit order book (essentially an ECN). All-Tech believes the operation of an ECN by Nasdaq represents a potential conflict of interest for Nasdaq, which is supposed to act as a neutral operator and regulator of the OTC marketplace. The ECN proposed to be operated by Nasdaq would substantially favor market makers over order-entry firms such as All-Tech. All-Tech vigorously opposes Nasdaq operation of this ECN, as do many brokerage firms. All-Tech seeks to offer its customers low prices, quality services and continuous innovation. Although All-Tech offers competitively discounted commissions, it does not seek to offer the very lowest commission rates, which at some firms can be as low as $7.50 per trade. Such low rates are generally offered by firms that also earn revenues from directing order flow to another broker/dealer for execution in exchange for a per share fee. The ATTAIN trading system permits the Company's customers to decide where their orders are displayed and executed. The Company does not direct order flow because it believes that the practice of directing order flow interferes with the broker's fiduciary duty to its customer to obtain the best available price for the customer. The general financial success of companies engaging in electronic day trading within the securities industry over the past several years has strengthened existing competitors and has led to the entrance into this field of many existing and newly established brokerage firms. Management believes that such success will continue to attract new competitors. Additionally, it is possible that new alliances among competitors may also emerge, with such alliances acquiring significant market share. Many of the Company's existing and potential competitors have longer operating histories, significantly greater financial, technical and market resources, greater name recognition and a larger installed customer base than the Company. One or more of these competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements, or to devote greater resources to the development, promotion and sale of their services and products than the Company. Larger and better capitalized competitors are able to more aggressively advertise their products and services on a national basis and many have a greater number and variety of distribution outlets for their services. So-called on-line discount brokerage firms market their services through aggressive pricing and promotional efforts. The average commission per transaction earned by the Company has declined from $24.32 for the year ended June 30, 1996 to $23.05 for the nine months ended March 31, 1998, due to competitive factors. The Company is continuously monitoring the fees it charges and such fees may either be reduced as a result of competitive pressures or to adhere to maximum fees permitted pursuant to the SEC no-action letter under which the Company operates the ATTAIN ECN. A reduction in rates unaccompanied by a rise in usage would negatively impact ATTAIN ECN revenues. See "Business--The ATTAIN ECN." Increased competition could result in 40 additional price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully against current or future competitors, or that competitive pressures faced by the Company will not have a material adverse effect on its business, financial condition and results of operations or the Company's ability to attract and retain highly skilled individuals. Intellectual Property and Other Proprietary Rights The Company's success depends to a significant extent on its proprietary technology. The Company relies primarily on copyright, trade secret and trademark law to protect its technology. The Company has no patents. The Company has registered its ATTAIN trademark in the United States, but has not yet registered it in any foreign countries. There can be no guarantee of effective trademark protection available for the Company's trademarks, trade names or service marks. The Company's name has not been registered except with the SEC and the NASD. The possible inability of the Company to effectively protect its trade name and trademarks outside the United States could have an adverse effect on the Company but at this time such effect is not expected to be material. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. The Company enters into confidentiality and/or assignment agreements with its associates, consultants and vendors with access to the Company's proprietary information to control access to, and distribution of, its software, documentation and other proprietary information. Notwithstanding the precautions taken by the Company, it may be possible for a third party to copy or otherwise obtain and use the Company's software or other proprietary information without authorization or to develop similar software independently. The laws of other countries may afford the Company little or no effective protection of its intellectual property. The inability of the Company to protect its intellectual property rights could have a material adverse effect on the Company's business, financial condition and operating results. The Company may, in the future, receive notices of claims of infringement of other parties' proprietary rights. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources or require the Company to enter into royalty or licensing agreements. There can be no assurance that such licenses would be available on reasonable terms, if at all, and the assertion or prosecution of any such claims could have a material adverse effect on the Company's business, financial condition and operating results. Government Regulation Securities Industry Regulation: The securities industry in the United States is subject to extensive regulation under both federal and state laws. The SEC is the federal agency responsible for the administration of the federal securities laws. All-Tech is registered with the SEC as a broker/dealer. Most of the regulation of broker/dealers has been delegated by the SEC to self-regulatory organizations ("SROs"), principally the NASD, which is the Company's primary regulator. These SROs adopt rules (subject to SEC approval) that govern the industry. They conduct periodic examinations of all the operations of all broker/dealers. Pursuant to a membership agreement, the NASD sets forth activities a member firm is permitted to engage in. Some of the new activities the Company may wish to engage in may require modification of the Company's membership agreement, the obtaining of a modification, if required, cannot be assured. Broker/dealers are also subject to extensive regulation by the states and the District of Columbia. The Company also is or will be subject to regulation by any foreign jurisdiction or subdivision thereof where it seeks to conduct business. See "Risk Factors -- Securities Regulation in General." The Company is licensed as a broker/dealer to conduct business in 44 states and is applying for licenses in most of the remainder of the states and the District of Columbia. There can be no assurance that the balance of such licenses will be granted. The Company, as a foreign broker/dealer, may not be granted a license to conduct business in certain foreign jurisdictions. Broker/dealers are subject to regulations covering all aspects of the securities business, including sales methods, trade practices among broker/dealers, use and safekeeping of customers funds and securities, capital structure, record-keeping and the conduct of officers, directors and employees. The Company is required to 41 comply with many complex and evolving laws and rules, including rules relating to electronic trading. All-Tech's operation of the ATTAIN trading system and the ATTAIN ECN, for example, subjects the Company to Rule 17a-23 of the Exchange Act, which regulates certain communications carried by on-line trading systems, requiring the Company to conduct certain record keeping and reporting activities. Additional legislation, changes in rules promulgated by the SEC, the NASD, other SROs or one or more states, or changes in the enforcement of existing laws and rules, may directly affect the mode of operation and profitability of broker/dealers in general, and electronic trading firms such as All-Tech in particular. The SEC, the NASD, other SROs and state securities commissions may conduct administrative proceedings, which can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker/dealer or any of its officers or employees. The Company's ability to comply with all applicable laws and rules is dependent in large part upon the maintenance of a compliance system reasonably designed to ensure such compliance. The principal purpose of regulation and discipline of broker/dealers is the protection of customers and the securities markets, rather than protection of creditors and shareholders of broker/dealers. The Company anticipates that it may be subject to additional regulation as the market for online commerce evolves. Currently, the ATTAIN ECN does not subject All-Tech to regulation as an exchange. The SEC has proposed and published for comment a new regulatory framework for alternative trading systems. There can be no assurance as to the effect, if any, of any rules which may be adopted based on such proposal. However, due to operation of the ATTAIN ECN, the Company may have to choose to register as broker-dealer with certain additional requirements or alternatively, as an exchange. The SEC has drafted this proposal to address certain regulatory gaps created by the growth of ECNs. Any changes to the current regulatory structure could impose additional compliance costs on the Company and could adversely affect the Company's competitive position. In addition, Congress has also held hearings on whether to regulate providers of services and transactions in the electronic commerce market, and federal or state authorities could enact laws, rules or regulations affecting the Company's business or operations. The Company may be subject to federal, state and foreign money transmitter laws and state and foreign sales and use tax laws. If enacted or deemed applicable to the Company, such laws, rules or regulations could be imposed on the Company's activities or its business. Due to the increasing popularity of the Internet, it is possible that laws and regulations may be enacted with respect to the Internet, covering issues such as user privacy, pricing, content and quality of products and services. The Telecommunications Act of 1996 (the "Telecommunications Act"), which was enacted in January 1996, prohibits the transmission over the Internet of certain types of information and content. Although certain of these prohibitions have been held unconstitutional, the increased attention focused upon these liability issues as a result of the Telecommunications Act could adversely affect the growth of the Internet, private network use and electronic trading. All-Tech is a member of Securities Investor Protection Corporation ("SIPC"), which provides, in the event of the liquidation of a broker/dealer, protection for customers accounts held by such broker/dealer of up to $500,000 for each customer account, subject to a limitation of $100,000 for claims for cash balances. Additionally, the Company's clearing firm, Southwest, which carries customer funds and securities for All-Tech, has obtained additional insurance, in the amount of $24.5 million for each customer account, in the form of an excess securities bond from American International Group. The Company plans to institute an aggressive marketing campaign following the closing of this Offering. All advertising materials are subject to NASD review and prior to use must be reviewed by All-Tech's compliance officer to ensure that they comply with applicable rules. The Company currently does not solicit orders from its customers or make investment recommendations. However, if the Company were to engage in such activities, it would become subject to additional rules and regulations governing, among other things, the suitability of recommendations to customers and sales practices. The Company intends to expand its business internationally. In order to expand globally, the Company will be required to comply with regulations of each specific country in which it does business. Such regulations may limit the Company's rate of international expansion. 42 Net Capital Requirements: As a registered broker/dealer and member of the NASD, All-Tech is subject to net capital rules, which specify minimum net capital requirements for broker/dealers and are designed to measure the general financial integrity and liquidity of a broker/dealer. Such rules require that at least a minimum part of its assets be kept in relatively liquid form. As of May 31, 1998, All-Tech is required to maintain minimum net capital, as defined in the Net Capital Rule, equal to the greater of (i) $100,000 or (ii) $2,500 for each stock the Company posts a quote in, up to $1,000,000. Failure to maintain the required net capital may subject a firm to suspension or revocation of registration by the SEC and/or suspension or expulsion by the NASD and other regulatory bodies and ultimately could require a firm's liquidation. The Net Capital Rule prohibits payments of dividends, redemption of stock, the prepayment of subordinated indebtedness, and the making of any unsecured advance or loan to a shareholder, employee or affiliate, if aggregate debit items (i.e. assets that have, as their source, transactions with customers (primarily margin loans)) rise beyond 5% of net capital. The Net Capital Rule also provides that the SEC may restrict, for up to 20 business days, any withdrawal of equity capital, or unsecured loans or advances to shareholders, employees or affiliates ("capital withdrawal") if such capital withdrawal, together with all other net capital withdrawals during a 30-day period, exceeds 30% of excess net capital and the SEC concludes that the capital withdrawal may be detrimental to the financial integrity of the broker/dealer. Net capital is essentially defined as net worth (assets minus liabilities) plus qualifying subordinated borrowing and certain discretionary liabilities, less certain mandatory deductions that result from excluding assets that are not readily convertible into cash and from valuing conservatively certain other assets. Among these deductions are adjustments (called "haircuts") which reflect the possibility of a decline in the market value of an asset prior to its disposition. A change in the Net Capital Rule, the imposition of new rules or any unusually large charge against net capital could limit those operations of the Company that require the intensive use of capital, such as underwriting, trading activities and the financing of customer account balances, and also could restrict the Company's ability to pay dividends, repay debt and redeem or purchase shares of its outstanding stock. The Company believes that at all times it has been in compliance with the applicable minimum net capital rules of the SEC and the NASD. As of May 31, 1998, the Company had net capital of approximately $934,000, or approximately $585,000 in excess of the minimum amount required. The failure of a broker/dealer to maintain its minimum required net capital would require it to cease executing customer transactions until it came back into compliance, and could cause it to lose its NASD membership, its registration with the SEC, or require its liquidation. Further, the decline in a broker/dealer's net capital below certain "early warning levels," even though above minimum net capital requirements, could cause material adverse consequences to the broker/dealer. Employees As of July 6, 1998, the Company had a total of 116 employees. Of the total, 42 were in management (including branch management), seven were in technology development and service, one was in sales and marketing and 66 were in administration and operations. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has not experienced any work stoppages and considers its relations with its employees to be good. Additionally, many of the Company's employees, including the Company's proprietary traders, employees who deal with customers or with the execution of customer orders, and all persons who supervise the activities of the previously mentioned employees, are required to be registered with the NASD. The registration process for such employees includes passing certain examinations and obtaining certain licenses which are required by the NASD. Facilities The Company's executive offices, technology development and administrative functions are located in Montvale, New Jersey, in approximately 12,395 feet of space in a building owned by a company which is wholly owned by Messrs. Houtkin and Shefts. The annual rent and maintenance for the facility are approximately $265,000. See "Certain Transactions." Fourteen of the Company's eighteen branch offices are leased by unaffiliated third parties directly to the branch managers or companies controlled by them. In order not to be liable for the primary lease obligations, 43 the Company sublets such branch offices on a month-to-month basis. Although the Company is not liable on such leases, it has a right to sublet the facility from the primary lessor should the branch manager not remain in his position. Three of the remaining four branch office facilities are subleased from Double H Management, a wholly-owned subsidiary of Rushmore, at an aggregate annual rental of $80,242, and the fourth facility is located in property owned by Mark D. Shefts, President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company, and is utilized at no cost to the Company. Legal Proceedings The Company is not a party to any material legal proceedings except as follows: The Company and an affiliate instituted an arbitration against Instinet Corporation for wrongful denial of service, seeking access to the Instinet ECN as well as monetary damages. The Company has limited access to Instinet, the largest ECN, through Nasdaq and through its clearing firm. The Company's failure to obtain full access to Instinet could have a material adverse effect on the Company's ability to provide the best trading opportunities to its customers and on the Company's business, financial condition and results of operations. There can be no assurance as to the outcome of this arbitration. In June 1998, the Company instituted an arbitration against Knight Securities, Inc. ("Knight") by filing a Statement of Claim with the National Association of Securities Dealers, Inc. The arbitration seeks compensatory damages in the amount of $97,537.50, punitive damages in the amount of $500,000, as well as interest, costs, and disbursements and attorneys fees. The arbitration was commenced as a result of Knight's refusal to pay the Company's ECN fees arising from Knight's entering trades involving OTC securities with the ATTAIN ECN. The allegations set forth in the Statement of Claim include claims based upon breach of contract, quantum meruit and fraud. The Company is also currently denying access to Knight, as well as approximately 25 other ATTAIN ECN users, because they have stated to the Company that they will not pay their ATTAIN ECN bills. The Company intends to vigorously pursue its legal remedies to recover unpaid accounts receivable. However, there can be no assurance that such efforts will be successful. The Company has requested that the U.S. Department of Justice investigate what the Company believes to be misconduct of Nasdaq market making participants in their refusal to pay the Company's ECN fees. In addition, the Company has been informed by the NASD that, based upon complaints lodged by two broker-dealers, it is conducting an investigation as to whether the Company's denial of access to the ATTAIN ECN constituted "backing away." Although the Company does not believe that there is any merit to such claims, and it intends to vigorously contest any such charge, there can be no assurance that such claims would not result in a formal investigation being commenced or that the Company would not incur substantial fees in contesting such claims. From time to time the Company has been threatened with, or named as a defendant in, lawsuits and administrative claims. Compliance, trading and administrative problems that are reported to the NASD, SEC or state regulators by dissatisfied customers are investigated by such regulators and, if pursued by such customers, may rise to the level of arbitration or disciplinary action. The Company's management does not believe any current investigations or claims are material. There can be no assurance that one or more future lawsuits, claims or disciplinary actions, if decided adversely to the Company, would not have a material adverse effect on the Company's business, financial condition and results of operations. The Company is also subject to periodic audits and inspections. 44 MANAGEMENT Directors and Executives Officers The directors and executive officers of the Company are as follows:
Name Age Position - ----------------------------- ----- ---------------------------------------------------- Harvey I. Houtkin ........... 49 Chairman of the Board, Chief Executive Officer, Secretary Mark D. Shefts .............. 40 President, Chief Operating Officer, Chief Financial Officer, Treasurer, Director (1) Harry M. Lefkowitz .......... 42 Senior Vice President--Operations, Director Linda Lerner ................ 55 Executive Vice President, General Counsel Josef A. Ross ............... 68 Director-Nominee (1)(2) Robert D. Kashan ............ 44 Director-Nominee (1)(2)
(1) To become a member of the Compensation, Audit and Option Committees upon completion of the Offering. (2) Appointment to become effective upon completion of the Offering. Harvey I. Houtkin joined All-Tech in 1991 and has been the Company's Chairman of the Board, Chief Executive Officer and Secretary since March 1993. From September 1996 to January 1997 he also served as President of the Company but not as Secretary. Mr. Houtkin has over 30 years experience in the securities industry. He graduated from Baruch College of the City University of New York in 1970 with a Bachelor of Science Degree and in 1973 with a Masters Degree in Business Administration. His masters thesis was entitled "The Impact of Nasdaq on the Over-the-Counter Market." He is an associate member of the American Stock Exchange. He held a seat on the New York Stock Exchange for several years and co-owns a broker/dealer which operated a floor brokerage business on that Exchange. He also has been a member of the New York Futures Exchange. He is the author of The SOES Bandits' Guide-Day Trading in the 21st Century and Secrets of the SOES Bandit. Mark D. Shefts has been a principal of All-Tech since early 1988 and has been its President, Chief Operating Officer, Chief Financial Officer, Treasurer and a Director since such time. From September 1996 to January 1997 he was the Secretary of the Company and during such period he did not hold the office of President. Mr. Shefts has over 17 years experience in the industry. Mr. Shefts graduated in 1979 from Brooklyn College of the City of New York with a Bachelor of Science Degree in Accounting. He is a member of the Chicago Stock Exchange and co-owns a broker/dealer which operated a floor brokerage business on the New York Stock Exchange. Mr. Shefts is licensed as a Commodity Pool Operator and a Commodity Trading Advisor by the National Futures Association. He is also a Certified Financial Services Auditor, a Certified Fraud Examiner and an arbitrator for the American Arbitration Association and NASD Regulation, Inc. In the Fall of 1997, he was an Adjunct Professor of Business at Ramapo College of the State University of New Jersey. Harry M. Lefkowitz has over 16 years experience in the securities industry. He has been with All-Tech since 1991. Mr. Lefkowitz is the Senior Vice President-Operations and a Director of All-Tech. He is also the sole officer, director and shareholder of HMS Securities, Inc., an NASD registered broker/dealer which engages in only very limited activity at present and to which Mr. Lefkowitz now devotes only an insubstantial amount of time. Mr. Lefkowitz obtained as Associate Degree at Kingsborough Community College in 1977. Linda Lerner has been General Counsel to All-Tech since January 1993. In May 1998 she became Executive Vice President of the Company. Prior to joining All-Tech, Ms. Lerner practiced law in various law firms from 1976 through May 1991, when she joined Home Box Office, Inc. as counsel. Ms. Lerner obtained a Bachelor of Arts from Brandeis University in 1964, a Masters of Science from Columbia University in 1976 and a Juris Doctor from Brooklyn Law School in 1976. Ms. Lerner is a member of the Market Operations Committee and the Trading Rules Subcommittee of The Nasdaq Stock Market, Inc. 45 Josef A. Ross is the Chairman of the Board and Chief Executive Officer of Universal Travel Corp., a manufacturer, importer and distributor of luggage products and fine art graphic display systems which he founded in 1963. Mr. Ross also owns several other businesses. Robert D. Kashan has been the Chairman and Chief Executive Officer of Earth Color Group., Inc. and its predecessors, a printer of promotional material for Fortune 500 companies since 1983. Mr. Kashan obtained a Bachelor of Science degree in marketing from the University of Maryland in 1976. All directors hold office until the next annual meeting of shareholders and until their successors shall have been duly elected and qualified. All executive officers of the Company are elected annually by the Board of Directors and serve until their successors are duly elected and qualified. Other than Mr. Houtkin and Mr. Shefts, who are brothers-in-law, there are no family relationships among any of the directors and executive officers of the Company. Effective upon the consummation of this Offering, the Board of Directors will have a Compensation Committee, which will approve salaries and certain incentive compensation for management and key employees of the Company; an Audit Committee, which will review the results and scope of the audit and other services provided by the Company's independent accountants; and an Option Committee, which will administer the Company's 1998 Stock Option Plan. The Compensation, Audit and Option Committees will be composed of Messrs. Shefts, Ross and Kashan. From time to time, situations may arise in which certain of the Company's officers and/or directors may be presented with situations in which they are faced with a conflict of interest arising from the fact that such persons are affiliated with entities other than the Company. Accordingly, all future transactions and loans between the Company and its officers, directors and 5% shareholders will be entered into on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of the independent, disinterested directors of the Company. Directors' Compensation Each of the Company's independent, non-employee Directors will receive compensation of $1,500 per meeting for each regularly scheduled meeting in which he participates. In addition, each of the independent, non-employee members of the Board who serve on the Audit, Compensation and/or Option Committee of the Board of Directors will receive a $750 fee per meeting for each regularly scheduled Committee meeting in which he participates unless such meeting is held on the day of a regularly scheduled meeting of the Board of Directors. The Company also will provide reimbursement to Directors for reasonable and necessary expenses incurred in connection with attendance at meetings of the Board of Directors or its Committees. Directors are eligible to receive stock option grants pursuant to the Company's 1998 Stock Option Plan. Executive Compensation The following table sets forth information concerning compensation for services in all capacities awarded to, earned by or paid to the Company's Chief Executive Officer and each of the other executive officers of the Company whose salary exceeded $100,000 (collectively, the "Named Executives") during the year ended June 30, 1997. 46 Summary Compensation Table
Name and Principal Position Salary Bonus - --------------------------------------------------- ----------- ------------ Harvey I. Houtkin Chairman, Chief Executive Officer and Secretary Year ended June 30: 1997 ........................................... $618,093 $ 800,000 1996 ........................................... 595,000 156,000 1995 ........................................... 260,000 -- Mark D. Shefts President, Chief Operating Officer, Chief Financial Officer, Treasurer and Director Year ended June 30: 1997 ........................................... 557,692 900,000 1996 ........................................... 600,000 176,000 1995 ........................................... 260,000 -- Linda Lerner Executive Vice President and General Counsel Year ended June 30: 1997 ........................................... 110,000 10,000 1996 ........................................... 100,000 5,000 1995 ........................................... 100,000 --
1998 Stock Option Plan The Company's 1998 Stock Option Plan (the "Plan") was adopted by the Board of Directors and the shareholders of the Company on May 11, 1998. A total of 2,250,000 shares of Common Stock are reserved for issuance upon exercise of options to be granted under the Plan, 1,500,000 of which will be granted as of the effective date of this Offering. No other options have been granted under the Plan. Those eligible to receive stock option grants under the Plan include employees, Directors and consultants. The Plan will be administered by the Option Committee of the Board of Directors of the Company, which will be comprised of the two outside directors, Messrs. Ross and Kashan, and Mark D. Shefts. Subject to the provisions of the Plan, the Option Committee, as administrator of the Plan, has the discretion to determine the optionees and/or grantees, the type of options to be granted (incentive stock options ("ISOs") or non-qualified stock options (" NQSOs")), the vesting provisions, the terms of the option grants and such other related provisions as are consistent with the Plan. The exercise price of an ISO may not be less than the fair market value per share of the Common Stock on the date of grant or, in the case of an optionee who beneficially owns 10% or more of the outstanding capital stock of the Company, not less than 110% of the fair market value per share on the date of grant. The options terminate not more than ten years from the date of grant, subject to earlier termination on the optionee's death, disability or termination of employment with the Company, but provide that the term of any options granted to a holder of more than 10% of the outstanding shares of Common Stock may be no longer than five years. Options are not assignable or otherwise transferable except by will or the laws of descent and distribution. In the event of a merger or consolidation of the Company with or into another corporation or the sale of all or substantially all of the Company's assets in which the successor corporation does not assume outstanding options or issue equivalent options, the Board of Directors of the Company is required to provide accelerated vesting of outstanding options. The Plan terminates on May 10, 2008. As of April 30, 1998, no awards had been granted by the Company under the Plan. The Company intends to grant options to purchase 1,500,000 shares of Common stock to its employees and director-nominees, such grants to become effective only upon the successful completion of the Offering. Such options will be exercisable at a price per share equal to the initial public offering price of the shares of Common Stock, will have an expiration date of May 10, 2008, and will vest at a rate of twenty percent per year from the date of grant. 47 401(k) Plan The Company currently maintains a 401(k) salary reduction plan (the "401(k) Plan") which is intended to qualify under Section 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). Generally, all employees who are not members of a collective bargaining group and who are 21 years of age or older are eligible to participate in the 401(k) Plan after they complete six months of service. All eligible executive officers other than Messrs. Houtkins, Shefts and Waldman participate in the 401(k) Plan. Eligible employees electing to participate in the 401(k) Plan may defer a portion of their compensation on a pre-tax basis by contributing a percentage thereof to the 401(k) Plan. There is no minimum contribution, and the maximum contribution is prescribed in Section 401(k) of the Code. Such maximum for 1998 is $10,000. The Company makes matching contributions equal to 3% of the first 6% of a participating employee's annual salary, up to $4,800. Eligible employees who elect to participate in the Company's 401(k) Plan vest in the Company's matching contribution as follows: less than one year of service--0%; one year of service--20%; two years of service--40%; three years of service--60%; four years of service--80%; and five years of service--100%. Employment Agreements; Key-Man Insurance On April 30, 1998, the Company entered into three-year employment agreements with Harvey I. Houtkin Chairman, Chief Executive Officer and Secretary of the Company, and Mark D. Shefts, President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Company. Pursuant to the terms of these agreements, Messrs. Houtkin and Shefts are each entitled to receive $500,000 plus 5% of net earnings before taxes per year for the terms of the agreements, to a maximum of an additional $500,000 in the first two years and $1,500,000 in the third year, life insurance, benefits under any Company benefit plans, as well as reimbursement of certain employment related expenses. In the event of a change of control of ownership of the Company, each employment agreement will be extended so that the new term of the employment agreement, as of the date of the change of control, will be three years. Should such employment agreements not be renewed by the Company, Messrs. Houtkin and/or Shefts will continue to receive compensation under the employment agreements for an additional one-year period. If Mr. Houtkin shall not be elected Chairman and Chief Executive Officer of the Company, or Mr. Shefts not be elected President, Chief Operating Officer, and Treasurer of the Company, or given authority or responsibilities appropriate to their respective positions, Mr. Houtkin or Mr. Shefts, as the case may be, could terminate his employment and receive all amounts that otherwise would have been paid during the three year term or, if the unexpired portion of the term is less than two years, compensation for a two year period. The same compensation amounts would also be paid by the Company should Messrs. Houtkin or Shefts be terminated without cause. Each of the employment agreements contains a prohibition against competing with the Company or soliciting customers or employees from the Company for a period of two years after the termination of the agreement or for such longer period as the employee is compensated by the Company; provided, however, that such non-compete provisions are reduced and/or eliminated in their entirety after six or nine years, respectively. Each of the agreements permits the Company to terminate the agreement for cause or upon the death or disability of Mr. Houtkin or Mr. Shefts. The Company is applying for key-man insurance on the lives of Messrs. Houtkin and Shefts in the amount of $1 million each. There can be no assurance that such insurance can be obtained in such amount, if at all. 48 CERTAIN TRANSACTIONS During the fiscal year ended June 30, 1997, the Company made a series of non-interest bearing, revolving loans to Messrs. Mark D. Shefts and Harvey I. Houtkin, shareholders, officers and directors of the Company, which loans were payable on demand. The loans to Mark D. Shefts totaled $433,722 and the loans to Harvey I. Houtkin totaled $300,292. Said loans were repaid in full during the fiscal year ended June 30, 1997. During the fiscal year ended June 30, 1997, the Company made two non-interest bearing, revolving loans to its parent Rushmore, for working capital purposes, which loans were payable on demand. The loans to Rushmore totaled $500,000. Said loans, together with previously outstanding loans totaling $886,877, were repaid during the fiscal year ended June 30, 1997. During the nine months ended March 31, 1998, the Company made a series of non-interest bearing, revolving loans to its parent Rushmore, for working capital purposes, which loans were payable on demand. The loans to Rushmore totaled $1,774,323. Said loans, together with previously outstanding loans totaling $199,941, were repaid during the nine months ended March 31, 1998. As of the date hereof, there were no remaining outstanding loans to officers, directors, parents or affiliates of the Company. During April 1998, the Company borrowed, on an interest-free basis, an aggregate of $611,000 from its parent, Rushmore, in order to provide additional funds for the Company's proprietary trading activities. The loan remains outstanding as of the date hereof and is payable on demand. The Company intends to repay such loan with a portion of the net proceeds of the Offering. During May 1998, the Company borrowed, on an interst-free basis, an aggregate of $135,000 from its affiliate, ATTG, for working capital purposes. The loan was repaid in June 1998. All-Tech leases its principal office space in Montvale, New Jersey, which consists of 12,395 square feet of space from Summit Plaza, Inc., a company wholly owned by Messrs. Houtkin and Shefts. The annual rent, excluding certain additional maintenance expenses, is $247,900; this lease expires on March 31, 2003. This lease was modified in May 1998. Prior to such modification, the Company occupied 12,395 square feet of space at an annual rental of $181,460, pursuant to both a long-term lease and a month-to-month rental arrangement. Approximately 400 square feet of such space was subleased to affiliates of the Company, including Rushmore and ATTG, and to a non-affiliate. The Company believes that its lease has been and is on terms no less favorable than could be obtained from an unaffiliated third party. Double H Management Corp. ("Double H"), another wholly owned subsidiary of the Company's parent, Rushmore, leases space for three branch offices of the Company. The Company reimburses Double H for the rent due pursuant to such leases. An additional branch office is located on property owned by Mr. Shefts, at no cost to the Company. ATTG, a wholly owned subsidiary of the Company's parent, operates an electronic day trading training program. ATTG students are not required to become customers of the Company nor does the Company require its customers to take the ATTG program; however, ATTG is a significant source of referrals for the Company, as most of the Company's customers have completed this program. Students who do open accounts at the Company are entitled to a discounted commission equal, in the aggregate, up to the amount of their tuition. The aggregate amount of discounted commissions accorded to students who attend ATTG's electronic day trading training program was approximately $272,000 and $299,000 for the year ended June 30, 1997 and the nine month period ended March 31, 1998, respectively. When such programs are offered at branch locations, the Company does not charge ATTG for use of its facilities. There can be no assurance that ATTG and the Company will continue these arrangements or that ATTG will continue to train people who wish to become active electronic day traders. Although the Company could commence its own training, it has no plan to do so at this time. 49 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of June 30, 1998, and as adjusted to reflect the sales of the shares of Common stock offered hereby, with respect to the beneficial ownership of the Common Stock of the Company by (i) each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each of the Company's directors and director-nominees, (iii) each of the Named Executives, (iv) all of the directors, director-nominees and executive officers as a group, and (v) the Selling Shareholders.
Shares Beneficially Owned Prior to Offering Name of Beneficial Owner(1)(2) Number Percent(3) - -------------------------------------------- ------------------- ------------ Harvey I. Houtkin .......................... 15,159,375(4) 98%(4) Mark D. Shefts ............................. 15,159,375(4) 98%(4) Rushmore Financial Services, Inc. .......... 14,850,000 96% Harry M. Lefkowitz ......................... -- -- Linda Lerner ............................... -- -- Robert D. Kashan(7) ........................ -- -- Josef A. Ross (7) .......................... -- -- All Directors, Director-Nominees and executive officers as a group (6 persons) . 15,468,750 100% Shares Number Beneficially Of Shares Owned After the Being Offering Name of Beneficial Owner(1)(2) Offered Number Percent(3) - -------------------------------------------- ---------------- ------------------------- --------------- Harvey I. Houtkin .......................... 309,375(5) 14,843,750(4)(6) 70.4%(4) Mark D. Shefts ............................. 309,375(5) 14,843,750(4)(6) 70.4%(4) Rushmore Financial Services, Inc. .......... 6,250(5) 14,843,750(6) 70.4% Harry M. Lefkowitz ......................... -- -- -- Linda Lerner ............................... -- -- -- Robert D. Kashan(7) ........................ -- -- -- Josef A. Ross (7) .......................... -- -- -- All Directors, Director-Nominees and executive officers as a group (6 persons) . 625,000 14,843,750 70.4%
- ------------ (1) The address of each beneficial owner is in care of the Company, 160 Summit Avenue, Montvale, New Jersey 07645. (2) Beneficial ownership has been determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended. Generally, a person is deemed to be the beneficial owner of a security if she/he has the right to acquire voting or investment power within 60 days. Except as set forth in the footnotes to this table, the persons and entity named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such shareholder. (3) The applicable percentage of ownership is based on shares of Common Stock outstanding on April 30, 1998, and shares of Common Stock outstanding after the completion of this Offering. (4) Includes shares beneficially owned by Rushmore, which is 50% owned by Mr. Houtkin and 50% owned by Mr. Shefts. (5) Shares of Common Stock being offered by such shareholder as a Selling Shareholder in this Offering. (6) Rushmore has granted the Underwriters an Over-Allotment Option to purchase up to 468,750 shares of Common Stock solely to cover over-allotments, if any. This table assumes that the Over-Allotment Option will not be exercised by the Underwriters. See "Underwriting." (7) Director-nominee. 50 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 55,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of undesignated Preferred Stock, $.01 par value per share. As of the date of this Prospectus, there were 15,468,750 shares of Common Stock issued and outstanding and held of record by three shareholders. There are no shares of Preferred Stock designated or issued. See "Capitalization." The following statements are brief summaries of certain provisions with respect to the Company's capital stock contained in its Certificate of Incorporation and By-Laws, copies of which have been filed as exhibits to the Registration Statement. The following summary is qualified in its entirety by reference thereto. Common Stock Holders of shares of Common Stock are entitled to one vote for each share held of record on matters to be voted on by the shareholders of the Company. Subject to the rights of holders of shares of Preferred Stock, if any, holders of shares of Common Stock will be entitled to receive dividends when, as and if declared by the Board of Directors and to share ratably in the assets of the Company legally available for distribution to its shareholders in the event of the liquidation, dissolution or winding up of the Company. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. All of the issued and outstanding shares of Common Stock are, and all shares of Common Stock to be sold in this Offering will be, duly authorized, validly issued, fully paid and non-assessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, shares of any series of Preferred Stock that the Company may designate and issue in the future. Preferred Stock The Company's Board of Directors may, without further action by the Company's shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of Preferred Stock in series and may, at the time of issuance, determine the rights preferences and limitations of each series. The holders of Preferred Stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of the Common Stock. The Board of Directors could issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock and could have certain anti-takeover effects. The Company has no present plan to issue any shares of Preferred Stock. Warrants The following is a brief summary of certain provisions of the Warrants but such summary does not purport to be complete and is qualified in all respects by reference to the actual text of the Warrant Agreement between the Company and Continental Stock Transfer & Trust Company (the "Warrant Agent"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Additional Information." Exercise Price and Terms. Each Warrant entitles the registered holder thereof to purchase, at any time commencing , 1999 (6 months after date of this Prospectus) until , 2001 (30 months after the date of this Prospectus) one share of Common Stock at a price of $12.00 (150% of the initial public offering price of the Common Stock) per share, and from such date until , 2004 (60 months after the date of this Prospectus) one share of Common Stock at a price of $14.00 (175% of the initial public offering price of the Common Stock) per share, subject to adjustment in accordance with the anti-dilution and other provisions referred to below. The holder of any Warrant may exercise such Warrant by surrendering the certificate representing the Warrant to the Warrant Agent, with the subscription form thereon properly completed and executed, together with payment of the exercise price. No fractional shares will be issued upon the exercise of the Warrants. The exercise price of the Warrants bears no relationship to any objective criteria of value and should in no event be regarded as an indication of any future market price of the Securities offered hereby. Adjustments. The exercise price and the number of shares of Common Stock purchasable upon the exercise of the Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassifications of the Common Stock or the sale by the Company of its Common 51 Stock or other securities convertible into Common Stock at a price below the exercise price of the Warrants. Additionally, an adjustment would be made in the case of a reclassification or exchange of Common Stock, consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or sale of all or substantially all of the assets of the Company, in order to enable warrantholders to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares of Common Stock that might otherwise have been purchased upon the exercise of the Warrant. Redemption Provisions. Commencing , 2000 (18 months after date of this Prospectus), the Warrants will be subject to redemption by the Company, in whole but not in part, at $.10 per Warrant on thirty (30) days prior written notice to the warrantholders, if the average closing sale price of the Common Stock as reported on the Amex equals or exceeds $20.00 per share for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. In the event the Company exercises the right to redeem the Warrants, such Warrants will be exercisable until the close of business on the business day immediately preceding the date for redemption fixed in such notice. If any Warrant called for redemption is not exercised by such time, it will cease to be exercisable and the holder will be entitled only to the redemption price. Transfer, Exchange and Exercise. The Warrants are in registered form and may be presented to the Warrant Agent for transfer, exchange or exercise at any time on or prior to their expiration date sixty (60) months after the date of this Prospectus, at which time the Warrants will become wholly void and of no value. If a market for the Warrants develops, the holder may sell the Warrants instead of exercising them. There can be no assurance, however, that a market for the Warrants will develop or, if developed, will continue. Warrantholder not a Shareholder. The Warrants do not confer upon holders thereof any voting, dividend or other rights as shareholders of the Company. Modification of Warrants. The Company and the Warrant Agent may make such modifications to the Warrants as they deem necessary and desirable that do not adversely affect the interests of the warrantholders. The Company may, in its sole discretion, lower the exercise price of the Warrants for a period of not less than thirty (30) days on not less than thirty (30) days prior written notice to the warrantholders and the Representative. Modification of the number of securities purchasable upon the exercise of any Warrant, the exercise price (other than as provided in the preceding sentence) and the expiration date with respect to any Warrant requires the consent of two-thirds of the warrantholders. The Warrants are not exercisable unless, at the time of the exercise, the Company has a current prospectus covering the shares of Common Stock issuable upon exercise of the Warrants, and such shares have been registered, qualified or deemed to be exempt under the securities or "blue sky" laws of the state of residence of the exercising holder of the Warrants. Although the Company has undertaken to use its best efforts to have all of the shares of Common Stock issuable upon exercise of the Warrants registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, there can be no assurance that it will be able to do so. Although the Securities will not knowingly be sold to purchasers in jurisdictions in which the Securities are not registered or otherwise qualified for sale, investors in such jurisdictions may purchase Warrants in the secondary market or investors may move to jurisdictions in which the shares underlying the Warrants are not so registered or qualified during the period that the Warrants are exercisable. In such event, the Company would be unable to issue shares to those persons desiring to exercise their Warrants, and holders of Warrants would have no choice but to attempt to sell the Warrants in a jurisdiction where such sale is permissible or allow them to expire unexercised. Registration Rights Pursuant to the Representative's Warrant Agreement between the Representative and the Company, for a period of five years commencing on the effective date of this Offering the Representative may request that the Company file a registration statement covering the sale of the 625,000 shares of Common Stock and/or 312,500 52 Warrants which may be issued upon exercise of the Representative's Warrants and the 312,500 shares of Common Stock underlying such Warrants. In general, all fees, costs and expenses of any such registration will be borne by the Company. The Representative may also request that any registration statement filed by the Company during the five year period commencing on the date of this Prospectus cover the sale of such shares of Common Stock and Warrants, at the Company's expense. See "Underwriting." Limitation of Director Liability The Certificate of Incorporation of the Company limits the liability of directors of the Company to the Company and its shareholders to the fullest extent permitted by Delaware law. Specifically, directors of the Company will not be personally liable for money damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporate Law ("DGCL"), which concerns unlawful payments of dividends, stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. In addition, the Company's By-Laws provide for indemnification of directors, officers, employees or agents of the Company under certain circumstances. Specifically, the Company shall indemnify any person who (i) was or is a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, has no reasonable cause to believe his or her conduct was unlawful, or (ii) was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company, and except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjusted to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper. Delaware Law and Certain Charter and By-Law Provisions Delaware Law: The Company is subject to the provisions of Section 203 ("Section 203") of the DGCL. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an "interested stockholder," unless the business combination is approved in a prescribed manner. A "business combination" is defined generally to include mergers or consolidations, asset sales and certain other transactions resulting in a financial benefit to the "interested stockholder." An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation's outstanding voting stock. Under Section 203, a business combination between the Company and an "interested stockholder" is prohibited unless it satisfies one of the following conditions: (i) the Com-pany's Board of Directors must have previously approved either the business combination or the transaction that 53 resulted in the stockholder becoming an "interested stockholder," or (ii) upon consummation of the transaction that resulted in the stockholder becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the Company outstanding at the time the transaction commenced (excluding, for purposes of determining the number of shares outstanding, shares owned by (a) persons who are directors and also officers and (b) employee stock plans, in certain instances); or (iii) the business combination is approved by the Board of Directors and authorized at an annual or special meeting of the shareholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the "interested stockholder." Special Meetings: The By-Laws provide that special meetings of shareholders for any purpose or purposes can be called only upon the request of the Chairman of the Board or the written consent of three-quarters of the entire Board. Number of Directors; Removal; Filling Vacancies Subject to any rights of holders of Preferred Stock to elect additional directors under specified circumstances, the By-laws provide that the number of directors shall be not less than two nor more than 12; provided, however, that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Directors are elected to staggered terms of three years. Any vacancy occurring in the Board caused by death, resignation, removal or otherwise, and any newly created directorship resulting from an increase in the number of directors, may be filled only by the affirmative vote of at least a majority of the directors then in office, although such directors are less than a quorum, or by the sole remaining director. Furthermore, the By-Laws provide that any one or more of the directors of the Company may be removed from office only for cause and only by the affirmative vote of three-quarters of the entire Board of Directors or by the affirmative vote of two-thirds of the votes represented by the issued and outstanding shares of the Company entitled to vote at a meeting called for such purpose. The provisions of the By-Laws governing terms of office and removal may have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of the Company, or of attempting to change the composition or policies of the Board of Directors, even though such attempt might be beneficial to the Company or its shareholders. These provisions of the By-Laws could thus increase the likelihood that incumbent directors will retain their positions. Amendment of Company By-Laws: In order to adopt, repeal, alter or amend the provisions set forth therein, the By-Laws require the unanimous written consent of all directors or the affirmative vote of a majority of the entire Board of Directors acting at a regular or special meeting called by written notice, which written notice shall include notice of the proposed action to amend the By-Laws, or by the affirmative vote of a majority of votes represented by the issued and outstanding shares of the Company entitled to vote at a meeting called for such purpose. Classified Board The Certificate of Incorporation and By-Laws provide that the Board of Directors be divided into three classes with each class serving for a three-year term. Each class will consist, as nearly as possible, of an equal number of directors. Classes shall be elected in successive years. Consent of Shareholders The Certificate of Incorporation provides that any action required to be taken or which may be taken at any annual or special meeting of shareholders of the Corporation may not be taken by written consent without a meeting except in the case of a merger in which the Corporation is the surviving corporation. Certain provisions of Delaware Law, the Certificate of Incorporation and the By-Laws may have the effect of discouraging a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of the Corporation, or of attempting to change the composition or policies of the Board of Directors, even though such attempt might be beneficial to the Corporation or its shareholders. These provisions of Delaware Law, the Certificate of Incorporation and the By-Laws could thus increase the likelihood that incumbent directors will retain their positions. 54 Transfer Agent and Registrar The transfer agent and registrar for the Common Stock is Continental Stock Transfer & Trust Company. SHARES ELIGIBLE FOR FUTURE SALE Immediately following the consummation of this Offering there will be 21,093,750 shares of Common Stock and 3,125,000 Warrants issued and outstanding. Of these Securities, the 6,250,000 shares of Common Stock and 3,125,000 Warrants sold in this Offering will be freely transferable and tradeable in the United States (except for shares held by affiliates of the Company) without restriction or further registration under the Securities Act. An additional 2,250,000 shares of Common Stock are reserved for issuance under the Company's 1998 Stock Option Plan. The remaining 14,843,750 shares of Common Stock outstanding will be "restricted securities" for purposes of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption afforded by Rule 144. Additionally, each officer, director and holder of Common Stock of the Company and all holders of options to acquire shares of Common Stock have agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any securities of the Company for a period of 12 months following the date of this Prospectus without the prior written consent of the Representative. All of such shares of Common Stock will be eligible for resale in the public market without registration, subject to certain volume and other limitations, pursuant to Rule 144 upon the later to occur of (i) 90 days after the effective date of this Offering or (ii) expiration or waiver of the Lockup Agreements. In general, under Rule 144(e), as currently in effect, a shareholder (or shareholders whose shares are aggregated), including an affiliate, who has beneficially owned for at least one year shares of Common Stock that are treated as "restricted securities," would be entitled to sell publicly, within any three-month period, up to the greater of 1% of the then outstanding shares of Common Stock (210,937 shares immediately after the completion of this Offering) or the average weekly reported trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of sale is given, provided certain requirements are satisfied. In addition, affiliates of the Company must comply with additional requirements of Rule 144 in order to sell shares of Common Stock (including shares acquired by affiliates in this Offering). Under Rule 144, a shareholder deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale by him or her, and who has beneficially owned for at least two years shares of Common Stock that are treated as "restricted securities," would be entitled to sell those shares without regard to the foregoing requirements. No predictions can be made as to the effect, if any, that sales of securities or the availability of securities for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of the Common Stock in the public market, or the perception that such sales could occur, could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. See "Risk Factors--Potential Decreases in the Market Price of Common Stock Resulting from Future Sale of Common Stock." 55 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom Security Capital Trading, Inc. is acting as Representative, have severally agreed, subject to the terms and conditions contained in the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company and the Selling Shareholders, and the Company and the Selling Shareholders have agreed to sell to the Underwriters on a firm commitment basis, the respective number of shares of Common Stock and number of Warrants set forth opposite their names: Number of Number of Underwriter Shares Warrants - ---------------------------------------- ----------- ---------- Security Capital Trading, Inc. ......... Total .................................. 6,250,000 3,125,000 ========= ========= The Underwriters are committed to purchase all of the Securities offered hereby, if any of the Securities are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the conditions precedent specified therein. The Company and the Selling Shareholders have been advised by the Representative that the Underwriters initially propose to offer the shares of Common Stock and the Warrants to the public at the public offering prices set forth on the cover page of this Prospectus and to certain dealers at such prices less concessions not in excess of $ per share and $ per Warrant. Such dealers may re-allow a concession not in excess of $ per share and $ per Warrant to certain other dealers. After the commencement of the Offering, the public offering prices, concessions and re-allowances may be changed by the Representative. The Representative has informed the Company that the Underwriters do not expect sales to discretionary accounts by the Underwriters to exceed five percent of the shares of Common Stock or Warrants offered by the Company and the Selling Shareholders hereby. The Company and the Selling Shareholders have granted to the Underwriters the Over-Allotment Option, exercisable during the 45-day period from the date of this Prospectus, to purchase from the Company and the Selling Shareholders up to an additional 937,500 shares of Common Stock and/or 468,750 Warrants in the aggregate at the initial public offering prices, less underwriting discounts and the non-accountable expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the Common Stock and Warrants offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional Securities proportionate to its initial commitment. The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make. The Company and the Selling Shareholders have agreed to pay to the Representative a non-accountable expense allowance equal to 1 1/2% of the gross proceeds derived from the sale of the Securities underwritten, or $754,687.50 ($867,890.62 if the Underwriter's Over-Allotment Option is exercised in full), of which $50,000 has been paid to date by the Company. In connection with this Offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market prices of the Securities. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase the Common Stock and/or the Warrants for the purpose of stabilizing market prices. The Underwriters also may create a short position for the account of the Underwriters by selling more Securities in connection with the Offering than they are committed to purchase from the Company and the Selling Shareholders, and in such case may purchase Securities in the open market following completion of the Offering to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to 937,500 shares of Common Stock and 468,750 Warrants by exercising the Over-Allotment Option referred to above. In addition, the Representative may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the Offering) for the account of other Underwriters, the selling concession with respect to the Securities that are distributed in the Offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the prices of the Securities at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. All directors, officers and holders of shares of Common Stock, options, warrants or other securities convertible, exercisable or exchangeable for Common Stock have, pursuant to certain lock-up agreements, agreed not to offer, sell or otherwise dispose of any securities of the Company for a period of 12 months following the date of this Prospectus without the prior written consent of the Representative and the Company. An appropriate legend shall be placed on the certificates representing such securities. The Representative has no general policy with respect to the release of such securities prior to the expiration of the lock-up period and no present intention to waive or modify any of these restrictions on the sale of Company securities. 56 In connection with this Offering, the Company has agreed to sell to the Representative, and/or its designees, for nominal consideration, Representative's Warrants to purchase from the Company up to 625,000 shares of Common Stock and/or 312,500 Warrants. The Representative's Warrants are initially exercisable at any time during a period of four (4) years commencing at the beginning of the second year after their issuance and sale at a price of $ (120% of the public offering price of the Common Stock) per share of Common Stock and $ (120% of the public offering price of the Warrants) per Warrant. The Warrants are initially exercisable at a price of $ (100% of the initial exercise price of the Warrants) per share. The Representative's Warrants provide for adjustment in the number of securities issuable upon the exercise thereof as a result of certain subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise thereof. In addition, the Representative's Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one year from the date of this Prospectus except to officers of the Representative. Prior to this Offering, there has been no public market for the Common Stock or the Warrants. Consequently, the initial public offering price of the Common Stock, the initial offering price of the Warrants and the terms of the Warrants have been determined by negotiation between the Company, the Selling Shareholders and the Representative and do not necessarily bear any relationship to the Company's asset value, net worth or other established criteria of value. The factors considered in such negotiations, in addition to prevailing market conditions, included the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure and such other factors as were deemed relevant. Security Capital Trading, Inc., the Representative, commenced operations in June 1995. The Representative has only co-managed two recent public offerings of securities; therefore, the Representative does not have extensive experience as a co-manager or underwriter of public offerings of securities. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Additional Information." LEGAL MATTERS The validity of the issuance of the Common Stock and Warrants offered hereby will be passed upon for the Company by Sichenzia, Ross & Friedman LLP, located in New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as counsel for the Underwriters in connection with the Offering. EXPERTS The financial statements of All-Tech Investment Group, Inc. have been audited by Wolinetz, Gottlieb & Lafazan, P.C., independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in auditing and accounting. 57 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission in Washington, D.C., a Registration Statement under the Securities Act for the shares of Common Stock and Warrants offered by this Prospectus. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits included with the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and with respect to any contract or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by this reference. For further information about the Company and the Securities offered by this Prospectus, reference is hereby made to the Registration Statement and exhibits included with the Registration Statement. A copy of the Registration Statement, including exhibits, may be inspected without charge at the Securities and Exchange Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain prescribed rates. Upon consummation of the Offering, the Company will become subject to the information requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the Securities and Exchange Commission in accordance with its rules. These reports and other information concerning the Company may be inspected and copied at the public reference facilities referred to above as well as certain regional offices of the Securities and Exchange Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Securities and Exchange Commission also maintains a Web Site which contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission (such as the Company) at http:\\www.sec.gov. 58 ALL-TECH INVESTMENT GROUP, INC. INDEX TO FINANCIAL STATEMENTS
Page ----- Independent Auditors' Report ............................................................. F-2 Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ........................... F-3 Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997 and for the Nine Months Ended March 31, 1997 and 1998 ..................................................... F-4 Statement of Changes in Shareholders' Equity for the Years Ended June 30, 1995, 1996, and 1997 and for the Nine Months Ended March 31, 1998 ...................................... F-5 Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997 and for the Nine Months Ended March 31, 1997 and 1998 ..................................................... F-6 Notes to Financial Statements ............................................................ F-7
F-1 INDEPENDENT AUDITORS' REPORT To the Officers and Directors All-Tech Investment Group, Inc. Montvale, New Jersey We have audited the accompanying balance sheets of All-Tech Investment Group, Inc. as of June 30, 1996 and 1997, and the related statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of All-Tech Investment Group, Inc. as of June 30, 1996 and 1997, and the results of its operations and cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. WOLINETZ, GOTTLIEB & LAFAZAN, P.C. Rockville Centre, New York August 12, 1997 F-2 ALL-TECH INVESTMENT GROUP, INC. BALANCE SHEETS
June 30, March 31, 1998 ----------------------------- --------------- 1996 1997 (Unaudited) ------------- ------------- --------------- ASSETS Cash and cash equivalents ........................... $ 176,667 $ 641,414 $ 603,586 Receivable from brokers (net of allowance for doubtful accounts of $144,374 in 1998)............. 722,852 98,033 424,385 Securities owned -- at market value ................. 1,099,371 2,243,007 1,350,841 Other receivables ................................... 34,289 195,870 108,747 Property and equipment -- net ....................... 137,260 411,322 508,510 Loan receivable -- parent ........................... 1,086,818 199,941 -- Loans receivable -- affiliates ...................... 5,966 9,000 -- Deferred offering costs ............................. -- -- 50,000 ---------- ---------- ---------- Total Assets ......................................... $3,263,223 $3,798,587 $3,046,069 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Payable to clearing broker .......................... $ 257,876 $1,027,113 $ -- Accounts payable .................................... 92,834 501,766 644,118 Securities sold, not yet purchased -- at market value ............................................. 35,291 368,800 434,242 Income taxes payable ................................ 610,000 46,250 55,184 Deferred tax liabilities ............................ -- -- 27,000 ---------- ---------- ---------- Total Liabilities ................................. 996,001 1,943,929 1,160,544 ---------- ---------- ---------- Commitments and Contingencies Shareholders' Equity: Preferred stock, $.01 par value; 5,000,000 shares authorized, none outstanding ..... -- -- -- Common stock, $.001 par value; 55,000,000 shares authorized, 15,468,750 shares issued and outstanding ................................... 15,469 15,469 15,469 Additional paid-in capital .......................... 1,548,299 1,548,299 1,548,299 Retained earnings ................................... 703,454 290,890 321,757 ---------- ---------- ---------- Total Shareholders' Equity ........................ 2,267,222 1,854,658 1,885,525 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity ........... $3,263,223 $3,798,587 $3,046,069 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-3 ALL-TECH INVESTMENT GROUP, INC. STATEMENTS OF OPERATIONS
Years Ended Nine Months Ended June 30, March 31, --------------------------------------------------- --------------------------------- 1995 1996 1997 1997 1998 ------------- ---------------- ---------------- ---------------- -------------- (Unaudited) REVENUES: Brokerage commissions and fees $2,826,088 $ 10,703,575 $ 15,392,862 $ 11,266,719 $12,423,182 Trading gains (losses) .......... 115,290 64,112 132,421 138,706 (147,105) ECN fees ........................ -- -- -- -- 433,556 Other ........................... 21,081 306,892 538,533 481,356 439,128 ---------- ------------ ------------ ------------ ----------- Total Revenues ............... 2,962,459 11,074,579 16,063,816 11,886,781 13,148,761 ---------- ------------ ------------ ------------ ----------- COSTS AND EXPENSES: Cost of services ................ 1,493,880 5,217,329 7,306,682 5,117,421 5,585,286 Technology development .......... 43,225 208,877 366,475 232,261 344,044 Selling, general and administra- tive expenses: Employee compensation and benefits ...................... 741,451 2,376,390 4,679,078 2,506,567 3,857,109 Occupancy costs ............... 67,316 105,585 386,271 276,139 794,677 Other ......................... 627,304 1,804,974 1,723,369 1,417,924 2,338,837 ---------- ------------ ------------ ------------ ----------- Total Costs and Expenses ..... 2,973,176 9,713,155 14,461,875 9,550,312 12,919,953 ---------- ------------ ------------ ------------ ----------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES ............... (10,717) 1,361,424 1,601,941 2,336,469 228,808 PROVISION (BENEFIT) FOR INCOME TAXES .......................... (7,469) 610,278 664,505 609,505 27,000 ---------- ------------ ------------ ------------ ----------- NET INCOME (LOSS) ................ $ (3,248) $ 751,146 $ 937,436 $ 1,726,964 $ 201,808 ========== ============ ============ ============ =========== Basic earnings (loss) per common share ........................... $ (.00) $ .05 $ .06 $ .11 $ .01 ========== ============ ============ ============ =========== Weighted average common shares outstanding ..................... 15,468,750 15,468,750 15,468,750 15,468,750 15,468,750 ========== ============ ============ ============ ===========
The accompanying notes are an integral part of the financial statements. F-4 ALL-TECH INVESTMENT GROUP, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Retained Common Paid-In Earnings Stock Capital (Deficit) Total ---------- ------------ --------------- --------------- Balances -- July 1, 1994 ....................... $15,469 $1,548,299 $ (44,444) $ 1,519,324 Net Loss ....................................... -- -- (3,248) (3,248) ------- ---------- ------------ ------------ Balances -- June 30, 1995 ...................... 15,469 1,548,299 (47,692) 1,516,076 Net Income ..................................... -- -- 751,146 751,146 ------- ---------- ------------ ------------ Balances -- June 30, 1996 ...................... 15,469 1,548,299 703,454 2,267,222 Net Income ..................................... -- -- 937,436 937,436 Dividends Paid ................................. -- -- (1,350,000) (1,350,000) ------- ---------- ------------ ------------ Balances -- June 30, 1997 ...................... 15,469 1,548,299 290,890 1,854,658 Net Income (unaudited) ......................... -- -- 201,808 201,808 Dividends Paid (unaudited) ..................... -- -- (170,941) (170,941) ------- ---------- ------------ ------------ Balances -- March 31, 1998 (unaudited) ......... $15,469 $1,548,299 $ 321,757 $ 1,885,525 ======= ========== ============ ============
The accompanying notes are an integral part of the financial statements. F-5 ALL-TECH INVESTMENT GROUP, INC. STATEMENTS OF CASH FLOWS
Years Ended ----------------------------------------------- June 30, ----------------------------------------------- 1995 1996 1997 ------------- --------------- --------------- Cash Flows from Operating Activities: Net income (loss) ................................. $ (3,248) $ 751,146 $ 937,436 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ..................................... 19,240 28,159 63,026 Allowance for doubtful accounts .................. -- -- -- Loss on abandonment .............................. -- -- 43,544 Deferred tax liabilities ......................... -- -- -- Changes in Operating Assets and Liabilities: Receivable from brokers ......................... (58,874) (479,188) 624,819 Securities owned -- at market value ............. 106,650 (947,941) (1,143,636) Prepaid expenses ................................ (5,684) 18,661 -- Other receivables ............................... (3,400) (30,889) (161,581) Other ........................................... 1,700 -- -- Accounts payable ................................ (49,155) 28,391 408,932 Payable to clearing broker ...................... (6,430) 181,055 769,237 Securities sold, not yet purchased-at market value ................................... -- 35,291 333,509 Income taxes payable .............................. -- 610,000 (563,750) ----------- ------------- ------------- Net Cash Provided by Operating Activities .......... 799 194,685 1,311,536 ----------- ------------- ------------- Cash Flows from Investing Activities: Purchases of property and equipment ............... (97,006) (43,074) (380,632) ----------- ------------- ------------- Cash Flows from Financing Activities: Loans to parent ................................... (96,140) (1,774,378) (500,000) Repayment of loans to parent ...................... 65,000 1,768,700 1,386,877 Dividends paid .................................... -- -- (1,350,000) Loan to related parties and affiliates ............ (147,900) (49,429) (743,014) Repayment of loans to related parties and affiliates ....................................... 227,900 43,463 739,980 Deferred offering costs ........................... -- -- -- ----------- ------------- ------------- Net Cash Provided (Used) by Financing Activities ........................................ 48,860 (11,644) (466,157) ----------- ------------- ------------- Increase (Decrease) in Cash and Cash Equivalents ....................................... (47,347) 139,967 464,747 Cash and Cash Equivalents -- Beginning of Period ............................................ 84,047 36,700 176,667 ----------- ------------- ------------- Cash and Cash Equivalents -- End of Period ......... $ 36,700 $ 176,667 $ 641,414 =========== ============= ============= Supplemental Cash Flow Disclosure: Cash Paid for Interest ............................ $ 3,481 $ 20,174 $ 41,975 =========== ============= ============= Cash Paid for Income Taxes ........................ $ 1,325 $ -- $ 1,246,965 =========== ============= ============= Nine Months Ended ------------------------------ March 31, ------------------------------ 1997 1998 ------------- --------------- (Unaudited) Cash Flows from Operating Activities: Net income (loss) ................................. $1,726,964 $ 201,808 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ..................................... 47,270 186,102 Allowance for doubtful accounts .................. -- 144,374 Loss on abandonment .............................. -- -- Deferred tax liabilities ......................... -- 27,000 Changes in Operating Assets and Liabilities: Receivable from brokers ......................... 690,828 (470,726) Securities owned -- at market value ............. (350,004) 892,166 Prepaid expenses ................................ (750) -- Other receivables ............................... (36,269) 87,123 Other ........................................... -- -- Accounts payable ................................ 50,039 142,352 Payable to clearing broker ...................... 372,737 (1,027,113) Securities sold, not yet purchased-at market value .................................. 294,036 65,442 Income taxes payable ............................ (610,000) 8,934 ---------- ------------- Net Cash Provided by Operating Activities .......... 2,184,851 257,462 ---------- ------------- Cash Flows from Investing Activities: Purchases of property and equipment ............... (242,524) (283,290) ---------- ------------- Cash Flows from Financing Activities: Loans to parent ................................... (500,000) (1,774,323) Repayment of loans to parent ...................... -- 1,974,264 Dividends paid .................................... -- (170,941) Loan to related parties and affiliates ............ (804,014) -- Repayment of loans to related parties and affiliates ....................................... 609,980 9,000 Deferred offering costs ........................... -- (50,000) ---------- ------------- Net Cash Provided (Used) by Financing Activities ........................................ (694,034) (12,000) ---------- ------------- Increase (Decrease) in Cash and Cash Equivalents ....................................... 1,248,293 (37,828) Cash and Cash Equivalents -- Beginning of Period ............................................ 176,667 641,414 ---------- ------------- Cash and Cash Equivalents -- End of Period ......... $1,424,960 $ 603,586 ========== ============= Supplemental Cash Flow Disclosure: Cash Paid for Interest ............................ $ 30,742 $ 26,020 ========== ============= Cash Paid for Income Taxes ........................ $1,191,965 $ 150,580 ========== =============
The accompanying notes are an integral part of the financial statements. F-6 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies Nature of Business All-Tech Investment Group, Inc., (the "Company") is a corporation formed for the purpose of conducting business as a broker/dealer in securities. The Company is a 96% owned subsidiary of Rushmore Financial Services, Inc., a privately owned corporation (the "Parent"). The Company operates under the provisions of Paragraph (k)(2)(ii) of Rule 15c3-3 of the Securities and Exchange Commission and, accordingly, is exempt from the remaining provisions of that Rule. Essentially, the requirements of Paragraph (k)(2)(ii) provide that the Company clear all transactions on behalf of customers on a fully disclosed basis with a clearing broker/dealer, and promptly transmit all customer funds and securities to the clearing broker/dealer. The clearing broker/dealer carries all of the accounts of the customers and maintains and preserves all related books and records as are customarily kept by a clearing broker/dealer. The Company, through its trading system software, provides its customers with real time computerized access to price information for over-the-counter securities traded on Nasdaq and securities traded on various national and regional exchanges, and enables its customers to instaneously transmit buy and sell orders for execution. The Company has also commenced operation of an electronic communications network ("ECN"). Revenue Recognition The Company derives its revenues primarily from commissions related to customer transactions. The Company records client and proprietary trading transactions on a settlement date basis, which is generally three business days after trade date. Revenues and expenses related to such transactions are recorded on settlement date which is not materially different than trade date. The Company is exposed to risk of loss on these transactions in the event a client or broker fails to meet the terms of their contracts, in which case the Company may have to purchase or sell the positions at prevailing market prices. The Company records revenues from its ECN subscribers and non-subscribers on a transaction date basis. Revenues from remote customers are recognized on the last date of the month for the services provided for that month. High volume users are not billed for the monthly remote service fee. Students of ATTG (see Note 10) receive a rebate based on the amount of trades executed during the month. This amount is recorded as a reduction of income. One time, non-refundable fees for the opportunity to manage a branch are recognized upon execution of the branch office management agreement. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist primarily of money market accounts. Marketable Securities Securities owned and securities sold but not yet purchased are stated at fair market value and represent equity securities in which the Company acts as market maker and performs proprietary trading. Securities owned and securities sold but not yet purchased consist of equity securities. F-7 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies -- (Continued) Securities sold but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price. A liability is thereby created to purchase the security in the market at prevailing prices. Accordingly, these transactions result in off-balance-sheet risk as the Company's ultimate obligation to satisfy the sale of securities sold but not yet purchased may exceed the amount recognized in the statement of operations. Unrealized gains and losses on securities are reflected in the statement of operations. Depreciation Property and equipment is stated at cost, less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the related assets, which approximate five years. Estimated Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires the Company to report the fair value of financial instruments, as defined. Substantially all of the Company's assets and liabilities are carried at fair value or contracted amounts which approximate fair value. Brokerage receivables and payables are recorded at contracted amounts which approximate fair value. Cost of Services Cost of services consist of clearing charges, direct communications costs, and related salaries and benefits. Technology Development Costs Technology development costs are charged to operations as incurred. Technology development costs include costs incurred in the development and enhancement of software used in connection with services provided by the Company. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax liabilities and assets at tax rates expected to be in effect when these balances reverse. Future tax benefits attributable to temporary differences are recognized to the extent that realization of such benefits is more likely than not. Deferred Offering Costs Deferred offering costs represent charges incurred in connection with a proposed initial public offering of the Company's Common Stock and Warrants. Upon successful completion of such Offering, the aggregate offering costs will be charged to additional paid-in capital. In the event that the proposed Offering is unsuccessful, the aggregate offering costs will be charged to operations in the appropriate period. Unaudited Interim Information The financial information as of March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of such periods. The results for the interim period ended March 31, 1998 are not necessarily indicative of the results to be obtained for a full fiscal year. Reclassifications Certain items in these financial statements have been reclassified to conform to the current period presentation. F-8 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 1 -- Nature of Business and Summary of Significant Accounting Policies -- (Continued) Stock-Based Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Since the Company intends to set the exercise price of the Company's employee stock options to be granted prior to the Company's proposed initial public offering (see Note 9) equal to the market price of the underlying stock on the date of grant, no compensation expense will be recognized. New Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The new rules are effective for both interim and annual financial statements for the periods ending after December 15, 1997. SFAS 128 supersedes APB No. 15 to conform earnings per share with international standards as well as to simplify the complexity of the computation under APB No. 15. The previous primary earnings per share ("EPS") calculation is replaced with a basic EPS calculation. The basic EPS differs from the primary EPS calculation in that the basic EPS does not include any potentially dilutive securities. Fully dilutive EPS is replaced with diluted EPS and should be disclosed regardless of dilutive impact to basic EPS. Accordingly, the Company has adopted SFAS 128 effective December 31, 1997. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement, which is effective for fiscal years beginning after December 15, 1997, expands or modifies disclosures and should have no impact on the Company's financial position, results of operations or cash flows. NOTE 2 -- Brokerage Receivables and Payables
June 30, March 31, ------------------------ ---------- 1996 1997 1998 ----------- ---------- ---------- Receivable from brokers consist of the following: Receivable from clearing broker-commissions and trading .............................................. $692,159 $65,396 $114,933 Clearing broker deposit receivable .................... 30,693 32,637 25,272 Receivable from brokers--ECN fees (net of allowance for doubtful accounts of $144,374) ......... -- -- 284,180 -------- ------- -------- $722,852 $98,033 $424,385 ======== ======= ========
Payable to clearing broker represents net amounts owed on security positions. NOTE 3 -- Property and Equipment
June 30, March 31, ----------------------- ---------- 1996 1997 1998 ---------- ---------- ---------- Property and equipment consists of the following: Furniture and Fixtures .......................... $ 78,570 $ 78,570 $ 78,570 Office Equipment ................................ 1,950 380,632 651,922 Vehicles ........................................ 111,299 51,739 51,739 Leasehold Improvements .......................... -- -- 12,000 -------- -------- -------- 191,819 510,941 794,231 Less: Accumulated Depreciation .................. 54,559 99,619 285,721 -------- -------- -------- $137,260 $411,322 $508,510 ======== ======== ========
F-9 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 4 -- Regulatory Requirements The Company is subject to the Uniform Net Capital Rule (the "Rule") under the Securities Exchange Act of 1934. Under this Rule, the Company is required to maintain net capital, as defined, equal to the greater of $100,000 or $2,500 for each stock it posts a quote in, up to $1,000,000 and a net capital ratio, as defined, of a maximum of 1500%. At June 30, 1997 the Company's net capital was $453,672, which exceeded its net capital requirement by $353,672 and its net capital ratio was 121%. At March 31, 1998 the Company's net capital was $993,371, which exceeded its minimum net capital requirement by $566,871 and its net capital ratio was 73%, as revised for post FOCUS adjustments. NOTE 5 -- Commitments and Contingencies Lease Commitments The Company has entered into a lease commencing December 1, 1994 and ending November 30, 1999 for office facilities. This lease has been modified effective April 1, 1998 (see Note 11). The lessor is a corporation whose shareholders are also the shareholders of both the Company's parent and the Company. The lease provides for annual base rent of $101,906 and the payment of other occupancy costs. The lease also provides that the Company pay for increases in its pro-rata share of real estate taxes and utility costs above the original base period. The Company sublets a portion of its office facilities on a month to month basis to certain related companies. Approximate future minimum rentals under this lease is summarized as follows: Year Ending June 30, --------------------- 1998 $101,906 1999 $101,906 2000 $ 42,460 Rent expense net of sublets under this lease for the years ended June 30, 1995, 1996 and 1997 was approximately $21,300, $65,100 and $69,900, respectively. Rent expense net of sublets under this lease for the nine months ended March 31, 1997 and 1998 was approximately $46,300 and $70,800, respectively. Third Party Vendors The Company depends on third party vendors for real time and historical financial market data. The Company has written agreements with these vendors. If certain of these vendors become unable to perform the Company can make alternative arrangements for backup with other vendors. These arrangements with third party vendors are generally for one to two year periods. Minimum annual commitments at March 31, 1998 under these agreements were approximately $90,000 expiring March 31, 1999. Legal The Company is involved in legal proceedings and claims which arise in the ordinary course of its business. Management believes that the outcome of such litigation and claims will not result in any material adverse effect on the Company's financial position or results of operations NOTE 6 -- Financial Instruments with Off-Balance Sheet Credit Risk As a securities broker, the Company is engaged in buying and selling securities for a diverse group of investors. The Company introduces these transactions for clearance to another broker/dealer on a fully disclosed basis. The Company's exposure to credit risk associated with non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair the customers' ability to satisfy their obligations to the Company and the Company's ability F-10 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 6 -- Financial Instruments with Off-Balance Sheet Credit Risk -- (Continued) to liquidate the collateral at an amount equal to the original contracted amount. The agreement between the Company and its clearing broker provides that the Company is obligated to assume any exposure related to such non-performance by its customers. The Company seeks to control the aforementioned risks by requiring customers to maintain margin collateral in compliance with various regulatory requirements and the clearing broker's internal guidelines. The Company monitors its customer activity by reviewing information it receives from its clearing broker on a daily basis, and requiring customers to deposit additional collateral, or reduce positions when necessary. The Company is obligated to settle transactions with brokers and/or other financial institutions even if its customers fail to meet their obligations to the Company. Customers are required to complete their transactions on settlement date, generally three business days after trade date. If customers do not fulfill their contractual obligations, the Company may incur losses. The Company has established procedures to reduce this risk by requiring that customers deposit cash and/or securities into their account prior to placing an order. The Company may at times maintain inventories in equity securities on both a long and short basis. While long inventory positions represent the Company's ownership of securities, short inventory positions represent obligations of the Company to deliver specified securities at a contracted price, which may differ from market prices prevailing at the time of completion of the transactions. Accordingly, both long and short inventory positions may result in losses or gains to the Company as market values of securities fluctuate. To mitigate the risk of losses, long and short positions are marked to market daily and are continuously monitored by the Company. In addition, the Company monitors each of its customers via computer analysis to assess risk of each trade and the customer's overall accept position. NOTE 7 -- Savings Plan The Company established a defined contribution 401(k) plan effective January 1, 1998 that covers substantially all employees meeting certain minimum eligibility requirements. Participating employees can elect to defer a portion of their compensation and contribute it to the plan on a pretax basis. The Company may also match certain amounts and/or provide additional discretionary contributions, as defined. The Company has made discretionary contributions of approximately $16,000 to date. NOTE 8 -- Income Taxes The Company and its Parent and subsidiaries are members of a group of affiliated companies which join in filing a consolidated federal income tax return. In addition, the Company also files separate state and local tax returns. Pursuant to the tax allocation arrangements, total federal and state and local tax expense is determined on a separate company basis. Members with losses recorded tax benefits to the extent such losses are recognized in the consolidated federal and unconsolidated state and local tax provisions. Total allocated federal, state and local taxes are paid to, or received from, the Parent. At June 30, 1996, June 30, 1997 and March 31, 1998 respectively, the Company had no taxes payable to the Parent. The components of income tax provision (benefit) are as follows:
Year Ended June 30 --------------------------------------- Nine Months Ended 1995 1996 1997 March 31, 1998 ----------- ----------- ----------- ------------------ Current: Federal (Net of benefit of $88,000 in 1998) ......... $ -- $417,198 $512,505 $ (18,000) State ............................................... (7,469) 193,080 152,000 18,000 -------- -------- -------- --------- Total current .................................... (7,469) 610,278 664,505 -- Deferred ............................................ -- -- -- 27,000 -------- -------- -------- --------- Total income tax provision (benefit) ................ $ (7,469) $610,278 $664,505 $ 27,000 ======== ======== ======== =========
F-11 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 8 -- Income Taxes -- (Continued) Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement and tax return purposes. Temporary differences that created tax liabilities are as follows:
Year Ended June 30 Nine Months Ended 1995 1996 1997 March 31, 1998 ------ ------ ------ ------------------ Deferred tax liabilities -- depreciation ......... $-- $-- $-- $27,000 === === === =======
The effective tax rates differed from the federal statutory rates as follows:
Year Ended June 30, Nine Months Ended 1995 1996 1997 March 31, 1998 ------------ ---------- ---------- ------------------ Tax expense at federal statutory rate .............. (34.0%) 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit ..... (35.7) 10.4 6.3 5.2 Federal income tax refund .......................... -- -- -- (35.4) Other .............................................. -- .4 1.2 8.0 ----- ----- ----- ----- Effective tax rate .............................. (69.7%) 44.8% 41.5% 11.8% ===== ===== ===== =====
NOTE 9 -- Proposed Initial Public Offering The Company has filed a Registration Statement relating to the initial public offering of its common shares and Warrants (the "Offering"). The Company intends to offer to the public 5,625,000 shares of its Common Stock at $8.00 per share and 3,125,000 Warrants to purchase Common Stock at $.10 per Warrant for gross proceeds to the Company of $45,312,500 before underwriting costs and expenses of the Offering. In addition, the Company may sell an additional 468,750 shares at $8.00 per share and 468,750 Warrants at $.10 per Warrant pursuant to an over-allotment option exercisable by the Underwriters. Additional terms of the Offering include: the sale of 625,000 shares of Common Stock at $8.00 per share to be offered by Selling Shareholders, an Over- Allotment Option of 468,750 shares at $8.00 per share to be offered by Selling Shareholders exercisable by the Underwriters and at the closing of the proposed Offering a grant to the Underwriter of five year warrants. NOTE 10 -- Related Party Transactions The Company has an agreement with All-Tech Training Group, Inc. ("ATTG"), an affiliate and wholly-owned subsidiary of the Company's Parent, whereby the Company offers ATTG students a discounted commission equal, in the aggregate, up to the amount of their tuition. The Company subleases on a month to month basis three branch office facilities from Double H Management, Inc. ("Double H"), an affiliate and wholly owned subsidiary of the Company's Parent at an aggregate annual rental of approximately $80,000. The Company leases its executive offices from Summit Plaza Associates, Inc. ("Summit"), an affiliate and wholly-owned subsidiary of the Company's Parent at an aggregate annual rental of approximately $265,000 (See Notes 5 and 11). NOTE 11 -- Subsequent Events Recapitalization and Reincorporation In May, 1998 the Company re-incorporated in the State of Delaware with authorized capital stock consisting of 55,000,000 shares of Common Stock, par value $.001 per share and 5,000,000 shares of undesignated Preferred Stock, $.01 par value per share. Concurrently, the Company effected a 68.75 for 1 forward split on the new Delaware common shares. All share and per share data have been restated to give retroactive effect to this recapitalization. F-12 ALL-TECH INVESTMENT GROUP, INC. Notes to Financial Statements -- (Continued) (Information at March 31, 1998 and for the nine months ended March 31, 1997 and 1998 is unaudited) NOTE 11 -- Subsequent Events -- (Continued) The Company's Board of Directors may, without further action by the Company's shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of Preferred Stock in series and may, at the time of issuance, determine the rights preferences and limitations of each series. The holders of Preferred Stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of the Common Stock. The Board of Directors could issue Preferred Stock with voting and other rights that could adversely affect the voting power of the holders of Common Stock and could have certain anti-takeover effects. Lease Agreement The Company has entered in a lease modification whereby the term has been extended effective April 1, 1998 to March 31, 2003. The lease modification calls for annual rents of approximately $263,000 (see Note 5). Employment Agreements The Company has employment agreements with two senior executives and shareholders of the Company. The employment agreements were made on April 30, 1998 and commence on the effective date of the Company's proposed initial public offering of its Common Stock. The agreements have a term of three years from the effective date and provide for annual aggregate compensation of $1,000,000, aggregate additional salaries of 10% of net earnings before taxes to a maximum of an additional $1,000,000 in the first two years and $3,000,000 in the third year, and payment of certain employment related expenses. Stock Option Plan The Company's 1998 Stock Option Plan (the "Plan") was adopted by the Board of Directors of the Company on May 11, 1998. A total of 2,250,000 shares of Common Stock are reserved for issuance upon exercise of options to be granted under the Plan, of which the Company intends to grant 1,500,000 stock options as of the effective date of the Company's proposed initial public offering of its Common Stock and Warrants. The options granted will be exercisable at a price equal to the initial public offering price per share, have an expiration date of May 10, 2008, and vest at a rate of twenty percent per year from the date of grant. Litigation In June 1998, the Company instituted an arbitration against a broker/dealer ("B/D") by filing a Statement of Claim with the National Association of Securities Dealers, Inc. The arbitration seeks compensatory damages in the amount of $97,538, punitive damages in the amount of $500,000, as well as interest, costs, and disbursements and attorneys fees. The arbitration was commenced as a result of the B/D's refusal to pay the Company's ECN fees arising from the B/D's entering trades involving OTC securities with the ATTAIN ECN. The allegations set forth in the Statement of Claim include claims based upon breach of contract, quantum meruit and fraud. The Company is also currently denying access to the B/D, as well as approximately 25 other ATTAIN ECN users, because they have stated to the Company that they will not pay their ATTAIN ECN bills. The Company intends to vigorously pursue its legal remedies to recover unpaid accounts receivable. However, there can be no assurance that such efforts will be successful. Related Party Transaction In April 1998 the Company borrowed $611,000 from its Parent. The loan is non-interest bearing and payable on demand. F-13 ================================================================================ No Underwriter, dealer, sales representative or any other person has been authorized to give any information or to make any representations in connection with this Offering other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, by any Selling Shareholder or by any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities other than the registered securities to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation is unauthorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. ----------------------------------- TABLE OF CONTENTS Page --------- Prospectus Summary .......................... 3 Risk Factors ................................ 6 Use of Proceeds ............................. 22 Dividend Policy ............................. 22 Dilution .................................... 23 Capitalization .............................. 24 Selected Financial Data ..................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................... 26 Business .................................... 33 Management .................................. 45 Certain Transactions ........................ 49 Principal and Selling Shareholders .......... 50 Description of Capital Stock ................ 51 Shares Eligible for Future Sale ............. 55 Underwriting ................................ 56 Legal Matters ............................... 57 Experts ..................................... 57 Additional Information ...................... 58 Index to Financial Statements ............... F-1 ----------------------------------- Until , 1998 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ [GRAPHIC OMITTED] All-Tech Investment Group, Inc. 6,250,000 Shares of Common Stock and 3,125,000 Redeemable Common Stock Purchase Warrants (as units, each consisting of two shares of Common Stock and one Redeemable Common Stock Purchase Warrant) ---------------------------------------- PROSPECTUS ---------------------------------------- Security Capital Trading, Inc. , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses payable by the Registrant in connection with the sale of Common Stock being registered, excluding underwriting discounts and commissions and the Representative's non-accountable expense allowance. All amounts are estimates except the SEC registration fee, the NASD filing fee and the AMEX listing fee. Amount to be Paid --------------- SEC registration fee ................. $ 32,677.71 NASD filing fee ...................... 11,577.19 AMEX listing fee ..................... 50,000.00 Printing and engraving ............... 110,000.00 Legal fees and expenses .............. 60,000.00 Accounting fees and expenses ......... 75,000.00 Blue sky fees and expenses ........... 20,000.00 Transfer agent fees .................. 5,000.00 Miscellaneous ........................ 10,745.10 ------------ Total ............................... $ 375,000.00 ============ ITEM 14. Indemnification of Directors and Officers Section 145 of the General Corporation Law of the State of Delaware ("Delaware Law") empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceedings, whether civil, criminal, administrative or investigative (other than action by or in the right of such corporation), by reason of the fact that such person was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such officer or director acted in good faith and in a manner s/he reasonably believed to be in or not opposed to the corporation's best interests, and, for criminal proceedings, had no reasonable cause to believe his or her conduct was illegal. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation in the performance of his or her duty. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred. In accordance with Delaware Law, the Certificate of Incorporation of the Company contains a provision to limit the personal liability of the directors of the Registrant for violations of their fiduciary duty. This provision eliminates each director's liability to the Registrant or its stockholders for monetary damages except (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware Law providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which a director derived an improper personal benefit. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty of care, including any such actions involving gross negligence. Article 13 of the By-Laws of the Registrant provides for indemnification of the officers and directors of the Registrant to the fullest extent permitted by applicable law. II-1 In connection with the reincorporation of the Registrant in the State of Delaware, the Registrant entered into indemnification agreements with each director and officer, a form of which is attached as Exhibit 10.1 hereto. The indemnification agreements provide indemnification to such directors and officers under certain circumstances for acts or omissions which may not be covered by directors' and officers' liability insurance. Reference is also made to Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant against certain liabilities. ITEM 15. Recent Sales of Unregistered Securities None. ITEM 16. Exhibits and Financial Statement Schedules (1) Exhibits
Exhibit Number Document Description - ------------------ ------------------------------------------------------------------------------------------------ *1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation. 3.2 By-Laws of the Registrant. 4.1 Specimen of Common Stock Certificate. *4.2 Form of Warrant Agreement, including Form of Warrant Certificate. *4.3 Form of Representative's Warrant Agreement, including Form of Representative's Warrant Certificate. **5.1 Opinion of Sichenzia, Ross & Friedman LLP. 10.1 1998 Stock Option Plan. 10.2 401(k) Plan. 10.3 Lease of premises at 160 Summit Avenue, Montvale, New Jersey. 10.4 Employment Agreement dated April 30, 1998, by and between Harvey I. Houtkin and the Registrant. 10.5 Employment Agreement dated April 30, 1998, by and between Mark D. Shefts and the Registrant. +10.6 Clearing Agreement between Registrant and Southwest Securities Corp. dated July 15, 1997, as amended August 4, 1997. 10.7 License Agreement dated January 31, 1995 by and between the Registrant and PC Quote. 10.8 Dow Jones Financial News Services 2 Year Plan Subscription Agreement. 10.9 S & P Comstock Subscriber Agreement. **10.10 Form of Branch Office Management Agreement. 23.1 Consent of Independent Auditors. **23.2 Consent of Counsel (included in Exhibit 5.1). *24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule as of and for the year ended June 30, 1997 and as of and for the nine months ended March 31, 1998. *99.1 Consent of Josef A. Ross. *99.2 Consent of Robert D. Kashan.
- ------------ * Previously filed ** To be filed by amendment + Confidential treatment has been requested with respect to certain portions of this exhibit (2) Financial Statement Schedules Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the Financial Statements or Notes thereto. ITEM 17. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: II-2 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or the Restated By-Laws of Registrant, Indemnification Agreements entered into between the Registrant and its directors and officers, Underwriting Agreement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MONTVALE, STATE OF NEW JERSEY ON THIS 10th DAY OF JULY, 1998. ALL-TECH INVESTMENT GROUP, INC. By /s/ Harvey I. Houtkin ------------------------------ Harvey I. Houtkin Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Harvey Houtkin and Mark Shefts, and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement and a new Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURES /s/ Harvey I. Houtkin Chief Executive Officer, Secretary and Director - ----------------------------- July 10. 1998 Harvey I. Houtkin /s/ Mark D. Shefts President, Treasurer and Director - ----------------------------- July 10, 1998 Mark D. Shefts /s/ Harry M. Lefkowitz Senior Vice President and Director - ----------------------------- July 10, 1998 Harry M. Lefkowitz
II-4 EXHIBIT INDEX
Exhibit Number Document Description - ------------------ ------------------------------------------------------------------------------------------------ *1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation. 3.2 By-Laws of the Registrant. 4.1 Specimen of Common Stock Certificate. *4.2 Form of Warrant Agreement, including Form of Warrant Certificate. *4.3 Form of Representative's Warrant Agreement, including Form of Representative's Warrant Certificate. **5.1 Opinion of Sichenzia, Ross & Friedman LLP. 10.1 1998 Stock Option Plan. 10.2 401(k) Plan. 10.3 Lease of premises at 160 Summit Avenue, Montvale, New Jersey. 10.4 Employment Agreement dated April 30, 1998, by and between Harvey I. Houtkin and the Registrant. 10.5 Employment Agreement dated April 30, 1998, by and between Mark D. Shefts and the Registrant. +10.6 Clearing Agreement between Registrant and Southwest Securities Corp. dated July 15, 1997, as amended August 4, 1997. 10.7 License Agreement dated January 31, 1995 by and between the Registrant and PC Quote. 10.8 Dow Jones Financial News Services 2 Year Plan Subscription Agreement. 10.9 S & P Comstock Subscriber Agreement. **10.10 Form of Branch Office Management Agreement. 23.1 Consent of Independent Auditors. **23.2 Consent of Counsel (included in Exhibit 5.1). *24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule as of and for the year ended June 30, 1997 and as of and for the nine months ended March 31, 1998. *99.1 Consent of Josef A. Ross. *99.2 Consent of Robert D. Kashan.
- ------------ * Previously filed ** To be filed by amendment + Confidential treatment has been requested with respect to certain portions of this exhibit EX-3.1 2 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF ALL-TECH INVESTMENT GROUP, INC. Under Section 102 of the Delaware General Corporation Law I, Thomas M. Curtin, being a natural person of the age of eighteen years or over, for the purpose of forming a corporation under Section 102 of the Delaware General Corporation Law, hereby certify: FIRST: The name of the corporation (the "Corporation") is ALL-TECH INVESTMENT GROUP, INC. SECOND: The address of the Corporation's registered office is 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801; and its registered agent at such address is Corporation Trust Center. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: 1. The aggregate number of shares of stock which the Corporation shall have authority to issue is Sixty Million (60,000,000), consisting of: (A) Fifty-five Million (55,000,000) shares of Common Stock of the par value of $.001 per share ("Common Stock"); and (B) Five Million (5,000,000) shares of Preferred Stock of the par value of one cent ($.01) per share ("Preferred Stock"). 2. (A) The Corporation shall have authority to issue its Preferred Stock in one or more series. The Board of Directors is vested with authority to establish and designate each series of Preferred Stock and to fix the number of shares to be included in such series and the voting powers, the relative rights, preferences and special rights, and the qualifications, limitations or restrictions, of such series, subject to the provisions of this paragraph 2. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) Whether that series shall be entitled to any dividends, and, if so, the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates; (iii) Whether that series shall have voting rights, in addition to the voting rights required by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund. (vii) The amounts payable on the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (viii) Any other voting powers, relative rights, preferences and special rights and qualifications, limitations or restrictions of that series. (B) Dividends on outstanding shares of Preferred Stock of each series entitled to dividends shall be declared and paid, or set apart for payment, before any dividends shall be declared and paid, or set apart for payment, on any shares of Common Stock with respect to the same dividend period. (C) Upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of each series of the Preferred Stock shall be entitled to receive out of the assets of the Corporation, before any distribution shall be made to the holders of the Common Stock, the amount determined to be payable to the holders of such series of Preferred Stock on voluntary or involuntary liquidation. 2 FIFTH: Each issued and outstanding share of Common Stock shall be entitled to one vote. SIXTH: 1. The number of Directors of this Corporation shall be determined from time to time by the affirmative vote of a majority of the Board of Directors. The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. At the 1999 annual meeting of stockholders, Class I Directors shall be elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 2000, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. A Director shall hold office until the annual meeting for the year in which his term expires and until his or her successor shall be elected and shall qualify, or until his or her earlier death, resignation, retirement, disqualification or removal from office. 2. If the number of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. Any Director elected to fill a vacancy not resulting from an increase in the number of Directors shall have the same remaining term as that of his or her predecessor. Any vacancy on the Board of Directors (whether or not resulting from an increase in the number of Directors) may be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director. 3. Any Director or the entire Board of Directors may be removed only for cause by the affirmative vote of three-quarters of the entire Board of Directors or by the affirmative vote of two-thirds of the votes represented of the issued and outstanding shares of the Common Stock of the Corporation entitled to vote at a meeting called for such purpose. 4. Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately by series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, removal, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable to such series, and such Directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms. SEVENTH: 1. The Board of Directors of the Corporation shall have the power to alter, amend or repeal the By-laws of the Corruption or to adopt new By-laws, but any By-laws adopted by the Board of Directors may be altered, amended or repealed, and new By-Laws adopted, by the stockholders. 3 2. Any action taken by the stockholders with respect to altering, amending or repealing the By-laws of the Corporation or adopting new By-Laws shall be taken by the affirmative vote of the holders of at lease a majority of the voting power of the Corporation. 3. Except as limited by applicable law and this Certificate of Incorporation, the Board of Directors shall have the right (which, to the extent exercised, shall be exclusive) to manage or direct the management of the business and affairs of the Corporation and to establish the rights, powers, duties, rules and procedures that from time to time shall govern the Board of Directors and each of its members, including without limitation the vote required for any action by the Board of Directors, the election of officers and the indemnification by the Corporation of its officers and directors; and no By-Law shall be adopted by stockholders which shall impair or impede the implementation of the foregoing. EIGHTH: Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation to the contrary, no action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken by written consent without a meeting, except any action taken upon the signing by all the stockholders of the Corporation entitled to vote thereon of a consent in writing, setting forth the action so taken and except in the case of a merger wherein the Corporation is the surviving corporation. NINTH: 1. Nominations for the election of Directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of Directors. Such nominations by any stockholder shall be made only by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than thirty (30) days nor more than fifty (50) days prior to any meeting of the stockholders called for the election of Directors or at which such nominations are made. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. 2. Each notice under paragraph 1 of this Article NINTH shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number, class and series of shares of stock of the Corporation which are beneficially owned by each such nominee. 3. A proxy or information statement with respect to nominations of Directors by any stockholder complying with the requirements of the Act shall be prepared and mailed by such nominating stockholder to all stockholders of the Corporation at lease thirty (30) days prior to any meeting of stockholders called for the election of Directors or at which such nominations are made (whether or not such proxy or information statement is required to be mailed pursuant to the Act). 4 4. The Chairman of any annual or special meeting of stockholders may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. TENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholder of class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this Corporation. ELEVENTH: The invalidity or unenforceability of any provisions of this Certificate of Incorporation shall not affect any other provision hereof, and the remainder of this Certificate of Incorporation shall be construed as if such invalid or unenforceable provision were omitted. TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. THIRTEENTH: (a) A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived any improper personal benefit. (b) The Directors, officers, employees and agents of the Corporation and any such person serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation or a partnership, joint venture, trust, employee benefit plan or other kind of enterprise shall be indemnified and held harmless by the Corporation against all liability, loss, expense or cost (including, without limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith. 5 FOURTEENTH: The name and mailing address of the incorporator is: Thomas M. Curtin, Esq., McCarthy, Fingar, Donovan, Drazen and Smith, L.L.P., 11 Martine Avenue, 12th Floor, White Plains, NY 10606-1934. FIFTEENTH: The name and mailing address of each person, who is to serve as a director until the first annual meeting of the stockholders or until a successor is elected and qualified or until the Board is enlarged and any vacancy is filled are as follows: Harvey I. Houtkin 160 Summit Ave., Montvale, NJ 07645 Mark D. Shefts 160 Summit Ave., Montvale, NJ 07645 Harry M. Lefkowitz 160 Summit Ave., Montvale, NJ 07645 IN WITNESS WHEREOF, this Certificate of Incorporation has been signed by the subscriber this 28th day of May, 1998. /s/ Thomas M. Curtin ---------------------------------------- Thomas M. Curtin 6 EX-3.2 3 BY-LAWS ALL-TECH INVESTMENT GROUP, INC. BY-LAWS ARTICLE I OFFICES Section l. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section l. All meetings of the stockholders for the election of Directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year l999, shall be held on such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of such stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2 Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called only by the Chairman of the Board or shall be called by the President or Secretary at the request in writing of three-fourths of the Board of Directors. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. Stockholders holding one third of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the 3 adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section l0. Unless otherwise provided in the Certificate of Incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Except as otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 4 ARTICLE III DIRECTORS Section l. The number of Directors which shall constitute the whole Board shall be not less than two nor more than twelve. The first Board shall consist of five Directors. Thereafter, within the limits above specified, the number of Directors shall be determined by resolution of the Board of Directors. The Board of Directors shall be divided into three classes in respect to term of office, each class to contain as near as may be one-third of the whole number of the Board of Directors. Of the Board of Directors as elected at the first annual meeting of the stockholders of the Corporation, the members of the first class shall serve until the second annual meeting of stockholders of the Corporation, the members of the second class shall serve until the third annual meeting of the stockholders of the Corporation, and the members of the third class shall serve until the fourth annual meeting of stockholders of the Corporation, provided however that in each case, Directors shall continue to serve until their successor shall be elected and shall qualify. At each annual meeting of stockholders of the Corporation, one class of Directors shall be elected to serve until the annual meeting of stockholders held three years next following. Directors need not be stockholders. Section 2. Vacancies and newly created Directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining Director, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no 5 Directors in office, then an election of Directors may be held in the manner provided by statute. Section 3. The business of the Corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Any one or more of the Directors of the Corporation may be removed from office only for cause and only by the affirmative vote of three-fourths of the entire Board of Director or by the affirmative vote of two-thirds of the votes of the issued and outstanding shares of the Corporation entitled to vote at a meeting called for such purpose. Removal for cause shall include removal only because of a Director's personal dishonesty, incompetence, willful or grossly negligent misconduct, breach of fiduciary duty involving personal profit, or willful violation of any law, rule or regulation (other than traffic or similar minor offenses) or breach of fiduciary duty causing material damage to the Corporation. MEETINGS OF THE BOARD OF DIRECTORS Section 5. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. The Board of Directors shall hold a meeting reasonably promptly after the annual meeting. 6 Section 7. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Section 8. Special meetings of the Board may be called by the Chairman of the Board on at least two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of three Directors unless the Board consists of only one Director; in which case special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of the sole Director. Section 9. At all meetings of the Board, a majority of the Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided in these By-Laws, by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 10. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 7 Section 11. Unless otherwise restricted by the Certificate of Incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 12. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) amending the Certificate of Incorporation (except that a committee may, to the extent authorized in 8 the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section l5l(a) of the General Corporation Law of Delaware fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopting an agreement of merger or consolidation, (iii) recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section l3. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS Section l4. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall 9 preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed compensation for attending committee meetings. ARTICLE IV NOTICES Section l. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to Directors may also be given by telegram or telefax. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section l. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer or Controller. The Board of Directors 10 may also choose additional Vice-Presidents, including Executive or Senior Vice-Presidents, and one or more assistant Secretaries and assistant Treasurers. Any number of officers may be held by the same persons, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer or Controller. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD Section 6. The Chairman of the Board shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the 11 Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. 12 THE PRESIDENT Section 8. The President shall be the Chief Operating Officer of the Corporation. The President shall preside, in the absence of the Chairman of the Board, at all meetings of the Directors and stockholders and shall have such other duties as may be prescribed from time to time by the Board of Directors. THE VICE-PRESIDENTS Section 9. In the absence of the President, the Vice-Presidents in the order designated by the Directors (or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice-Presidents shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board or President may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 10. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or President. The Secretary shall have custody of the corporate seal of the Corporation, and the 13 Secretary or an Assistant Secretary shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the Secretary's signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by signature. Section 11. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, the Chairman of the Board or the President, shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. THE TREASURER OR CONTROLLER AND ASSISTANTS Section 12. The Treasurer or Controller shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. Section 13. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer or Controller and of the financial condition of the Corporation. 14 Section l4. If required by the Board of Directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under the Treasurers control belonging to the Corporation. Section l5. The Assistant Treasurer or Assistant Controller, or if there shall be more than one, the Assistant Treasurers or Controllers in the order determined by the Board of Directors shall, in the absence of the Treasurer or Controller or in the event of inability or refusal to act, perform the duties and exercise the powers of the Treasurer or Controller and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board or the President may from time to time prescribe. 15 ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the Corporation shall be represented by certificates. Certificates shall be signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, or the President or a Vice-President and the Treasurer, the Controller or an Assistant Controller, or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation. Upon the face or back of each stock certificate issued to represent any partly paid shares shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special 16 rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The Board of Directors may direct a new certificate to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the 17 Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 18 ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The Board of Directors shall cause to be presented at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. 19 CHECKS Section 4. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS Section 1. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and 20 reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. 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, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall 21 determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this Section 1 or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this Section 1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such paragraphs (a) and (b) of this Section 1. Such determination shall be made (i) by the Board of Directors of the Corporation by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders of the Corporation. (e) Expenses incurred by a director or officer of the Corporation in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall 22 ultimately be determined that he or she is not entitled to be indemnified by the Corporation authorized in this Article VIII--such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (g) The Corporation may be purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of General Corporation Law. (h) For purposes of this Article VIII, references to the "Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officer, employees or agents so that any person who is or was a director, 23 officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to any employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 24 ARTICLE IX AMENDMENTS OR REPEAL Section 1. These By-Laws may be amended or repealed, in whole or in part, by a majority of vote of the Board of Directors, at any regular or special meeting of the Board duly convened. Notice need not be given of the purpose of the meeting of the Board of Directors at which the amendment or repeal is to be considered. Notwithstanding the foregoing provision, the Stockholders shall have the power to adopt, amend or repeal By-Laws. * * * * * 25 EX-4.1 4 EXHIBIT 4.1 ATC ALL-TECH INVESTMENT GROUP, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE SIDE FOR CERTAIN DEFINITIONS CUSIP 016681 10 8 This is to Certify that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF All-Tech Investment Group, Inc. (hereinafter called the "Corporation"). The shares evidenced by this certificate are transferable only on the stock transfer books of the Corporation by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF the Corporation has caused this certificate to be executed by the signatures of its duly authorized officers and has caused its facsimile seal to be hereunto affixed. Dated: Secretary Chairman of the Board Countersigned and Registered: CONTINENTAL STOCK TRANSFER & TRUST COMPANY (Jersey City, N.J.) Transfer Agent and Registrar By Authorized Officer All-Tech Investment Group, Inc. Delaware [Seal] Corporation * All-Tech Investment Group, Inc. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT-D____________Custodian________________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with the right of under Uniform Gifts to Minors survivorship and not as tenants Act__________________________________ in common (State)
Additional abbreviations may also be used though not in the above list. For Value received,_______________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Shares - ------------------------------------------------------------------------ represented by the within Certificate, and do hereby irrevocably constitute and appoint ------------------------------------------------------------------------ Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated: ----------------------- In the presence of -------------------------------------------------------- Signature -------------------------------------------------------- Signature NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: - ------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.1 5 1998 STOCK OPTION PLAN ALL-TECH INVESTMENT GROUP, INC 1998 STOCK OPTION PLAN 1. Purpose. The ALL-TECH INVESTMENT GROUP, INC 1998 Stock Option Plan (the "Plan") is intended to increase incentive and encourage the continued employment of key employees and the continued services of key non-employees by facilitating their purchase of stock in ALL-TECH INVESTMENT GROUP, INC (the "Corporation"). It is intended that options issued pursuant to this Plan may constitute (a) incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or (b) non-qualified stock options. 2. Definitions. As used herein: (a) "Corporation" means ALL-TECH INVESTMENT GROUP, INC, a Colorado limited liability company. (b) "Board" means the Board of Managers of the Corporation. (c) "Common Stock" means the $0.001 par value Common Stock of the Corporation. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the Compensation Committee appointed by the Board in accordance with paragraph 4 of this Plan. (f) "Continuous Employment" or "Continuous Status as an Employee" means the absence of any interruption or termination of employment by the Corporation or any Parent or Subsidiary of the Corporation. Employment shall not be considered interrupted in the case of maternity leave, sick leave, military leave or any other leave of absence approved by the Corporation or any Parent or Subsidiary of the Corporation, or in the case of transfers between the Corporation and a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, or any Parent or Subsidiary of either. (g) "Employee" means any person employed on a full-time basis by the Corporation or any Parent or Subsidiary of the Corporation. (h) "Incentive Option" means a stock option designated as, and qualified as an "incentive stock option" within the meaning of Section 422 of the Code. (i) "Independent member of the Board" means a Manager who is not an officer or employee of the Corporation. (j) "Non-Qualified Stock Option" means any stock option which is not an Incentive Option. (k) "Option" means an option granted pursuant to this Plan. (l) "Option Agreement" means an agreement between the Corporation and an employee setting forth the Option grant and its terms and conditions. (m) "Optioned Stock" means stock subject to an Option granted pursuant to this Plan. (n) "Optionee" means an Employee who receives an Option. (o) "Parent" means any present or future corporation which would be a "parent corporation" as defined in Subsections 424(e) of the Code. (p) "Plan" means the ALL-TECH INVESTMENT GROUP, INC 1998 Stock Option Plan. (q) "Subsidiary" means any present or future corporation which would be a "subsidiary corporation" as defined in Subsection 424(f) of the Code. 3. Shares Subject to the Plan. Except as otherwise permitted by the provisions of paragraph 14 hereof, the aggregate number of shares of Common Stock which may be issued upon the exercise of Options granted under this Plan shall be 2,250,000 shares of Common Stock of the Corporation. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased shares which were subject thereto shall, unless the term of the Plan under 2 paragraph 16 shall have expired or the Plan shall have been terminated pursuant to paragraph 18, be available for the grant of other Options under this Plan. 4. Administration of the Plan. The Plan shall be administered by the Compensation Committee composed of not less than three persons each of whom may be an independent member of the Board or a non member of the Board, in each case to be appointed from time to time by such Board. The Corporation shall grant Options under the Plan only to key persons in accordance with the determination of the Committee as to: (a) which key persons shall be granted Options. (b) whether options to be granted hereunder shall be Incentive Options, Non-Qualified Options or a combination thereof. (c) the number of shares of Optioned Stock. (d) the term of each Option. (e) the number of shares of Optioned Stock which may be acquired each year of the Option term by the Optionee. If Options are granted pursuant to a vesting schedule, the Committee may provide for acceleration of vesting upon a change of control, which provisions shall be set forth in the Option Agreement. The Committee will make its determination under the preceding provisions based upon such factors as a grantee's length of services to the Corporation, the capacity in which such services were rendered, the amount of his compensation, and his responsibilities, duties and functions. Subject to the provisions of this Plan, the Committee may from time to time adopt rules and regulations necessary or advisable for the Plan's administration, and shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. The determination or the interpretation and construction of any provision of the Plan (and any provision of any Option granted hereunder) by the Committee shall, unless otherwise determined by 3 the Board, be final and conclusive. 5. Eligibility. All Employees are eligible for Options under the Plan. Options shall be granted to Employees who are deemed by the Committee to be key Employees on the basis of the value to the Corporation of their continued employment or the advisability of increasing incentive. A key Employee who has been granted an Option may, if otherwise eligible, be granted an additional Option or Options. No member of the Committee is eligible to receive an Option under the Plan. Non Employees, e.g., consultants, independent contractors and Managers who are not Employees, may be granted Non-Qualified Stock Options if, in the judgment of the Committee, such non-Employees are deemed to have made and/or have the capacity to make significant contributions to the Corporation. 6. Annual Limit on Incentive Options. The aggregate fair market value (determined as of the date the Incentive Option is granted) of the shares for which any Employee may be granted Incentive Options and which becomes exercisable for the first time in any calendar year (under all Incentive Stock Option Plans, as defined in Section 422(b) of the Code, of the Corporation or any Parent or Subsidiary of the Corporation) shall not exceed $100,000 (or such larger amount as may be authorized by amendment to Section 422(d) of the Code). 7. Term of Option. The term of each Option granted under this Plan shall be established by the Committee, provided that in no event shall any such Option be exercisable after the expiration of 10 years from the date such Option is granted, or 5 years in the case of an Incentive Option granted to an Employee who owns or is deemed to own under Section 424(d) of the Code, at the time the Option is granted, more than 10% of the voting power or value of all classes of stock in the Corporation (or a Parent or Subsidiary of the Corporation). 8. Option Price. The price per share at which each Option granted under the Plan may be exercised shall, as to any particular Option, be not less than the fair 4 market value of the Optioned Stock at the time such Option is granted. If an Incentive Option is granted to an Employee who owns or is deemed to own under Section 424(d) of the Code, at the time the Incentive Option is granted, more than 10% of the voting power or value of all classes of stock in the Corporation (or a Parent or Subsidiary of the Corporation), the Option price as to that Incentive Option shall not be less than 110% of the fair market value of the Optioned Stock at the time such Incentive Option is granted. If the Common Stock is traded otherwise than on a national securities exchange at the time of granting an Option, then the fair market value per share shall be the mean between the bid and asked price on the date the Option is granted or, if there is no bid and asked price on said date, then on the next prior business day on which there was a bid and asked price. If the Common Stock is listed on a national securities exchange at the time of granting an Option, then the fair market value per share shall be the average of the highest and lowest selling price on such exchange on the date such Option is granted or, if there were no sales on said date, then the fair market value per share shall be the mean between the bid and asked price on such date. 9. Procedure for Exercise of Option. Any Option granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Option granted to the Optionee. Subject to provisions relative to its termination and limitations on its exercise, an Option granted under the Plan may be exercised at one time with respect to all of the Optioned Stock, or from time to time with respect to a whole number of shares less than the total number of shares of Optioned Stock until such total number of shares has been purchased. Such Option shall be exercised by written notice of intent to exercise the Option with respect to a specified number of shares. Payment shall be made in United States dollars to the Corporation (contemporaneously with delivery of each such notice), in cash, or by certified check, bank draft, or money order, of the amount of the Option price for the 5 number of shares with respect to which the Option is then being exercised. Unless the Committee in issuing the Option has provided otherwise, payment may also be made (i) in the form of Common Stock already owned by the Optionee based on the fair market value of the Common Stock on the date of exercise, (ii) by requesting the Corporation to withhold from the number of shares otherwise issuable upon exercise of the Option that number of shares having an aggregate fair market value on the date of exercise equal to the exercise price for all the shares of Common Stock subject to such exercise, or (iii) by a combination thereof; provided, however, that any payment made in the manner set forth in (i), (ii), (iii) above shall, at all times, be subject to the approval of the Committee. Each such notice and payment shall be delivered, or mailed by registered or certified mail, addressed to the Secretary of the Corporation at the Corporation's executive offices. 10. Further Conditions of Exercise of an Option. (a) Unless otherwise provided in the terms of an Option, an Option granted to an Employee may be exercised by an Optionee only if the Optionee has maintained Continuous Status as an Employee from the date of the grant of the Option to the date three months before the exercise of the Option (one year before the exercise of the Option in the case of an Optionee who is disabled within the meaning of Section 105(d)(4) of the Code). The Committee's determination whether an Optionee's employment has ceased, and the effective date thereof, shall, unless otherwise determined by the Board, be final and conclusive on all persons affected thereby. In the event of the death of an Optionee prior to the exercise of any Option granted to such Optionee pursuant to the Plan, such Option shall be exercisable only prior to the expiration of the term of the Option or within the period of two years next succeeding his death, whichever shall first occur, and then (a) only by his estate or by or on behalf of such person or persons to whom the Optionee's right under the Option shall have passed by the Optionee's Will or by the laws of descent and distribution and (b) if and 6 only to the extent that such Optionee was entitled to exercise the Option at the date of his death. (b) The terms and conditions of options granted under the Plan shall be set forth or incorporated by reference in the instruments evidencing such options. (c) Notwithstanding the provisions of paragraph (a) above, the Committee may vary the periods of time within which a Non-Qualified Option is exercisable, and may elect to permit Incentive Options to be exercised after a paragraph (a) period has elapsed, in which case, the Option will be treated as a Non-Qualified Option. 11. Interest Prior to Issuance of Shares. Upon exercise of an Option in the manner provided in paragraph 9, the Optionee (or other person entitled to exercise the Option pursuant to a transfer of the Option by will or by the laws of descent and distribution) shall be deemed a shareholder for all purposes, and ownership of the shares of Optioned Stock in the name of the Optionee (or such other person) shall be recorded in the stock transfer books of the Corporation, unless such stock transfer books are closed, in which case ownership of the shares of Optioned Stock in the name of the Optionee (or such other person) shall be recorded in the stock transfer books of the Corporation as soon as they are again open. 12. Non-Transferability of Options. Incentive Options granted under the Plan may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. An Option may be exercised, during the lifetime of the Optionee, only by the Optionee. 13. Sale of Incentive Option Shares by Optionee. Shares purchased pursuant to an Incentive Option granted under the Plan shall not be sold by the Optionee within one year of the date of purchase or within two years of the grant of the Option. If, however, any sale is made contrary to such provisions, the Option shall be then treated for tax purposes as a Non-Qualified Option. 7 14. Adjustments. In the event that there is any change in the Common Stock as to Options granted hereunder, through merger, consolidation, recapitalization, reclassification, reorganization, stock split, stock dividend, split-up, combination of shares or otherwise, the Board shall make such adjustments with respect to Options or any provisions of this Plan as it deems equitable to prevent dilution or enlargement of Option rights. 15. Time of Granting Options. The date of grant of an Option under this Plan shall, for all purposes, be the date on which the Committee makes the determination of granting such Option. Notice of the determination shall be given to each Employee to whom an Option is so granted within a reasonable time after the date of such grant. No option shall be granted after the term of the Plan under paragraph 16 has expired or after the Plan has been terminated pursuant to paragraph 18. 16. Effective Date. The Plan shall become effective upon its adoption by the Board, but the Plan and any Options granted under the Plan shall be cancelled and become null and void if the Plan is not approved by an affirmative vote of the holders of a majority of all outstanding shares of the Corporation entitled to vote thereon at a legal meeting held within twelve (12) months before or after the date it is adopted. If the Plan is not cancelled pursuant to the preceding sentence, the Plan shall continue in effect for a term of ten (10) years from the earlier of the date the Plan is adopted by the Board or approved by the shareholders, unless sooner terminated under paragraph 18. 17. Modification of Options. At any time and from time to time the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Option, provided no such modification shall confer on the holder of said Option any right or benefit which could not be conferred on him by the grant of a new Option at such time, or impair any right or benefit under the Option without the consent of the holder of the Option. 8 18. Amendment and Termination of the Plan. The Board may alter, suspend or discontinue the Plan except that no action of the Board may increase (other than as provided in Section 14) the maximum number of shares permitted to be optioned under the Plan, reduce the Option price, extend the period within which Options may be exercised, vary the class of Employees eligible to receive Options, or, without the consent of the holder of any Option, impair such Option. 19. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to any Option granted under the Plan unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. 20. Reservation of Shares. The Corporation, during the term of this Plan, will reserve and keep available a number of Shares of Common Stock sufficient to satisfy the requirements of the Plan. 21. Application of Funds. The proceeds received by the Corporation from the sale of its Common Stock pursuant to Options granted under the Plan shall be used in the discretion of the Board for the Corporation's general corporate purposes. 22. Instruments Evidencing Options. The terms and conditions of Options granted under this Plan shall be set forth or incorporated by reference in the instruments evidencing such options. 9 EX-10.2 6 401(K) PLAN 401(k) Standardized Profit Sharing Plan ADOPTION AGREEMENT (0021 -1745) ================================================================================ Section 1 Employer Information Name of Employer: ALL-TECH INVESTMENT GROUP INC Address: 160 SUMMIT AVE City: MONTVALE State: NJ Zip: 07645 - 1721 Telephone: (201 ) 782 - 0200 Federal Tax Identification Number: 13-2581640 Income Tax Year - End: 06/31 Plan Year End: 12/31 Type of Business: (Check only one) [ ] Sole Proprietorship [ ] Partnership [X] Corporation [ ] Other (Specify): Nature of Business (Describe): 7398 - OTHER BUSINESS SERVICES. Plan Sequence No. 001 (Enter 001 if this is the first qualified plan the Employer has ever maintained, enter 002 if it is the second, etc.) Plan Name: ALL-TECH INVESTMENT GROUP INC 401(k) Profit Sharing Plan and Trust Section 2 Effective Dates Part A Initial Adoption or Amendment of Plan: Check and complete Option 1 or 2 [X] Option 1: This is the initial adoption of a profit sharing plan by the Employer. The Effective Date of this plan is January 01, 1998. NOTE: The Effective Date is usually the first day of the Plan Year in which the Adoption Agreement is signed. [ ] Option 2: This is an amendment and restatement of an existing profit sharing plan (a Prior Plan). The Prior Plan was initially effective on______________________, 19__. The Effective Date of this amendment and restatement is __________________, 19__. NOTE: The Effective Date is usually the first day of the Plan Year in which the Adoption Agreement is signed. Part B Commencement of Elective Deferrals Elective Deferrals may commence on January 01, 1998. NOTE: This date may be no earlier than the date this Adoption Agreement is signed because Elective Deferrals cannot be made retroactively. Section 3 Eligibility Requirements Complete Parts A, B, C, and D 401(k) Standardized Profit Sharing Plan Adoption Agreement Page 1 Part A Years of Eligibility Service Requirement: With the exception of the Initial Plan Year Effective Date, an employee will be eligible to become a participant after completing 1 Year(s) of Eligibility Service. NOTE: If left blank, the Years of Eligibility Service required will be deemed to be 0. Part B Age Requirement : An Employee will be eligible to become a Participant in the Plan after attaining age 21. NOTE: If left blank, it will be deemed there is no age requirement for eligibility. Part C Class of Employees Eligible to Participate: All Employees shall be eligible to become a Participant in the Plan, except those checked below: [X] Those Employees included in a unit of Employees covered by the terms of a collective bargaining agreement between Employee Representatives (the term 'Employee Representatives' does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer) and the Employer under which retirement benefits were the subject of good faith bargaining unless the agreement provides that such Employees are to be included in the Plan. [X] Those Employees who are non-resident aliens pursuant to Section 410(b)(3)(C) of the Code and who received no earned income from the Employer which constitutes income from sources within the United States. Part D Entry Date: The Entry Dates for Participation shall be (Choose only one option): Option 1: [X] The first day of the Plan Year and first day of the seventh month of the Plan Year. Option 2: [ ] Other (Specify):_________________________________________ NOTE: If Option 2 is selected, the Entry Dates specified must be more frequent than those described in Option 1. Section 4 Elective Deferrals Part A Will Elective Deferrals be permitted under this Plan? (Choose one) Option 1: [X] Yes. Option 2: [ ] No. NOTE: If no option is selected, Option 2 will automatically apply. Complete the remainder of Section 4 only if Option 1 is selected. Part B If Elective Deferrals are permitted under the plan, A Contributing Participant may elect under a salary reduction agreement to have his Compensation reduced by an amount each pay period as described below (Choose one): Option 1: [X] An amount equal to a percentage of the Contributing Participants Compensation from 1% to 12% in increments of 1%. Option 2: [ ] An amount of the Contributing Participant's Compensation not less than $______ and not more than $______. The amount of such reduction shall be contributed to the Plan by the Employer on behalf of the Contributing Participant. For any taxable year, a Contributing Participant's Elective Deferrals shall not exceed the limit contained in Section 402(g) of the Code in effect at the beginning of such taxable year. Part C Participants who claim Excess Elective Deferrals for the Preceding calendar year must submit their claims in writing to the Plan Administrator by FEBRUARY 1. NOTE: This date should be a date prior to the Participant's tax return due date. If no date is selected, March 1 will be deemed to be selected. 401(k) Standardized Profit Sharing Plan / Adoption Agreement Page 2 Section 5 Matching Contributions Part A Will the Employer make Matching Contributions to the Plan on behalf of Contributing Participants? (Choose one) Option 1: [X] Yes. Option 2: [ ] No. NOTE: If no option is selected, Option 2 will automatically apply. Complete the remainder of Section 5 only if Option 1 is selected. Part B Matching Contribution Formula If the Employer will make Matching Contributions, then the amount of such Matching Contributions made on behalf of a Contributing Participant each Plan Year shall be (Choose one): Option 1: [X] An Amount equal to 50% of such Contributing Participant's Elective Deferral. Option 2: [ ] An amount equal to the sum of __% of the portion of such Contributing Participant's Elective Deferral which does not exceed __% of the Contributing Participant's Compensation plus __% of the portion of such Contributing Participant's Elective Deferral which exceeds __ % of the Contributing Participant's Compensation. Option 3: [ ] Other Formula (Specify ):_____________________________ NOTE. If Option 3 is selected, the formula specified can only allow Matching Contributions to be made with respect to a Contributing Participant's Elective Deferrals. Part C Limit on Matching Contributions Notwithstanding the matching contribution formula specified above, the Employer will not match a contributing participant's Elective Deferrals in excess of 6% of such Contributing Participant's Compensation. Part D Forfeitures of Excess Aggregate Contributions Complete Part D only if Matching Contributions are not 100% Vested. Forfeitures of Excess Aggregate Contributions shall be (Choose one): Option 1: [ ] Allocated after all other Forfeitures under the Plan, to each Contributing Participant's Matching Contribution account in the ratio which each Contributing Participant's Compensation for the Plan Year bears to the total Compensation of all Contributing Participants for such Plan Year. Such Forfeitures will not be allocated to the account of any Highly Compensated Employee. Option 2: [X] Applied to reduce Employer Contributions. NOTE: If no option is selected, Option 2 will be deemed to be selected. Section 6 Qualified Nonelective Contributions Part A Will the Employer make Qualified Nonelective Contributions to the Plan? (Choose one) Option l: [X] Yes. Option 2: [ ] No. If the Employer will make Qualified Nonelective Contributions, then the amount of such contribution to the Plan for each Plan Year shall be an amount determined by the Employer. NOTE: If no option is selected, Option 2 will automatically apply. Complete the remainder of Section 6 only if Option 1 is selected. 401(k) Standardized Profit Sharing Plan / Adoption Agreement Page 3 Part B Participants Entitled to Qualified Nonelective Contributions. Allocation of Qualified Nonelective Contributions shall be made to the Individual Accounts of (choose one): Option 1: [ ] All Participants. Option 2: [X] Only Participants who are not Highly Compensated Employees. Part C Allocation of Qualified Nonelective Contributions. Allocation of Qualified Nonelective Contributions to Participants entitled thereto shall be made (choose one): Option 1: [X] In the ratio which each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year. Option 2: [ ] In the ratio which each Participant's Compensation not in excess of $______ for the Plan Year bears to the total Compensation of all Participants not in excess of $______ for such Plan Year. Section 7 Employer Profit Sharing Contribution and Allocation Formula Part A Contribution Formula. For each Plan Year the Employer may, in its sole discretion, contribute to the Plan an amount to be determined from year to year. Part B Allocation Formula (Check Option 1 or 2): Option 1: [X] Pro Rata Formula. Employer Contributions made pursuant to this Section and Forfeitures shall be allocated to the Individual Accounts of qualifying Participants in the ratio that each qualifying Participant's Compensation for the Plan Year bears to the total Compensation of all qualifying Participants for the Plan Year. Option 2: [ ] Integrated Formula. Employer Contributions made pursuant to this Section and Forfeitures shall be allocated as follows (Start with Step 3 if this Plan is not a Top-Heavy Plan): Step 1: Employer Contributions and Forfeitures shall first be allocated pro rata to qualifying Participants in the manner described in Section 7, Part B, Option 1. The percent so allocated shall not exceed 3% of each qualifying Participant's Compensation. Step 2: Any Employer Contributions and Forfeitures remaining after the allocation in Step 1 shall be allocated to each qualifying Participant's Individual Account in the ratio that each qualifying Participant's Compensation for the Plan Year excess of the integration level bears to all qualifying Participant's Compensation in excess of the integration level, but not in excess of 3%. Step 3: Any Employer Contributions and Forfeitures remaining after the allocation in Step 2 shall be allocated to each qualifying Participant's Individual Account in the ratio that the sum of each qualifying Participant's total Compensation and Compensation in excess of the integration level bears to the sum of all qualifying Participant's total Compensation and Compensation in excess of the integration level, but not in excess of the profit sharing maximum disparity rate as described in Section 3.01(B)(3) of the Plan. Step 4: Any Employer Contributions and Forfeitures remaining after the allocation in Step 3 shall be allocated pro rata to qualifying Participant's in the manner described in Section 7. Part B, Option 1. 401(k) Standardized Profit Sharing Plan Adoption Agreement Page 4 The integration level shall be: (Choose one): Option 1: [ ] The Taxable Wage Base Option 2: [ ] $____ (a dollar amount less than the Taxable Wage Base) Option 3: [ ] ___% of the Taxable Wage Base NOTE: If no box is checked, the integration level shall be the Taxable Wage Base. Section 8 Vesting (Complete Parts A and B): Part A Vesting Schedules A Participant shall become Vested in his or her Individual Account attributable to Employer Contributions made pursuant to Section 7 of the Adoption Agreement (and Forfeitures thereof) as follows (Choose one):
========================================================================================================= YEARS OF VESTED PERCENTAGE VESTING SERVICE Option 1: [x] Option 2: [ ] Option 3: [ ] Option 4: [ ] (Complete if Chosen) ========================================================================================================= 1 0% 0% 100% 20% 2 20% 0% 100% 40% 3 40% 100% 100% 60% (not less than 20%) 4 60% 100% 100% 80% (not less than 40%) 5 80% 100% 100% 100% (not less than 60%) 6 100% 100% 100% (not less than 80%) 7 100% 100% 100% (not less than 100%) ========================================================================================================= NOTE: If left blank, Option 3, 100% Vesting, will be deemed to be selected.
Part B Vesting of Matching Contributions A Participant's Individual Account derived from Matching Contributions made pursuant to Section 5 of this Adoption Agreement shall be (Choose one if Matching Contributions will be made): Option 1: [ ] 100% Vested at all times. Option 2: [X] Vested in accordance with the vesting schedule selected in Section 8, Part A above. NOTE: If no selection is made, the selection will be deemed to be Option 1. Section 9 Normal Retirement Age The Normal Retirement Age under the Plan is age 65. NOTE: If left blank, the Normal Retirement Age will be deemed to be 59(1/2). Section 10 Hours Required (Complete Parts A and B and Part C, if applicable): Part A 1,000 Hours of Service (no more than 1,000) shall be required to constitute a Year of Vesting Service or a Year of Eligibility Service. Part B 500 Hours of Service (no more than 500 but less than the number specified in Section 10, Part A) must be exceeded to avoid a Break in Vesting Service or a Break in Eligibility Service. 401(k) Standardized Proflt Sharing Plan Adoption Agreement Page 5 Part C For purposes of determining Years of Eligibility Service and Years of Vesting Service, Employees shall be given credit for Hours of Service with the following predecessor employer(s) (Complete if applicable): N/A__________________________________________________________________ Section 11 Other Options Answer "Yes" or "No" to each of the following questions by checking the appropriate box. If a box is not checked for a question, the answer will be deemed to be "No". A. Loans: Will loans to Participants pursuant to Section 6.08 of the plan be permitted? [X] Yes [ ] No B. Participant Direction of Investments: Will Participants be permitted to direct the investment of their Individual Accounts pursuant to Section 5.14 of the plan? [X] Yes [ ] No C. In-Service Withdrawals: Will Participants be permitted to make withdrawals during service pursuant to Section 6.01 (A)(3) of the Plan? [ ] Check here if such withdrawals will be permitted only on account of hardship. [ ] Yes [X] No NOTE: If the Plan is being adopted to amend and replace a prior plan which permitted in-service withdrawls, you must answer "Yes". D. Nondeductible Employee Contributions Will Participants be permitted to make Nondeductible Employee Contributions pursuant to Section 11.304 of the Plan? [ ] Yes [X] No F. Hardship Withdrawals Will Participants be permitted to withdraw Elective Deferrals on account of hardship pursuant to Section 11.503 of the Plan? [ I Yes [X] No Section 12 Joint and Survivor Annuity Part A Retirement Equity Act Safe Harbor: Will the safe harbor provisions of Section 6.05(F) of the plan apply (Choose one)? Option 1: [X] Yes Option 2: [ ] No NOTE: You must select "No" if you are adopting this Plan as an amendment and restatement of a Prior Plan that was subject to the joint and survivor annuity requirements. Part B Survivor Annuity Percentage: Complete only if your answer in Section 12, Part A is 'No'. The survivor annuity portion of the Joint and Survivor Annuity shall be a percentage equal to ___% of the amount paid to the Participant prior to his or her death. 401(k) Standardized Proflt Sharing Plan Adoption Agreement Page 6 Section 13 Additional Plans An Employer who has ever maintained or who later adopts any plan (including a welfare benefit fund, as defined in Section 419(e) of the Code, which provides post-retirement medical benefits allocated to separate accounts for key employees as defined in Section 419(d)(3) of the Code or an individual medical account, as defined in Section 415(l)(2) of the Code) in addition to this Plan (other than a paired standardized regional prototype plan) may not rely on the notification letter issued by the National or District Office of the Internal Revenue Service as evidence that this Plan is qualified under Section 401 of the Code. If the Employer who adopts or maintains multiple plans or who may not rely on this notification letter pursuant to the preceding sentence wishes to obtain reliance that the Employees plan(s) are qualified, application for a determination letter should be made to the appropriate Key District Director of Internal Revenue. This Adoption Agreement may be used only in conjunction with Basic Plan Document No. 01. Section 14 Employer Signature Important: Please read before signing I am an authorized representative of the Employer named above and I state the following: 1. I acknowledge that I have relied upon my own advisors regarding the completion of this Adoption Agreement and the legal tax implications of adopting this Plan. 2. I understand that my failure to properly complete this Adoption Agreement may result in disqualification of the Plan. 3. I understand that the Regional Prototype Sponsor will inform me of any amendments made to the Plan and will notify me should it discontinue or abandon the Plan. 4. I have received a copy of this Adoption Agreement and the corresponding Basic Plan Document. Signature for Employer: _____________________________ Date Signed:______________ Type Name: / ALL-TECH INVESTMENT GROUP INC Section 15 Trustee or Custodian Check and complete only one option Option A. [X] Individual Trustee(s) Signature:____________________________ Signature:_________________ MARK SHEFTS Type Name: ___________________________ Type Name:_________________ Option B. [ ]Financial Organization as Trustee or Custodian Check One: [ ] Custodian, [ ] Trustee without full trust powers, or [ ] Trustee with full trust powers NOTE: Custodian will be deemed selected if no box is checked. Financial Organization:________________________________________________________ Signature:_____________________________________________________________________ 401(k) Standardized Profit Sharing Plan Adoption Agreement Page 7 Type Name:_____________________________________________________________________ Section 16 Regional Prototype Sponsor Name of Regional Prototype Sponsor: PAYCHEX RETIREMENT SERVICES Address: 72 PERINTON PARKWAY FAIRPORT, NY 14450 Telephone Number: (800) 472-0072 Section 17 Limitation on Allocations - More than one plan If you maintain or ever maintained another qualified plan (other than a paired standardized regional prototype plan) in which any Participant in this Plan is (or was) a Participant or could become a Participant, you must complete this section. You must also complete this section if you maintain a welfare benefit fund, as defined in Section 419(e) of the Code, or an individual medical account, as defined in Section 415(l)(2) of the Code, under which amounts are treated as annual additions with respect to any Participant in this Plan. Part A If the Participant is covered under another qualified defined contribution plan maintained by the Employer, other than a regional prototype plan: 1. [X] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of the Plan will apply as if the other plan were a regional prototype plan. 2. [ ] Other Method: (Provide the method under which the plans will limit total annual additions to the maximum permissible amount, and will properly reduce any excess amounts, in a manner that precludes Employer discretion.) Part B If the Participant is or has ever been a participant in a defined benefit plan maintained by the Employer, the Employer will provide below the language which will satisfy the 1.0 limitation of Section 415(e) of the Code. Such language must preclude Employer discretion. (Complete): Part C The limitation year is the following 12-consecutive month period: Section 18 Elective Deferrals Based Exclusively on Bonuses May a Contributing Participant base Elective Deferrals on cash bonuses that, at the Contributing Participant's election, may be contributed to the Plan or received by the Contributing Participant in cash (Choose One)? Option 1. [ ] Yes. Option 2. [X] No. NOTE: Answer "yes" only if Elective Deferrals will be based exclusively on cash bonuses rather than payroll deductions. If no option is selected, Option 2 will automatically apply. 401(k) Standardized Profit Sharing Plan Adoption Agreement Page 8 General Information Sheet Summary Plan Description / Qualified Retirement Plans ================================================================================ This "General Information Sheet" highlights the specific plan features for the Sponsoring Employer's plan. As a participant, you should use this sheet in conjunction with the "Summary Plan Description for Qualified Retirement Plans" which is attached. If you did not receive the Summary Plan Description, please contact the sponsoring employer for a copy, Plan Information
Sponsoring Employer: ALL-TECH INVESTMENT GROUP INC 0021 - 1745 EIN: 13-2581640 Address: 160 SUMMIT AVE City, State, Zip: MONTVALE, NJ 07645 - 1721 Plan Administrator: Sponsoring Employer Trustees: MARK SHEFTS Address: 160 SUMMIT AVE City, State, Zip: MONTVALE, NJ 07645 - 1721 Plan Number: 001 Type of Plan: Standardized 401(k) Profit Sharing Plan Section 1: Definitions Plan Year: Plan Year begins each January 1 and ends each December 31. Section 2: Administration of the Plan Plan Effective Date: January 1, 1998 Salary Deferral Start Date: January 1, 1998 Entry Date: Semi-Annually Section 3: Eligibility and Participation Eligible Employees: Generally, all employees, including employees who own part of the business, will be eligible to participate in the Plan. However, the Plan excludes those employees included in a collective bargaining agreement and those employees who are non-resident aliens from participation in the Plan. Age and Service Requirements: With the exception of the initial plan year effective date, you must be 21 years of age and have completed 1000 hours of service which is credited on your hire anniversary date. Section 4: Contributions to the Plan Employee Contributions: Employees may defer salary in the amount of 1 % to 12% of eligible compensation.
General Information Sheet: Summary Plan Description Qualified Retirement Plans (7/95) Page 1
Employer Matching The Employer shall make a contribution in an amount equal to: Contributions: (401(k) Plans Only) 50% of your contribution percent not to exceed 6%; Section 5: Distribution of Benefits and Vesting Plan Normal retirement age, which is defined as age 65; Disability; Withdrawls/Distributions: You terminate employment; Your employer terminates this plan; Death. Employee contributions to a 401 (k) profit sharing plan may be withdrawn when the employee reaches the age of 59(1/2). Restrictions and Penalties If a distribution from the plan is received prior to the age Applied to Distributions: of 59(1/2), a 20% withholding will apply to the distribution. In addition, if you terminate your employment with the Sponsoring Employer prior to the age of 59(1/2), and you receive a distribution, you will have to pay an additional 10% penalty tax. How Benefits are Paid to You: If your vested balance is less than $3,500, your benefits will be paid in a single lump sum payment within 90 days after the end of the Plan Year in which you become eligible to receive them. If your vested balance is more then $3,500, your benefits will not be paid until you submit a written request to the Plan Administrator for payment. Your benefit may be left in the plan. Payment will be made no later than 90 days after the close of the Plan Year in which the written request is received. You must begin taking required minimum distributions at age 70(1/2). Minimum Distribution You will receive a 100% distribution from the Plan by April 1 Requirement: of the year following the calendar year in which you: A. turn 70(1/2) years old and are a 5% owner or B. turn 70(1/2) years old and retire Are In-Service or Hardship No. Withdrawls Allowed? Vesting Schedule: You are always 100% vested in your contributions to the plan. You shall become vested in the employers matching contribution based on the vesting schedule described below. ----------------------------------------------------------------- Years of Employment Vested Percentage Service ----------------------------------------------------------------- 1 0% 2 20% 3 40% 4 60% 5 80% 6 100% ----------------------------------------------------------------- In addition, an employee is automatically 100% vested in the employer matching contributions under the following circumstances: o The participant reaches normal retirement age which is defined as age 65;
General Information Sheet: Summary Plan Description Qualified Retirement Plans (7/95) Page 2
o The participant incurs a disability; o The participant dies; o Upon the complete or partial termination of the profit sharing plan. Section 6: Claims Procedure Refer to Section 6 of the Summary Plan Description for a review of the claims procedure. Section 7: Miscellaneous Participant Directed The employee is responsible for directing the investments of Investments: all assets in his or her individual account. Loans (General guidelines Loans are permitted to all plan participants (except sole only): proprietors, 10% partners and 5% shareholders,) with a vested balance of at least $2,000. Loan fees and interest due shall be paid by the participant. The maximum repayment period is 4(1/2) years. The minimum total loan amount is $1,000. A participant may have only one loan outstanding at any given time. The minimum loan fee is $150* and shall be charged at the time that the loan is issued. Interest rates are determined at the time that the loan is requested to be processed. (*If the loan is for the purchase of a primary residence, the maximum repayment period is 10 years and the loan fee shall be $300.) Section 8: ERISA Rights Refer to Section 8 of the Summary Plan Description for your rights and protections under the Employee Retirement Income Security Act (ERISA).
General Information Sheet: Summary Plan Description Qualified Retirement Plans (7/95) Page 3 EX-10.3 7 LEASE AGREEMENT LEASE AGREEMENT Between Summit Plaza, Inc. "Landlord" -and- ALL-TECH INVESTMENT GROUP, INC. "Tenant" 160 Summit Avenue Montvale, New Jersey 07645
TABLE OF CONTENTS ARTICLE NO. DESCRIPTION PAGE - ----------- ----------- ---- Basic Lease Provisions 1 I Demised Premises 4 II Term 4 III Rent 5 IV Use and Occupancy 6 V Alterations or Improvements by Tenant 7 VI Maintenance 8 VII Compliance with Laws, Indemnity and Insurance 9 VIII Subordination and Estoppel 10 IX Destruction - Fire or other Casualty 10 X Mutual Waiver of Subrogation 11 XI Condemnation and Other Proceedings 12 XII Assignment and Subletting 12 XIII Surrender 14 XIV Holding Over 15 XV Landlord's Right of Entry 15 XVI Default 16 XVII Landlord's Rights Upon Tenant's Default 16 XVIII Landlord's Remedies Cumulative: Expenses 18 XIX No Waiver 19 XX Landlord's Reserved Rights 19 XXI Landlord's Liability 20 XXII Tenant's Liability 21 XXIII Tenant's Insurance 21 XXIV Mechanics' Liens 22 XXV Quiet Enjoyment 22 XXVI Air and Light 23 XXVII Landlord's Services 23 XXVIII Additional Rent 25 XXIX Personal Property Taxes 29 XXX Security Deposit 29 XXXII Definition of Landlord 30 XXXIII Notice 30 XXXIV Signs 30 XXXV Notice of Defects and Accidents 30
ARTICLE NO. DESCRIPTION PAGE - ----------- ----------- ---- XXXVI Rules and Regulations 31 XXXVII Directory 31 XXXVIII Hazardous Materials and Compliance with Environmental Laws 31 XXXIX Miscellaneous 33 EXHIBITS EXHIBIT A: The Premises EXHIBIT B: Landlord's Work in the Premises EXHIBIT C: Rules and Regulations
BASIC LEASE PROVISIONS of the LEASE AGREEMENT FOR 160 SUMMIT AVENUE, MONTVALE between 160 SUMMIT AVENUE, MONTVALE, as Landlord, and All-Tech Investment Group, Inc., as Tenant. The following basic terms of the Lease (hereinafter referred to as the "Basic Lease Provisions") between Landlord and Tenant are an integral part of and are incorporated by reference into within Lease: A. The "Building": 160 Summit Avenue, Montvale, New Jersey 07645, containing approximately 32,371 square feet. B. The "Premises": The space within the Premises is described in the Lease, including the floor plan attached hereto as Exhibit A, and consisting of the following approximate number of the rentable square feet: 12,395. C. The "Term": The Term of this Lease shall be four (4) years and ten (10) months, beginning on June 1, 1998 (the "Commencement Date") and ending on March 31, 2003 (the "Expiration Date"). D. The "Basic Rent": (1) Annual Base Rent: $247,900 (2) Monthly Installments of Base Rent: $20,658.33 In additional to the above to the above base rent, the Tenant will be liable for Tenant Electric as hereinafter set forth and any other additional rent items. E. Tenant's Proportionate Share: 38.29% F. The Security Deposit: None G. Broker(s): None H. Addresses for Notice and Payments: (1) Landlord: Summit Plaza, Inc. 160 Summit Avenue Montvale, New Jersey 07645 ATTN: Mark Shefts (2) Tenant: All-Tech Investment Group, Inc. 160 Summit Avenue Montvale, New Jersey 07645 (3) Checks Payable to: Summit Plaza, Inc. Mail Payment to: Summit Plaza, Inc. 160 Summit Avenue Montvale, New Jersey 07645 ATTN: Mark Shefts I. Base Tax Year: 1998 J. Base Operating Year: 1998 K. Tenant Liability Insurance: The Tenant Liability Insurance required pursuant to Section 23.1 of this Lease shall be in the sum of $1,000,000.00 single limit. Approved by Landlord: Approved by Tenant: SUMMIT PLAZA, INC. s/ All-Tech Investment Group, Inc. ---------------------------------- By: s/Mark Shefts By: s/Mark Shefts ---------------- ---------------- 2 AGREEMENT OF LEASE (this "Lease") dated as of the 1st day of June, 1998, between SUMMIT PLAZA, INC, a New Jersey Corporation, (hereinafter referred to as the "Landlord"), and All-Tech Investment Group, Inc. (hereinafter referred to as "Tenant"). W I T N E S S E T H: Landlord and Tenant hereby covenant and agree as follows: ARTICLE I Demised Premises 1.1 Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for the term and upon the terms, conditions, covenants and agreements hereinafter provided, the Premises. The Premises consist of space which: (i) is located as is specified in Item B of the Basic Lease Provisions, and (ii) is bounded by the proposed or existing demising walls therefor, the approximate locations of such demising walls and space being marked in color or crosshatched and shown on the diagram(s) of the floor plan for such floor, such diagram(s) being attached to this Lease as Exhibit A and made a part hereof. The appropriate number of rentable square feet contained in the Premises, as determined by Landlord, for identification purposes only, is specified in Item B of the Basic Lease provisions (the "Rentable Area"). The lease of the Premises includes the right, together with other tenants of the Building and members of the public, to use the common public areas of the Building, but includes no other rights not specifically set forth herein. Landlord shall finish the Premises as set forth in Exhibit B attached hereto and made a part hereof. It is understood and agreed that Landlord will not make and is under no obligation to make any alterations, decorations, additions or improvements in or to the Premises, structural or otherwise, except as set forth in Exhibit B. Landlord agrees to deliver possession of the Premises to Tenant and Tenant agrees to accept the same from Landlord, upon written notice from Landlord to Tenant that Landlord's work in the Premises described in Exhibit B has been substantially completed. ARTICLE II Term 2.1 The Premises are leased for the period of years and months as specified in Item C of the basic Lease Provisions, to commence at 12:01 A.M. on the Commencement Date and to end at 11:59 p.m. on the Expiration Date unless the Term shall sooner terminate 3 pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. 2.2 Notwithstanding anything in Paragraph 2.1 to the contrary, if, on or prior to the Commencement Date of the Term, the Premises are not ready for occupancy, this Lease shall nevertheless continue in full force and effect and Tenant shall have no right to rescind, cancel or terminate same nor shall Landlord be liable for damages, if any, sustained by Tenant by reason of inability to obtain possession thereof on such date. In such event, Landlord shall give to Tenant written notice at least fifteen (15) days in advance of the date when Landlord expects Premises to be ready for occupancy by Tenant, which date shall then become the revised Commencement Date. The Term shall end on the revised Expiration Date, which date shall be the same number of days after the revised Commencement Date as it was after the original Commencement Date, unless sooner terminated pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. 2.3 When Tenant takes possession of the Premises, Tenant shall be deemed to have accepted the Premises as being satisfactory and in good condition as of the date of such possession. ARTICLE III Rent 3.1 Tenant covenants and agrees to pay to the Landlord, as rent for and during the Term hereof, the annual sum as specified in Item D(1) of the Basic Lease Provisions as Basic Rent. 3.2 Basic Rent and any Additional Rent payable pursuant to the provisions of this Lease shall be payable by Tenant to Landlord at the address specified in Item H(3) of the basic Lease Provisions (or at such other place as Landlord may designate in a notice to Tenant) in lawful money of the United States without prior demand therefor and without any offset or deduction whatsoever except as otherwise specifically provided in this Lease for the convenience of Tenant. Basic Rent shall be payable in equal monthly installments as specified in Item D(2) of the Basic Lease Provisions, in advance, on the first (1st) day of each month during the Term. The installment of Basic Rent for the first (1st) full calendar month of the Term is due and payable by Tenant to Landlord at the time of the execution and delivery of this Lease. In the event that the Commencement Date shall occur on a date other than the first (1st) day of any calendar month Tenant shall pay to Landlord on the first (1st) day of any calendar month next succeeding the month during which the Commencement Date shall occur, a sum equal to that specified in Item D(2) of the Basic Lease Provision divided by 30 (thirty) then multiplied by the number of calendar days in the period from the Commencement Date to the last day of the month in which the Commencement Date shall occur, both inclusive. Such payment, together with the sum paid by 4 the Tenant upon execution of this Lease, shall constitute payment of the Basic Rent for the period from the Commencement Date to and including the last day of the next succeeding calendar month. 3.3 Tenant covenants to pay Basic Rent and any Additional Rent payable pursuant to the provisions of this Lease and to observe and perform and to permit no violation of the terms, covenants and conditions of this Lease on Tenant's part. ARTICLE IV Use and Occupancy 4.1 Tenant shall use and occupy the Premises solely for general office purposes and only in accordance with the uses permitted under applicable zoning and other municipal regulations. Without the prior written consent of Landlord, the premises shall not be used for any other purpose, or for any purpose that will constitute a nuisance or unreasonable annoyance to Landlord or other tenants of the Building and shall comply with all present and future laws, ordinances, regulations and orders of the United States of America, the jurisdiction in which the Building is located, and any other public or quasi-public authority having jurisdiction over the Premises (collectively hereinafter referred to as "Governmental Authorities"), it is expressly understood that if any law, ordinance, regulation or order requires an occupancy permit for the Premises, Tenant shall obtain such permit at Tenant's own expense. 4.2 Tenant acknowledges that the Building is a non-smoking building and, as such, smoking within the building is absolutely prohibited. Landlord has placed ashtrays at the western entrance to the Building for the convenience of persons who smoke. 4.3 Tenant shall have the right to the non-exclusive use of the parking lot on the Real Property (as defined in Paragraph 5.1) for all employees and visitors. The same right has been or will be given to all other tenants in the Building, and to their respective employees, agents, customers and invitees and to other persons, and it does not entitle Tenant to any particular assigned spaces in the parking lot, except for five (5) spaces which shall be designated for Tenant's use only. Tenant covenants and agrees to comply with all reasonable rules and regulations which Landlord may hereafter from time to time or at any time make pursuant to the terms of Article XXXVI hereof to assure exclusive use of designated parking spaces on the Real Property by permitted users. Landlord's remedies under such rules and regulations may include, but shall not be limited to, the right to tow away, at the owner's expense, any vehicles not parked in compliance with these rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance or breach by any other tenant of said rules and regulations; provided, however, Landlord agrees to use reasonable efforts to enforce such rules and regulations uniformly. 5 ARTICLE V Alterations or Improvements by Tenant 5.1 Tenant shall make no changes in or to the Premises of any nature without Landlord's prior written consent. Subject to the prior written consent of the Landlord, Tenant, at Tenant's sole expense, may hire contractors approved by Landlord to make alterations, installations, additions or improvements in or to the Premises (collectively hereinafter referred to as the "Alterations") which are non-structural and which do not affect utility services, plumbing or electrical lines in or to the Premises or the Building. The Alterations shall, upon installation, become the property of Landlord and shall remain upon and be surrendered with the Premises, unless Tenant, by written notice to Landlord no later than thirty (30) days prior to the notice to the Expiration Date, requests Landlord's consent to remove same. If Landlord so consents, the Alterations shall be removed from the Premises by Tenant prior to the Expiration Date at Tenant's sole expense. Nothing in this Article V shall be construed to give Landlord title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any other installation as may be permitted by Landlord, Tenant shall immediately and at its expense, repair and restore the Premises to the condition existing prior to Alterations. Tenant shall repair any damage to the Premises, the Building, or the real property on which the Building is located (hereinafter collectively referred to as the "Real Property") incurred during such removal. All property permitted or required to be removed by Tenant at the Expiration Date or sooner termination of the Term which remains on the Premises after the Expiration Date or sooner termination of the Term shall be deemed abandoned and may, at the election of Landlord, either be retained as Landlord property or may be removed from the Premises by Landlord at Tenant's expense. If Tenant does not repair or restore said damage, Landlord is entitled to deduct said cost and expense from Tenant's security deposit. 5.2 Prior to the commencement of the Alterations, Tenant shall, at its sole expense, obtain all required permits, approvals and certificates required by all Governmental Authorities and upon completion of the Alterations, certificates of final approval thereof. Tenant shall deliver duplicates of same to Landlord promptly upon their receipt. Tenant shall carry and shall cause Tenant's contractors and subcontractors to carry such workers' compensation, general liability, personal and property damage insurance as required by law and in amounts no less than the amounts set forth in Article XXIII hereof. 5.3 As a condition precedent to the written consent of Landlord, Tenant agrees to obtain and deliver to Landlord written and unconditional waivers of mechanics' and materialmen's liens upon Real Property or a part for all work, labor and services to be 6 performed, and materials to be furnished, by them in connection with such work, signed by all contractors, subcontractors, materialmen and laborers to be involved in such work. If, not withstanding the foregoing, any mechanic's or materialmen's lien is filed against the Real Property for work claimed to have been done for, or materials claimed to have been furnished to, Tenant, such lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and expense, by the payment thereof or by filing any bond required by law. If Tenant shall fail to discharge any such mechanic's or materialmen's lien, Landlord may, at its option, discharge the same and treat the cost thereof as Additional Rent payable with the monthly installment of rent next becoming due; it being hereby expressly covenanted and agreed that such discharge by Landlord shall not be deemed to waive or release the default of Tenant in not discharging the same. It is understood and agreed by Landlord and Tenant that any alterations, decorations, additions or improvements shall be constructed on behalf of Tenant and that in the event Landlord gives its written consent to Tenant's making any such alterations, decorations, additions or improvements, such written consent shall not be deemed to be an agreement or consent by Landlord to subject Landlord's interest in the Premises, the Building or the Real Property to any mechanic's or materialmen's liens which may be filed in respect to any such work done by or on behalf of Tenant. 5.4 Tenant shall indemnify and hold Landlord harmless from and against any and all expenses, liens, claims or damages to person or property which arise directly or indirectly by reason of the Alterations, structural or otherwise, made by Tenant without the prior written consent of Landlord. Landlord shall have the right to remove same and Tenant shall be liable for any and all expenses incurred by Landlord in said removal and subsequent restoration of the Premises to the original condition. ARTICLE VI Maintenance 6.1 Tenant shall take good care of the Premises throughout the Term and preserve the same in the condition delivered to Tenant on the Commencement Date, normal wear and tear and damage by fire or other casualty not caused by Tenant excepted. Tenant further agrees not to injure, overload, deface or commit waste of the Premises. Tenant shall be responsible for all injury or damage of any kind or character to the Real Property, including the windows, floors, walls, ceilings, lights, electrical equipment and HVAC equipment caused by Tenant or by anyone using or occupying the Premises by, through or under Tenant. Landlord shall repair the same and Tenant shall pay the costs incurred therefor to Landlord immediately upon demand, plus a ten percent (10%) management fee. If the Premises become infested with vermin, Tenant shall, at Tenant's expense, cause the same to exterminated from time to time 7 to the satisfaction of Landlord and shall employ such exterminators as shall be approved by Landlord. 6.2 Landlord shall be responsible for all repairs to the roof, foundation and permanent exterior walls and support columns of Building (hereinafter referred to as "Structural Repairs") and shall maintain, repair and replace all plumbing, heating, air conditioning, electrical and mechanical fixtures (exclusive of (a) starters, ballasts, incandescent and fluorescent lamps and (b) electrical and mechanical fixtures installed by Tenant) which shall be standard for the building, when required, and maintain and make repairs to the parking area and the exterior of the Building, except for those repairs or replacements arising from the negligence of Tenant, its agents, servants, employees, licensees, or invitees, which shall be the sole responsibility of Tenant. ARTICLE VII Compliance with Laws, Indemnity and Insurance 7.1 Tenant shall not do, or permit anything to be done in or to the Premises, or bring or keep anything therein which will, in any way, increase the cost of fire or public liability insurance on the Real Property, or invalidate or conflict with the fire insurance or public liability insurance policies covering the Real Property, the Building, fixtures or any personal property kept therein, or obstruct or interfere with the rights of Landlord or of other tenants, or in any other way injure or annoy Landlord or other tenants, or subject Landlord to any liability for injury to persons or damage to property, or interfere with the good order of the Building, or conflict with the present or future laws, rules or regulations of any Governmental Authority. Tenant hereby indemnifies and shall hold Landlord harmless from and against all liability for injury to persons or damage occurring on the Premises or in the building or on the Real Property whether occasioned by any act or omission of Tenant, or Tenant's agents, servants employees, invites or licensees. Tenant agrees that any increase in fire and casualty insurance premiums on the Building or contents caused by the occupancy of Tenant and any expense or cost incurred in consequence of negligence, carelessness or willful action of Tenant, Tenant's agents, servants, employees, invitees or licensees, shall be reimbursed to Landlord with ten (10) days of demand therefor. Landlord shall have all the rights and remedies for the collection of Basic Rent provided to paid pursuant to terms hereof. ARTICLE VIII Subordination and Estoppel 8.1 Tenant agrees that this Lease is subject and subordinate to all ground or underlying leases and to the lien of any mortgages or deeds of trust now on or which at any time in the future may be made a lien upon the Real Property, and to all advances made or 8 hereafter to be made upon the security thereof. This subordination provision shall be self-operative and no further instrument of subordination shall required; provided, however, that Tenant agrees to execute and deliver within two (2) business days, upon request, such further instrument or instruments confirming this subordination as shall be desired by Landlord or by any mortgagee or proposed mortgagee of the Real Property; and Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such instrument or instruments. Tenant further agrees that at the option of the holder of any mortgage or of the trustee under any deed of trust securing the Real Property, this Lease may be made superior to said mortgage or deed of trust by the insertion therein of a declaration that this Lease is superior. 8.2 Tenant agrees, at any time and from time to time upon not less than five (5) days' prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, it there have been modifications, that the same are in full force and effect as modified) and stating the modifications, that there are no offsets, defenses, defaults or counterclaims under this Lease or against Landlord, the dates to which the Basic Rent and Additional Rent have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Paragraph 8.2 may be relied upon by a prospective purchaser of Landlord's interest or a mortgagee of Landlord's interest or assignee of any mortgage upon Landlord's interest in the Real Property. ARTICLE IX Destruction - Fire or Other Casualty 9.1 If the Premises or the Building shall be damaged by fire or other casualty not arising from the fault or negligence of Tenant or its servants, agents, employees, invitees or licensees: (i) except as otherwise provided in subsection (ii) hereof, the damage shall be repaired by and at the expense of Landlord and until such repairs shall be made the Basic Rent and Additional Rent shall be equitably abated according to the part of the Premises which is usable by Tenant. Landlord agrees, at its expense, to repair promptly any damage to the Premises, except that Tenant agrees to repair or replace its own furniture, furnishings and equipment. No penalty shall accrue due to a delay caused by strike, lockout, act of God, inability to obtain labor or materials, governmental restrictions, enemy actions, civil commotion, fire, unawardable casualty or any other cause similar or dissimilar beyond the reasonable control of either Landlord or Tenant or due to the passing of time while waiting for an adjustment of insurance proceeds (hereinafter referred to as an "Excusable Delay"); (ii) if the Premises are totally damaged or are rendered wholly untenantable by fire or other casualty, or if Landlord's architect certifies that it cannot be repaired within 9 ninety (90) days of the casualty or if Landlord shall decide not to resolve or repair the same or shall decide to demolish the Building or the Premises, or not to rebuild the Building or the Premises, then Landlord shall, within ninety (90) days after such fire or other casualty, give Tenant notice of such decision, and thereupon the Term shall expire ten (10) days after such notice is given, and Tenant shall vacate the Premises and surrender the same to Landlord; (iii) If Landlord fails to complete the repair and restoration of the Premises within six (6) months from the date of the casualty (subject to Excusable Delays) then Tenant shall have the right to cancel and terminate this Lease upon the delivery of a notice to Landlord delivered within fifteen (15) days after the expiration of the aforesaid six (6) month period; (iv) Landlord agrees that it shall diligently pursue all repair and restoration work required on its part to be completed hereunder. ARTICLE X Mutual Waiver of Subrogation 10.1 Landlord hereby waives any and all rights of recovery against the Tenant for or arising out of damage to or destruction of the Premises, the Building or the Real Property and any other property of the Landlord from causes then insured under standard fire and extended coverage insurance policies or endorsements to the extent that its insurance policies then in effect permit such waiver, and Tenant hereby waives any and all rights of recovery against Landlord for or arising out of damage to or destruction of the Premises, the Building or the Real Property and any property of Tenant from causes then insured under standard fire and extended coverage insurance policies to the extended coverage insurance policies to the extent that its insurance policies then in effect permit such a waiver. If at any time during the Term any insurance carrier which shall have issued a policy to either of the parties covering the Real Property, the Premises, the Building or any of the property of Tenant, shall have issued a policy to either of the parties covering the Real Property, the Premises, the Building or any of the Property of the Tenant, shall refuse to consent to the waiver of the right of recovery with respect to any loss payable under such a policy, or if such a carrier shall consent to such waiver only upon the payment of an additional premium (unless such additional premium is voluntarily paid by one of the parties hereto) or shall cancel a consent previously given, or shall cancel or threaten to cancel any policy previously issued and then in full force and effect, then in any such event, the waiver in this Paragraph 10.1 shall thereupon be of no further force and effect as to the loss, damage or destruction covered by such policy except as hereinafter provided. If, however, at any time thereafter such consent shall be obtained therefor from any existing or any substitute insurance carrier, the waiver hereinabove provided for shall again become effective. 10 ARTICLE XI Condemnation and Other Proceedings 11.1 If the Premises shall be acquired or condemned by eminent domain proceedings, or by giving of a deed in lieu thereof, or shall be ordered demolished or unfit for present use by any governmental body, then and in that event, the Term shall cease and terminate from the date of title-vesting or final order pursuant to such proceeding or agreement. If a non-substantial portion of the Premises or the Building shall be so ordered, acquired or condemned, this Lease shall cease and terminate at Landlord's option, and if such option is not exercised by Landlord, an equitable adjustment of the Basic Rent and Additional Rent payable by Tenant for the remaining useable portion of the Premises shall be made. In the event of a termination under this Article XI, Tenant shall have no claim against the Landlord for the value of any unexpired Term and Tenant should have no claim against Landlord, other than for the adjustment of the Basic Rent and Additional Rent as hereinbefore mentioned, or be entitled to any portion of any amount that may be awarded as damages or paid as a result of such proceedings or as the result of any agreement made by any governmental authority with Landlord. 11.2 Tenant may, if allowed by statue, seek such awards or damages for moving expenses, loss of profits and fixtures and other equipment installed by it (if any) which do not, under the terms of this Lease, become the property of Landlord at the termination hereof. Such awards or damages must be made by a condemnation court or other authority and must be separate and distinct from any award to Landlord for the Real Property and Building and shall not diminish any award of Landlord. For purposes of this Paragraph 11.2, a substantial part of the Premises shall be considered to have been taken if more than fifty percent (50%) of the Premises are unusable by Tenant as a direct result of such taking. ARTICLE XII Assignment and Subletting 12.1 Tenant, for itself, its heirs, distributees, successors and assigns, expressly covenants that it shall not, by operation of law or otherwise, assign, mortgage or encumber this Lease, or any part thereof, or permit the Premises to be used by others without the prior written consent of Landlord in each instance. Any attempt to do so by Tenant shall be void. The consent by Landlord to any assignment, mortgage, encumbrance, subletting or use of the Premises by others shall not constitute a waiver of Landlord's right to withhold its consent to any other assignment, mortgage, encumbrance or use of the Premises by others. Without the prior written consent of Landlord, this Lease and the interest of Tenant therein or any assignee of Tenant therein, shall not pass by operation of law, and shall not be subject to garnishment or sale under execution in any suit or proceeding which may be brought against or by Tenant or any assignee of Tenant. 11 12.2 Landlord covenants and agrees that it will not unreasonably withhold its consent to Tenant's assigning or subletting all or a part of the Premises; provided, however, that Tenant shall not be in default under any of the terms, covenants, conditions, provisions and agreements of this Lease at the time of any notice or request for consent under the terms of this Article XII or at the effective date of such subletting or assigning. 12.3 (a) If Tenant requests Landlord's consent to an assignment of this Lease or a subletting of all or any part of the Premises, Tenant shall submit to Landlord: (1) the sum of three hundred dollars ($300.00) as a non-refundable fee to process each such request; (2) the name of the proposed assignee or subtenant; (3) the terms of the proposed assignment or subletting; (4) the nature of the proposed subtenant's or assignee's business; and (5) such information as to the proposed subtenant's or assignee's financial responsibility and general reputation as Landlord may reasonably require. (b) Upon the receipt of such request and information from Tenant, Landlord shall have the option, to be exercised in writing within thirty (30) days after such receipt, to either (1) cancel and terminate this Lease if the request is to assign this Lease or to sublet all of the Premises or, if the request is to sublet a portion of the Premises only, to cancel and terminate this Lease with respect to such portion, in each case as of the date set forth in Landlord's notice of exercise of such option; or (2) to grant said request. (c) In the event Landlord shall cancel this Lease, Tenant shall surrender possession of the Premises, or the portion of the Premises which is the subject of the request, as the case may be, on the date set forth in such notice in accordance with the provisions of this Lease relating to surrender of the Premises. If the Lease shall be cancelled as to a portion of the Premises only, the Basic Rent and Additional Rent payable by the Tenant hereunder shall be reduced proportionately according to the ratio that the number of rentable square feet in the portion of the space surrendered bears to the rentable square feet in the Premises. (d) In the event that Landlord shall consent to a sublease or assignment pursuant to the request from Tenant, Tenant shall cause to be executed by its assignee or subtenant an agreement to perform faithfully and to assume and be bound by all of the terms, covenants, conditions, provisions and agreements of 12 this Lease for the period covered by the assignment or sublease and to the extent of the space sublet or assigned. An executed copy of each sublease or assignment and assumption of performance by the sublessee or assignee, on Landlord's standard form, shall be delivered to Landlord within five (5) days prior to the commencement of occupancy set forth in such assignment or sublease. No such assignment or sublease shall be binding on Landlord until Landlord has received such copies as required herein. (e) In the event that Landlord shall consent to a sublease or assignment pursuant to the request from Tenant, and such agreement shall be executed and go into effect, and Tenant realizes a profit from such agreement, Tenant agrees to pay to Landlord 100% of said profit. Profit is defined as any amount in excess of the amount that Tenant pays to Landlord and defined in Article III and Article XXVIII of this Lease. 12.4 In no event shall any assignment or subletting to which Landlord may consent release or relieve Tenant from its obligations to fully perform all of the terms, covenants and conditions of the Lease on its part to be performed. ARTICLE XIII Surrender 13.1 Upon the Expiration Date or sooner termination of the Term, Tenant shall peaceably and quietly quit and surrender to Landlord the Premises, broom clean, in as good condition as they were on the Commencement Date, ordinary wear and tear, repairs and replacements by Landlord, loss by fire, casualty and other causes beyond Tenant's control, and alterations, additions and improvements permitted hereunder, excepted. Tenant's obligation to observe or perform this covenant shall survive the Expiration Date or prior expiration of the Term. If the Expiration Date falls on a Sunday or a legal holiday, this Lease shall expire at 12 noon on the business day first preceding said date. ARTICLE XIV Holding Over 14.1 If Tenant holds possession of the Premises beyond the Expiration Date or prior expiration of the Term, Tenant shall become a tenant from month-to-month at DOUBLE the Basic Rent and Additional Rent payable hereunder and upon all other terms and conditions to this Lease, and shall continue to be such month-to-month tenant until such tenancy shall be terminated by Landlord or Tenant and such possession shall cease. Nothing contained in this Lease shall be construed as a consent by Landlord to the occupancy or possession by Tenant of the Premises beyond the Expiration Date or prior expiration of the Term, and Landlord, upon said Expiration Date or prior expiration of the Term, Landlord shall be entitled to the benefit of all legal remedies that now may be in force or may 13 be hereafter enacted relating to the speedy repossession of the Premises and to all damages to which Landlord is entitled. ARTICLE XV Landlord's Right of Entry 15.1 Landlord and Landlord's agents and representatives shall have the right to enter into or upon the Premises, or any part thereof, at all reasonable hours for the following purposes: (1) examining the Premises; (2) making such repairs or alterations therein as may be necessary in Landlord's sole judgment for the safety and preservation thereof; (3) erecting, maintaining, repairing or replacing wires, cables, conduits, vents or plumbing equipment running in, to or through the Premises; or (4) showing the Premises to prospective new tenants, purchasers or mortgagees. 15.2 Landlord may enter upon the Premises at any time in case of emergency without prior notice to Tenant. 15.3 Landlord, in exercising any of its rights under this Article XV, shall not be deemed guilty of eviction, partial eviction or disturbance of Tenant's use or possession of the Premises and shall not be liable to Tenant for same. 15.4 All work performed by or on behalf of Landlord in or on the Premises pursuant to this Article XV shall be performed with as little inconvenience to the Tenant's business as possible, and in such a manner as not unreasonably to interfere therewith. ARTICLE XVI Default 16.1 Each of the following, whether occurring before or after the Commencement Date, shall be deemed a Default by Tenant and a breach of this Lease: (a) the filing of a petition by or against Tenant for adjudication as a bankrupt, or for reorganization, or for arrangement under any bankruptcy act; (b) the commencement of any action or proceeding for the dissolution or liquidation of Tenant, whether instituted by or against Tenant, or for the appointment of a receiver or trustee of the property of Tenant under any state or federal statute for relief of debtors; 14 (c) the making by Tenant of an assignment for the benefit of creditors; (d) the suspension of business by Tenant or any act by Tenant amounting to a business failure; (e) the filing of a tax lien or a mechanics' lien against any property of Tenant; (f) Tenant's causing or permitting the Premises to be vacant, or abandonment of the Premises by Tenant for a period in excess of ten (10) days; (g) failure by Tenant to pay Landlord when due Basic Rent, Additional Rent herein reserved, or any other sum by the time required by the terms of this Lease; (h) a failure by Tenant in the performance of any other term, covenant, agreement or condition of this Lease on the part of Tenant to be performed; (i) a default by Tenant under any other lease or sublease with Landlord. ARTICLE XVII Landlord's Rights Upon Tenant's Default 17.1 (a) Upon a Default by Tenant or any subtenant or assignee, Landlord, upon failure of Tenant to cure a default in the payment of Basic Rent, Additional Rent or any other sum of money due to Landlord hereunder within five (5) days after the same was due (without notice thereof from Landlord) or to cure or diligently commence to cure any other Default within fifteen (15) days after notice thereof from Landlord (provided same is cured with a reasonable time thereafter, and without any delay), may immediately or at anytime thereafter, without further notice to Tenant (i) enter upon the Premises as agent for Tenant, by legal entry, without terminating this Lease and do any and all acts as Landlord may deem necessary, proper or convenient to cure such Default, for the account of and at the expense of Tenant, and Tenant agrees to pay Landlord, upon demand, all damages and/or expenses incurred by Landlord in so doing; or (ii) terminate this Lease and Tenant's right to possession of the Premises and, with or without legal process, take possession of the Premises and remove Tenant, any occupant and any property therefrom, using such legal means, without being guilty of trespass and without relinquishing any rights of Landlord against Tenant. (b) Landlord shall be entitled to recover damages from Tenant in an amount equal to the amount herein covenanted to be paid as Basic Rent and Additional Rent, together with: (i) all expenses of any proceedings (including but not limited to, legal 15 expenses and attorneys' fees) which may be necessary in order for Landlord to recover possession of the Premises; and (ii) the expenses of re-renting the Premises, including but not limited to, any commissions paid to any real estate broker, advertising expenses and the costs of such alterations, repairs, replacements and decoration or re-decoration as Landlord in its sole judgment considers advisable or necessary for the purpose of re-renting the Premises; provided, however, there shall be credited against the amount of such damages all amounts received by Landlord from such re-renting of the Premises. Landlord shall in no event be liable in any way whatsoever from failure to collect rent under such re- renting; and further provided, however, Landlord shall be under no obligation to re-rent the Premises. 17.2 No act or thing done by Landlord shall be deemed to be an acceptance of Tenant's surrender of the Premises, unless Landlord should execute a written agreement of surrender with Tenant. Tenant's liability hereunder shall not be terminated by the execution of a new lease of the Premises by Landlord. Tenant agrees to pay to Landlord, upon demand, the amount of damages herein provided after the amount of such damages for any month shall have been ascertained; provided however, any expenses incurred by Landlord shall be deemed to be a part of the damages for the month in which they were incurred. Separate actions may be maintained each month by Landlord against Tenant to recover the damages when due, without waiting until the end of the Term to determine the aggregate amount of such damages or Landlord, at its option, if the Premises have been re-let for a term extending at least as long as the remainder of the Term thereof, may hold Tenant in advance for the entire deficiency to be realized during the term of re-letting. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of the eviction of Tenant or Tenant being dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises by reason of the violation by Tenant of any of the covenants or conditions of this Lease. 17.3 Landlord may retain, as partial liquidated damages, any Basic Rent, Additional Rent, Security Deposit or monies received from Tenant or others on behalf of the Tenant. 17.4 Landlord shall have the right, as agent for Tenant, to take possession of any furniture or fixtures of Tenant found upon the Premises after taking possession of same pursuant to this Article XVII and sell the same at any private or public sale and apply the proceeds to any amount due Landlord. Tenant waives any notice of execution or levy in connection therewith. 16 ARTICLE XVIII Landlord's Remedies Cumulative; Expenses 18.1 All rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. For the purpose of any suit brought or based hereon, this Lease shall be construed to be a divisible contract, to the end that successive actions may be maintained on this Lease as successive periodic sums mature hereunder. 18.2 Tenant shall pay, upon demand, all of Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligations hereunder. 18.3 If Tenant fails to pay an installment of Basic Rent, Additional Rent or any other sum due and payable to Landlord on or before the first day of the calendar month when such installment becomes due and payable, Tenant shall pay to Landlord a late charge (to cover Landlord's administrative and overhead expenses of processing late payments) equal to the greater of one hundred dollars ($100) or five percent (5%) of the amount of such installment and, in addition, such unpaid installment shall bear interest at the rate per annum which is two percent (2%) greater than the "prime rate" then in effect (or if such prime rate is not available, a replacement rate designated by Landlord) from the date such installment became due and payable to the date of payment thereof by Tenant; provided, however, nothing herein contained shall be construed or implemented in such a manner as to allow Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. Such late charge and interest shall constitute Additional Rent hereunder due and payable with the next monthly installment of Basic Rent. ARTICLE XIX No Waiver 19.1 No waiver by Landlord of any breach by Tenant of any of the terms, covenants, agreements or conditions of this Lease shall be deemed to constitute a waiver of any succeeding breach thereof, or a waiver of any breach of any of the terms, covenants, agreements and conditions herein contained. 19.2 No employee of Landlord or of Landlord's representatives or agents shall have the authority to accept the keys of the Premises prior to the Expiration Date and the delivery of keys to any employees of Landlord or Landlord's representatives or agents shall not operate as an acceptance of a termination of this Lease or an acceptance of a surrender of the Premises. 19.3 The receipt by Landlord of the Basic Rent and Additional Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such a breach. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Basic Rent or a lesser amount of the Additional Rent then due shall 17 be deemed to be other than on account of the earliest stipulated amount then due, nor shall any endorsement or any statement on any check or any letter or other instrument accompanying any check or payment as Basic Rent or Additional Rent be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Basic Rent or Additional Rent or pursue any other remedy provided in this Lease. 19.4 The failure of Landlord to enforce any of the Rules or Regulations as may be set by Landlord form time to time against Tenant or against any other tenant in the Building shall not be deemed a waiver of any such Rule or Regulation. ARTICLE XX Landlord's Reserved Rights 20.1 (a) Landlord reserves the following rights: (i) If during or prior to the last ninety (90) days of the Term Tenant vacates the Premises, to decorate, remodel, repair, alter to otherwise prepare the Premises for reoccupancy and, (ii) to have pass keys to the Premises. (b) Landlord may enter upon the Premises and may exercise either of the foregoing rights hereby reserved without being deemed to have caused an eviction or disturbance of Tenant's use and possession of the Premises and without being liable in any manner to Tenant. ARTICLE XXI Landlord's Liability 21.1 Landlord or its agents or representatives shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, snow or leaks from any part of the Building or from the pipes, appliances, plumbing, on the roof, street, subsurface or from any other place or by dampness or by any other cause of nature whatsoever, or resulting from carelessness, negligence or improper conduct on the part of any other tenant or of Landlord's contractors or its or any other tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors. 21.2 Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that it shall look solely to the estate and property of Landlord in the Real Property and the Building of which the Premises form a part for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord for any default or breach by Landlord of any of its obligations under this Lease, subject, however, to the prior rights of any ground or underlying landlord or the holder of any mortgage covering the Real Property or the Building or of 18 Landlord's interest therein. No other assets of Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant's claim. This provision shall not be deemed, construed or interpreted to be or constitute an agreement, express or implied, between Landlord and Tenant that Landlord's interest hereunder and in the Real Property or the Building shall be subject to impressment of an equitable lien otherwise. Nothing herein contained shall be construed to limit any right of injunction against Landlord, where appropriate. 21.3 Landlord shall not be deemed in default with respect to the failure to perform any of the terms, covenants and conditions of this Lease on Landlord's part to be performed, if such failure is due in whole or in part to any strike, lockout, labor dispute (whether legal or illegal), civil disorder, inability to procure materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, fuel shortages, accidents, casualties, Acts of God, acts caused directly or indirectly by Tenant (or Tenant's agents, employees, guests or invitees), acts of other tenants or occupants of the Building or any other cause beyond reasonable control of Landlord. In such event, the time for performance by Landlord shall be extended by an amount of time equal to the period of delay so caused. ARTICLE XXII Tenant's Liability 22.1 Tenant shall reimburse Landlord for all expenses, damages or fines incurred or suffered by Landlord by reason of any breach, violation or non-performance by Tenant, its agents, servants, employees, invitees or licensees of any covenant or provision of this Lease, or by reason of damage to persons or property caused by moving property of or for Tenant in or out of the Building, or by the installation or removal of furniture or other property of or for Tenant or by reason of or arising out of the carelessness, negligence or improper conduct of Tenant, or its agents, servants, employees, invitees and licensees in the use or occupancy of the Premises. Any such expense shall be deemed Additional Rent, due in the next calendar month after it is incurred. ARTICLE XXIII Tenant's Insurance 23.1 (a) Notwithstanding Article XXII, Tenant covenants to provide, on or before the Commencement Date for the benefit of Landlord, Landlord's mortgagee, Landlord's Managing Agent, if any, and Tenant a comprehensive policy of liability insurance and/or Certificate of Insurance protecting Landlord, Landlord's mortgagee, Landlord's Managing Agent and Tenant against any liability whatsoever occasioned by accident on or about the Real Property, the Building or the Premises or any appurtenances thereto. Such policy is to be written by insurance companies qualified to do 19 business in the State of New Jersey which shall be rated grade A or better in Best's with a rating therein of 12 or better and the limits of liability thereunder shall be in minimum amounts approved by Landlord from time to time (as set forth in the Rules and Regulations) in respect of any one person, in respect of any one accident, and in respect of any property damage. Such insurance may be carried under a blanket of policy covering the Premises and other locations of Tenant, if any. (b) Fire and Extended Coverage, Vandalism, Malicious Mischief and Special Extended Coverage Insurance in an amount adequate to cover the costs of replacement of all personal property, decoration, trade fixtures, furnishings and equipment in the Premises and all contents therein. Landlord shall not be liable for any damage to such property of Tenant by fire or other peril includable in the coverage afforded by the standard form of fire insurance policy with extended coverage endorsement attached (whether or not such coverage is in effect), no matter how caused, it being understood that Tenant will look solely to its insurer for reimbursement. 23.2 Prior to the time such insurance is first required by this Article XXIII to be carried by Tenant, and thereafter, at least thirty (30) days prior to the expiration of any such policy, Tenant agrees to deliver to Landlord either a duplicate original or the aforesaid policy or a certificate evidencing such insurance, provided said certificate contains an endorsement that such insurance may not be cancelled except upon thirty (30) days' notice to Landlord, together with evidence of payment for the policy. 23.3 Upon failure at any time on the part of Tenant to procure and deliver to Landlord the policy or certificate of insurance, as hereinabove provided, stamped "Premium Paid" by the issuing company at least thirty (30) days before the expiration of the prior insurance policy or certificate, if any, or to pay the premiums therefor, Landlord shall be at liberty, from time to time, as often as such failure shall occur, to procure such insurance and to pay the premium therefor, and any sums paid for insurance by Landlord shall be and become, and are hereby declared, to be Additional Rent hereunder due immediately, for the collection of which Landlord shall have all remedies provided for in this Lease or by law for the collection of rent. Payment by Landlord of such premium or the carrying by Landlord or any such policy shall not be deemed to waive or release the default of Tenant with respect thereto. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a Default hereunder entitling Landlord to exercise any or all of the remedies as provided in this Lease in the event of a Default. 20 ARTICLE XXIV Mechanics' Liens 24.1 Any mechanic's lien filed against the Real Property for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be bonded by Tenant within five (5) days after notice of filing at Tenant's expense. ARTICLE XXV Quiet Enjoyment 25.1 Landlord covenants and agrees that, upon the performance by Tenant of all of the covenants, agreements and provisions hereof on Tenant's part to be kept and performed, Tenant shall have, hold and enjoy the Premises, subject and subordinate to the rights set forth in Article VIII, free from any interference whatsoever by, from or through Landlord, provided, however, that no diminution or abatement of Basic Rent, Additional Rent or other payment to Landlord shall be claimed by or allowed to Tenant for inconvenience or discomfort arising from the making of any repairs or improvements to the Premises or the Real Property, or for any space taken to comply with any law, ordinance or order of any Governmental Authority, except as provided herein. ARTICLE XXVI Air and Light 26.1 This Lease does not grant any rights to air and light. ARTICLE XXVII Landlord's Services 27.1 Landlord shall furnish to Tenant the services set forth in this Lease and the Rules and Regulations as services which are covered by the Basic Rent. 27.2 (a) Air heating and air cooling shall be furnished only between the hours of 8:00 a.m. and 6:00 p. m., Mondays through Fridays, Saturdays, Sundays and Building Holidays, excluded (hereinafter referred to as the "Business Hours"), and then only when weather conditions, in the opinion of Landlord, require. As used herein, the term "Building Holidays" shall mean all holidays including, but not limited to: Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and the day after Christmas Day and New Year's Day, as each of the said holidays are celebrated in the State of New Jersey. (b) If Tenant shall request the use of air cooling (during the periods when such is available), ventilating and/or heat at any time other than the Business Hours in this Lease provided for such service, Landlord shall furnish such to Tenant provided (i) that Tenant pays to Landlord, as Additional Rent, a special overtime charge therefor which shall be $40.00 per hour initially (which Landlord may adjust from time to time) and (ii) 21 that Tenant's request shall be received in writing by Landlord's property manager by 12:00 noon at least one day before after-hours service is required (and by 12:00 noon of the day preceding any requested before-hours service). 27.3 (a) Throughout the Term, Landlord agrees to redistribute electrical energy to the Premises (not exceeding the present electrical capacity at the Premises), upon the following terms and conditions: (i) Tenant shall pay for such electrical energy as provided by this Paragraph 27.3; (ii) Landlord shall not be liable in any way to Tenant for any loss, damage or expense which Tenant may sustain or incur as a result of any failure, defect or change in the quantity or character of electricity furnished to the Premises or if such quantity or character of electricity furnished to the Premises is no longer available or suitable for Tenant's requirements or due to any cessation, diminution or interruption of supply thereof. The parties agree that Tenant will pay for the electric during the term of this Lease in such amounts as may be determined under one of the provisions following, to wit, (a), (b), and (c). The parties agree that Landlord will be entitled to elect which measurement method will be used, and further agree that Landlord will be entitled to change the method during the Term of this Lease on notice to the Tenant: (a) by determining a fixed amount at the outset, which is $1.25 per square foot, or $15,493.75 per annum or $1,291.15 per month, and agreeing to adjustments to same; (b) by submetering the demised premises at Landlord's expense, in which case Landlord will be entitled to charge a pro rata share of its utility charges, together with a charge incurred by Landlord for the submetering service under this method, Landlord will charge Tenant at the same rate as the utility is charging; therefore, Tenant will be liable for any utility rate increases; or (c) by having an independent electrical engineering consultant selected by Landlord and reasonably acceptable to Tenant make a survey of the electrical power demand of the electric lighting fixtures and the electrical equipment of Tenant used in the Premises to determine the average monthly electric consumption thereof. Landlord shall have the right to resurvey the electrical power demand at any time during the Term of this Lease or on a regular basis, but not more often than quarterly. The findings of said consultant as to the average monthly electric consumption of Tenant shall be conclusive and binding on the parties hereto. After said consultant has submitted its report, Tenant shall pay to Landlord within ten (10) days after demand therefor by Landlord, the amount determined by said consultant as owing from the Commencement Date and during the months in which said survey was being conducted and, thereafter, on the first day of every month, in advance, the amount set forth as the monthly consumption in said report. Said amounts shall be treated as Additional Rent due hereunder. In the event that there shall be an increase or decrease in the rate schedule of the public utility for the supply of electric energy to the Building or the 22 imposition of any tax or surcharge with respect to such electric energy or increase in such tax or surcharge with respect to such electric energy or increase in such tax or surcharge following the Commencement Date, the Additional Rent payable hereunder shall be equitable adjusted to reflect the resulting increase, decrease, tax or surcharge. (b) Tenant covenants that its use of electricity in the Premises shall be limited to and for the operation of (1) the Building standard lighting, and (2) personal computers, electric typewriters, calculators, copying machines and other small office machines. (c) Tenant shall make no alteration to the existing electrical equipment or connect any fixtures, appliances or equipment in addition to the equipment permitted in Article 27.3(b) above without prior written consent of Landlord in each instance. Should Landlord grant such consent, all additional risers or other equipment required therefor shall be provided by Landlord and the cost thereof shall be paid by Tenant upon Landlord's demand. As a condition to granting such consent, Landlord shall require an increase in the monthly electrical charge (as Additional Rent) by an amount which will reflect the cost of electricity to operate the additional equipment and service to be furnished by Landlord. This increase shall be determined by an independent electrical engineer, to be selected by Landlord and whose service shall be paid for by Tenant. (d) Landlord reserves the right to discontinue furnishing electrical energy to Tenant at any time upon to less than one hundred twenty (120) days' written notice to Tenant. If Landlord exercises such right of termination, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that, from and after the effective date of such termination, Landlord shall not be obligated to furnish electric energy to Tenant and the Additional Rent shall be reduced by a sum per month equal to that amount previously agreed as Additional Rent for Tenant's use of electricity in the Premises. If Landlord so discontinues furnishing electrical energy to Tenant, Tenant shall arrange to obtain electrical energy directly from the public utility company furnishing electric energy to the Building. Tenant may obtain such electrical energy by means of the then-existing Building system feeders, risers and wiring to the extent that the same are available, suitable and safe for such purposes. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electrical energy from the public utility company shall be installed and maintained by Tenant in accordance with Article V hereof at its sole expense. (e) Landlord shall not be liable in the event of any interruption in the supply of electricity, and Tenant agrees that 23 such supply may be interrupted for inspection, repairs, replacement and in emergencies. 27.4 The failure of Landlord to furnish any service hereunder shall not be construed as a constructive eviction of Tenant and shall not excuse Tenant from performing any of its obligations hereunder and shall not give Tenant any claim against Landlord for damages for failure to furnish such services. ARTICLE XXVIII Additional Rent 28.1 Tenant hereby covenants and agrees to pay as Additional Rent the amounts as set forth below. 28.2 (a) For each year or part of a year occurring within the Term in which the total annual real estate taxes, assessments (including special assessments), personal property tax, sewer rents, rates and charges (hereinafter referred to as the "Real Estate Taxes") which shall be levied, imposed or assessed upon the Real Property shall exceed the Real Estate Taxes levied, imposed or assessed for the Base Tax Year as is specified in Item I of the Basic Lease Provisions, for each calendar year Landlord shall notify Tenant of Landlord's best estimate of Tenant's Proportionate Share of Real Estate Taxes for each calendar year above Base Tax Year Real Estate Taxes and Tenant shall be obligated to pay Landlord, as Additional Rent along with each monthly installment of Base Rent due during such calendar year, one twelfth (1/12th) of such estimated amount. Tenant's payments of such estimated amount shall be treated by Landlord as a credit against the actual amount of Tenant's Proportionate Share required to be paid by Tenant pursuant to this Paragraph. (b) Landlord covenants and agrees that for each year or part of a year occurring within the Term in which the Real Estate Taxes shall be decreased from the Real Estate Taxes levied, imposed or assessed for the Base Tax Year, Landlord shall credit against any Additional Rent due from Tenant hereunder within ninety (90) days after the end of such year, a sum equal to Tenant's Proportionate Share of such decrease of Real Estate Taxes. Tenant's Proportionate Share of said decrease of Real Estate Taxes for less than one year shall be prorated and apportioned. (c) Landlord may take the benefit of the provisions of any statute or ordinance permitting any Real Estate Tax to be paid over a period of time. (d) Tenant's Proportionate Share of Real Estate Taxes in excess of the Real Estate Taxes for the Base Tax Year shall be determined from the amount finally determined to be legally due as a result of legal proceedings or otherwise. In the event the Real Estate Taxes have not been finally determined by legal proceedings 24 or otherwise at the time of payment of Real Estate Taxes for any subsequent year, the actual amount of Real Estate Taxes paid or accrued by Landlord or billed by the taxing jurisdiction for the Base Tax Year shall be used to calculate any excess thereof. Upon a final determination of the Real Estate Taxes for the Base Year Tax by legal proceedings or otherwise, Landlord shall deliver to Tenant a statement setting forth the amount of Real Estate Taxes for the Base Tax Year as finally determined and showing the computation of any adjustment due to Landlord or to Tenant by reason thereof. Any payment due to Landlord or any credit due to Tenant by reason of such adjustment shall be made as provided herein. (e) If Landlord shall receive any tax refund in respect of any tax year following the Base Tax Year, Landlord shall deduct from such tax refund any expenses incurred in obtaining such tax refund, and out of the remaining balance of such tax refund, Landlord shall credit to Tenant Tenant's Proportionate Share of such refund. Any expenses incurred by Landlord in contesting the validity or the amount of the assessed valuation of the Real Property or of any Real Estate Taxes for any year after the Base Tax Year, to the extent not offset by a tax refund, shall be included as an item of Real Estate Taxes for the tax year in which such contest shall be finally determined for the purposes of computing the Additional Rent due Landlord hereunder. (f) If the tax year for Real Estate Taxes shall be changed, then an appropriate adjustment shall be made in the computation of the Additional Rent due to Landlord or any credit due to Tenant, in accordance with sound accounting principles, to the changeover to any new tax year adopted by any taxing authority. "Real Estate Taxes" as set forth in this Article XXVIII shall mean those taxes attributable to the Real Property and/or the Building, and/or contents, provided that, if because of any change in the method of taxation of real estate any other tax or assessment is imposed upon Landlord or the owner of the Real Property and/or the Building or upon or with respect to the Real Property and/or the Building or the rents or income therefrom in substitution for or in lieu of any tax or assessment which would otherwise be a Real Estate Tax, such other tax or assessment shall be deemed Real Estate Taxes for the purposes hereof. (g) If the last year of the Term ends on any day other then the last day of the tax year, any payment due to Landlord or credit due to Tenant by reason of any increase in Real Estate Taxes shall be prorated, and tenant covenants to pay any amount due to Landlord within thirty (30) days after being billed therefor and Landlord covenants to credit any amount due to Tenant, as the case may be. These covenants shall survive the Expiration Date or earlier termination of this Lease. 25 28.3 (a) As used herein, the term "Landlord's Operating Expenses" shall mean those costs or expenses paid or incurred by Landlord for operating, maintaining and repairing the Real Property, including, but not limited to, the cost of electricity, water, fuel, window cleaning, janitorial service, insurance of all kinds carried in good faith by Landlord and applicable to the Real Property, snow removal, maintenance and cleaning of the parking lot, landscape maintenance repairs of any kind for which Landlord is not reimbursed, painting, replacement of worn out mechanical or damaged equipment, uniforms, management fees, building supplies, sundries, sales or use tax on supplies or services, wages and salaries of all persons engaged by Landlord for the operation, maintenance and repair of the Real Property, legal and accounting expenses, and any other expense for cost, which, in accordance with generally accepted accounting principles and the standard management practices for the office buildings comparable to the Building would be considered as an expense of operating, maintaining or repairing the Real Property. Excluded from Landlord's Operating Expenses are mortgage debt service, capital improvement costs, costs reimbursed by insurance, the cost of work performed specifically for a tenant in the Building for which such tenant reimburses Landlord, costs in connection with preparing space for a new tenant and real estate broker's commissions. (b) Tenant shall pay to Landlord as Additional Rent Tenant's Proportionate Share of the amount by which Landlord's Operating Expenses for any calendar year during the Term after the Base Operating Year as a specified in Item J of the Basic Lease Provisions exceeds Landlord's Operating Expenses during the Base Operating Year. (c) Approximately during the second month of each calendar year of the Term, or within a reasonable period of time thereafter, Landlord shall submit to Tenant a statement (hereinafter referred to as "Landlord's Statement") showing in reasonable detail Landlord's Operating Expenses during the preceding calendar year. Within thirty (30) days next following the submission of a Landlord's Statement, which also shows Landlord's Operating Expenses for the Base Operating Year, Tenant shall pay to Landlord Tenant's Proportionate Share of the amount by which Landlord's Operating Expenses for the Base Operating Year were exceeded. Tenant or its representative shall have the right to examine Landlord's books relating to the expenses of the Real Property only, with respect to the items in the foregoing Landlord's Statement, during normal business hours at any time within ten (10) days following the delivery by Landlord to Tenant of such Landlord's Statement. Unless Tenant shall take written exception to any item contained therein within twenty (20) days after the delivery of same, Landlord's Statement shall be considered as final and accepted by Tenant. Any controversy with respect to any written exception shall be made by an independent certified public accountant mutually acceptable to Landlord and 26 Tenant, and if such accountant cannot be agreed upon, then by arbitration. Such arbitration shall be conducted upon the request of Tenant provided that Tenant shall be current in payments to be made pursuant to said Landlord's Statement. Arbitration shall be before three arbitrators designated by the American Arbitration Association and in accordance with the rules and regulations of such Association. The expenses of arbitration proceedings shall be borne by the party who shall not have prevailed in said proceedings. The fees of respective counsel engaged by the parties and fees of experts and other witnesses called for by the parties shall be paid by the respective parties engaging such counsel or calling or engaging such witnesses. (d) For each calendar year, Landlord shall notify Tenant of Landlord's best estimate of Tenant's Proportionate Share of Operating Expenses for such calendar year above Base Operating Year Operating Expenses and Tenant shall be obligated to pay Landlord, as Additional Rent along with each monthly installment of Basic Rent due during such calendar year, one twelfth (1/12th) of such estimated amount. Tenant's payments of such estimated amount shall be treated by Landlord as a credit against the actual amount of Tenant's Proportionate Share required to be paid by Tenant pursuant to Paragraph 28.3(b) hereof. (e) Included in each Landlord's Statement, a reconciliation thereof shall be made as follows: Tenant shall be debited with an increase in the Additional Rent shown on such Landlord's Statement and credited with (1) the aggregate amount, if any, paid by Tenant in accordance with the provisions of Article XXVIII hereof on account of its potential obligation to pay such decrease in the Additional Rent for the calendar year in question, and (2) and decrease in the Additional Rent shown on such Landlord's Statement. Tenant shall pay any net debit balance to Landlord within thirty (30) days as set forth in Paragraph 28.3(c) above; any net credit balance shall be applied by Landlord against the next accruing monthly installment of Additional Rent. 28.4 Any increase in Additional Rent under this Article XXVIII shall be prorated for the final year of the Term if such year covers a period of less that twelve (12) months. In no event shall any adjustment in Tenant's obligation to pay Additional Rent under this Article XXVIII result in a decrease in the Basic Rent payable hereunder. Tenant's obligation to pay Additional Rent and Landlord's obligation to credit Tenant any amount referred to in this Article XXVIII for the final year of the Term shall survive the Expiration Date. 28.5 With respect to Tenant's Proportionate Share of Operating Expenses in excess of the Base Operating Year, if the Building is not at least ninety percent (90%) occupied during the Base Operating Year or any calendar year during the Term, then those items included within the Operating Expenses which are affected by 27 variations in occupancy of the Building shall be increased by Landlord for such calendar year (or partial calendar year) to the amount that would have been reasonably incurred had Landlord provided such item of work or service to ninety percent (90%) of the rentable area of the Building. ARTICLE XXIX Personal Property Taxes 29.1 Tenant agrees to pay all taxes imposed on the personal property of Tenant, the conduct of its business and its use and occupancy of the Premises. ARTICLE XXX Security Deposit 30.1 No security deposit is required to be deposited by Tenant. ARTICLE XXXII Definition of Landlord 31.1 The Term "Landlord" as used in this Lease means only the owner for the time being of the Real Property and/or the Building or owner of a lease of the Real Property. In the event of any transfer of title to or lease of the Real Property, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder and this Lease shall be deemed and construed as a covenant running with the land without further agreement between the parties or their successors in interest. 31.2 Landlord shall be under no personal liability with respect to any of the provisions of this Lease, and if Landlord is in breach or default with respect to its obligations or otherwise, Tenant shall look solely to the equity of Landlord in the Real Property for the satisfaction of Tenant's remedies. It is expressly understood and agreed that Landlord's liability under the terms, covenants, conditions and obligations of this Lease shall in no event exceed the amount of Landlord's equity in the Real Property. ARTICLE XXXII Notices 32.1 Notices by either party to the other shall be in writing, sent via registered or certified mail, return receipt requested, postage prepaid and addressed to Landlord or Tenant at their respective addresses as specified in Items H(1) and H(2) of the Basic Lease Provisions, or to such other addresses as either party shall hereafter designate by notice as aforesaid. All notices properly addressed shall be deemed served three (3) business days after the date of mailing. 28 ARTICLE XXXIII Signs 33.1 No sign, advertisement or notice shall be affixed to or placed upon any part of the Premises, the Building or the Real property by the Tenant, except in such manner and of such size, design and color as shall be approved in advance in writing by Landlord, in its sole discretion. ARTICLE XXXIV Notice of Defects and Accidents 34.1 Tenant shall give Landlord immediate notice in case of any accident on the Premises involving Tenant, its servants, agents, employees, invitees or licensees in the Building or on the Real Property or of any defects in the Building. ARTICLE XXXV Rules and Regulations 35.1 Tenant, on behalf of itself and its employees, agents, servants, invitees and licensees, agrees to comply with the Rules and Regulations with respect to the Real Property attached hereto as Exhibit C and incorporated herein by reference. Landlord shall have the right to make reasonable amendments thereto from time to time for safety, care and cleanliness of the Real Property and the Building, the preservation of good order therein and the general convenience of all the tenants, and Tenant agrees to comply with such amended Rules and Regulations after twenty (20) days' written notice thereof from Landlord. ARTICLE XXXVI Directory 36.1 Landlord shall furnish and service in the lobby of the Building a tenant directory. Tenant, at its expense, may request from Landlord and pay for such reasonable and customary number of names that Tenant may from time to time request to be listed in such directory. ARTICLE XXXVII Hazardous Materials and Compliance with Environmental Law. 37.1 Tenant shall not cause or permit any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority of the United States Government ("Hazardous Materials") to be brought upon, kept or used in or about the Premises by Tenant, its agents, employees, contractors or invitees, without the prior written consent of Landlord (which shall not be granted unless Tenant demonstrates to Landlord's reasonable satisfaction that such Hazardous Material is necessary or useful to Tenant's business and will be used, kept and stored in 29 a manner that complies with all laws regulating any such Hazardous Material so brought upon or used or kept in or about the Premises). If Tenant breaches the obligations stated in the preceding sentence, or if the presence of Hazardous Materials on the Premises, the Building or the Real Property caused or permitted by Tenant results in contamination of the Premises, the Building, or the Real Property by Hazardous Material or otherwise occurs for which Tenant is legally liable to Landlord for damage resulting therefrom, Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Premises, the Building, or the Real Property, damages for the loss of restriction on use of rentable or usable space or of any amenity of the Premises, the Building or the Real Property, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present, including in the soil or ground water on or under the Building. Without limiting the foregoing, if the presence of any Hazardous Material present on the Premises, the Building, or the Real Property caused or permitted by Tenant results in any contamination of the Premises, the Building or the Real Property, Tenant shall promptly take all actions at its sole expense as are necessary to return the Premises, and/or the Building, and/or the Real Property to the condition existing prior to the introduction of any such Hazardous Material to the Premises and/or the Building, and/or the Real Property; provided that Landlord's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such action would not potentially have any material adverse long-term or short-term effect on the Premises, the Building or the Real Property. 37.2 Tenant shall, at Tenant's sole cost and expense, comply with the requirements of any federal, state, county, municipal or other governmental law, ordinance, rule, regulation, requirement and/or directive pertaining to the environment (an "Environmental Law" or "Environmental Laws") including, but not limited to, the New Jersey Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.); the New Jersey Water Pollution Control Act (N.J.S.A. 58:10A-1 et seq.); the Worker and Community Right to Know Act (N.J.S.A. 34:5A-1 et seq.); the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.); the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.); and the Environmental Cleanup Responsibility Act (N.J.S.A. 13:1K-6 et seq.) and the regulations promulgated thereunder ("ECRA"). In this regard, Tenant shall, at 30 Tenant's sole cost and expense, make all submissions to, provide all information to and comply with all requirements of any governmental authority. Should said governmental authority determine that action is necessary to clean up, remove and/or eliminate any spills or discharges by Tenant or dangerous or hazardous substances or wastes in and upon the Premises, the Building and/or the Real Property and/or that a cleanup plan must be prepared and submitted, then and that event, Tenant shall, at Tenant's sole cost and expense, take any and all action required and carry out any and all approved plans. Tenant's obligations pursuant to this Paragraph 38.2 shall arise whenever required by any appropriate governmental agency, including, but not limited to, any closing, terminating or transferring of operations at the Premises. 37.3 Tenant shall, at Tenant's sole cost and expense, comply with ECRA. Tenant shall, at Tenant's sole cost and expense. make all submissions to, provide all information to, and comply with all requirements of, the Bureau of Industrial Site Evaluation (the "Bureau") of the New Jersey Department of Industrial Site Evaluation (the "Bureau") of the New Jersey Department of Environmental Protection ("NJDEP"). Should the Bureau or any other division of NJDEP determine that a cleanup plan be prepared and that a cleanup be undertaken because of any spills or discharges of hazardous substances or wastes at the Premises which occur during the Term or any renewal thereof, as the case may be, then Tenant shall, at Tenant's sole cost and expense, prepare and submit the required plans and financial assurances, and carry out the approved plans. Tenant's obligations under this Article XXXVIII shall arise if there is any closing, terminating or transferring of operations by any person or entity of an industrial establishment at the Premises pursuant to ECRA, including, without limitation, a sale, transfer or conveyance of the Premises by Landlord, an assignment or subletting by Tenant, or the vacation of the Premises by Tenant for any reason whatsoever. At no expense to Landlord, Tenant shall promptly provide all information within its personal knowledge requested by Landlord for preparation of non-applicability affidavits and shall promptly sign such affidavits when requested by Landlord. Tenant shall indemnify, defend and hold harmless Landlord from all fines, suits, procedures, claims and actions of any kind arising out of or in any way connected with any spills or discharges of hazardous substances or wastes to the Premises which occur during the Term or any renewal thereof, as the case may be, and from all fines, suits, proceedings, claims and actions of any kind arising out of Tenant's failure to provide all information, make all submissions and take all actions required by the ECRA Bureau or any other division of NJDEP. Tenant's failure to abide by the terms of this Article XXXVIII shall be enforceable in a court of law and subject to all equitable remedies. Tenant's obligations hereunder shall survive the Expiration Date of this Lease. 31 37.4 Any references in this Lease to ECRA shall also include the current New Jersey law commonly known as ISRA. ARTICLE XXXVIII Miscellaneous 38.1 This Lease contains the entire agreement between the parties, and any attempt hereafter made to change, modify, discharge or effect an abandonment of it in whole or in part shall be void and ineffective unless in writing and signed by the party against whom the enforcement of the change, modification, discharge or abandonment is sought. 38.2 Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in any matter arising out of or in any connection with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim, injury or damage, or any emergency or statutory remedy. 38.3 If, by reason of strike, labor troubles or other cause beyond Landlord's control, including, but not limited to, governmental preemption in connection with a national emergency or any rule, order or regulation of any Governmental Authority, or conditions of supply and demand which are affected by war or other emergency, Landlord shall be unable to supply any service which Landlord is obligated to supply, this Lease and Tenant's obligation to pay Basic Rent and Additional Rent hereunder shall in no way be affected, impaired or excused. 38.4 Tenant represents that it has not dealt with any real estate broker in connection with this Lease, other than as specified in Item G of the Basic Lease Provisions. Tenant indemnifies and holds Landlord harmless from and against any and all claims, liabilities, costs or damages Landlord may incur as a result of a breach of this representation. 38.5 If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby and all other terms and provisions of this Lease shall be valid and enforced to the fullest extent permitted by law. 38.6 (a) Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of covenants. 32 (b) Words of a gender used in this Lease shall be held to include any other gender and words in the singular number shall be held to include the plural when the tense requires. (c) All pronouns and any variations thereof shall be deemed to refer to the neuter, masculine, feminine, singular or plural as the identity of Tenant requires. (d) This Lease shall be strictly construed neither against Landlord nor Tenant. No remedy or elections given by any provision in this Lease shall be deemed exclusive unless so indicated, but each shall, wherever possible, be cumulative with all other remedies in law or equity as otherwise specifically provided. Each provision hereof shall be deemed both a covenant and a condition and shall run with the land. (e) If, and to the extent that, any of the provisions of any rider, addendum or amendment to this Lease conflict or are otherwise inconsistent with any of the preceding provisions of this Lease, or of the Rules and Regulations appended to this Lease, whether or not such inconsistency is expressly noted in the rider, addendum or amendment, the provision of the rider, addendum or amendment shall prevail, and in case of inconsistency with said Rules and Regulations, shall be deemed a waiver of such rules and regulations with respect to Tenant to the extent of such inconsistency. (f) Tenant agrees that all of Tenant's covenants and agreements herein contained providing for the payment of money and Tenant's covenant to remove mechanics' liens shall be deemed conditions as well as covenants, and that if default be made in any such covenants, Landlord shall have all of the rights provided for herein. (g) The parties mutually agree that the headings and captions contained in this Lease are inserted for the convenience of reference only, and are not to be deemed part of or to be used in construing this Lease. (h) The covenants and agreements herein contained shall, subject to the provisions of this Lease, bind and inure to the benefit of Landlord, its successors and assigns, and Tenant, its successors and assigns except as otherwise provided herein. (i) This Lease shall be construed in accordance with the laws of the State of New Jersey, and Landlord and Tenant acknowledge that all applicable statutes of the State of New Jersey are superimposed on the rights, duties and obligations of Landlord and Tenant hereunder and this Lease shall not otherwise provide that which said statutes prohibit. 33 (j) Landlord has made no representations or promises with respect to the Premises or the Real Property except as expressly contained herein. Tenant has inspected the Premises and agrees to take the same in an "as is" condition, except as otherwise expressly set forth in Exhibit B attached hereto and incorporated by reference herein. Landlord shall have no obligation, except as set forth in Exhibit B, to do any work in and to the Premises to render the Premises ready for occupancy and use by Tenant. 38.7 Tenant shall not record this Lease or a memorandum hereof. 38.8 Landlord shall have the right, upon giving to Tenant thirty (30) days' prior written notice, to relocate Tenant by substituting for the Premises described herein other space in the Building containing approximately as much area as that contained in the Premises and by paying Tenant's reasonable moving and relocation expenses. Such substituted space shall be improved by Landlord, at its expense, with Tenant finished improvements comparable in quantity and quality to those made in the Premises. Landlord shall pay all reasonable expenses incurred by Tenant in connection with such relocation, including the moving, door lettering and telephone relocation. In connection with such relocation, Landlord and Tenant shall amend this Lease to change the description of the Premises and any other matter which may pertain thereto. 38.9 Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant. 38.10 Landlord and Tenant hereby covenant each for itself, that each has the full right, power and authority to enter into this Lease upon the terms and conditions set forth. If Tenant signs as a corporation, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, qualified to do business in the jurisdiction in which the Building is located, that the corporation has full right and authority to enter to this Lease, and that each of the persons signing on behalf of the corporation was authorized to do so. 34 38.11 Submission of this Lease to Tenant for examination or signature by Tenant shall not constitute reservation of or an option to lease, and the same shall not be effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal on the day and year first hereinabove written. WITNESS OR ATTEST: LANDLORD: SUMMIT PLAZA, INC. s/Linda Lerner By: s/Mark Shefts - -------------- ----------------- Name: Mark Shefts Title: President WITNESS OR ATTEST: TENANT: ALL-TECH INVESTMENT GROUP, INC. s/Linda Lerner By: s/Mark Shefts - -------------- ----------------- Name: Mark Shefts Title: President 35 (Corporate Seal) CORPORATE TENANT ACKNOWLEDGEMENT STATE OF NEW YORK ss. COUNTY OF ROCKLAND On this 30th day of April, 1998, before me personally came Mark Shefts, to me known, who, being by me duly sworn, did depose and say that he resides in the Village of Tuxedo Park, State of New York, that he is the President of the corporation described in and which executed the foregoing Lease as Tenant; that s/he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that she/he signed her/his name thereto by like order. S/Christine Ciiulla ------------------- Notary Public 36 EXHIBIT B Landlord's Work in the Premises 37 EXHIBIT C Rules and Regulations 1. Tenant shall not (a) obstruct or permit its employees, agents, servants, invitees or licensees to obstruct, in any way, the sidewalks, entry passages, corridors, exit doorways, halls, stairways, or elevators of the Building, or use the same in any way other than by means of passage to and from the offices of Tenant; (b) bring in, store, test or use any materials in the Building which could cause a fire or an explosion or produce any fumes or vapor; (c) make or permit any improper noises in the Building; (d) smoke in any elevator, throw substances of any kind out of windows or doors, or down the passages of the Building, or in the halls or passageways, sit on or place anything upon the window sills; or (e) clean the windows. 2. Waterclosets and urinals shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, ashes, newspaper or any other substances of any kind shall be thrown into them. Waste and excessive or unusual use of electricity or water is prohibited. 3. The windows, doors, partitions and lights that reflect or admit light into the halls or other places of the Building shall not be obstructed. NO SIGNS, ADVERTISEMENTS OR NOTICES SHALL BE INSCRIBED, PAINTED, AFFIXED OR DISPLAYED IN, ON OR BEHIND ANY WINDOWS. 4. No contract of any kind with any supplier of towels, water, ice, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning or repair of electrical fixtures, removal of waste paper, rubbish or garbage, or other like service shall be entered into by Tenant, nor shall any vending machine of any kind be installed in the Building without the prior written consent of Landlord. 5. Tenant shall not employ any person or persons for the purpose of cleaning the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Landlord shall not be responsible to Tenant for any loss of property from the Premises however occurring, or for any damage done to the effects of Tenant by janitors or any of its employees, or by any other person or any other cause. 6. When electrical wiring of any kind is introduced, it must be connected as directed by Landlord, and no stringing or cutting of wires will be allowed, except with the prior written consent of Landlord, and shall be done only be contractors approved by Landlord. The number and location of telephones, telegraph instruments, electric appliances, call boxes, etc. shall be 38 approved by Landlord. No tenant shall lay floor covering so that the same shall be in direct contact with the floor of the Premises; and if the floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor by a paste or other material, the use of cement or other similar adhesive material being expressly prohibited. 7. Tenant must submit to Landlord in writing a description of the weight, size and positions of all safes and other bulky or heavy equipment and all freight which Tenant proposes to bring into the Building; and including the time of moving the same in and out of the Building. Tenant shall not bring such items into the Building until receiving Landlord's written consent. Once such Landlord consent is received, all such moving shall be done under the strict supervision of Landlord or Landlord's property manager. Landlord will not be responsible for loss or damage to any such equipment or freight from any cause; but all damage done to the Building by moving or maintaining such equipment or freight shall be repaired at the expense of the Tenant. All safes shall stand on a base of such size as shall be designated by Landlord. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these Rules and Regulations or the Lease of which these Rules and Regulation are a part. 8. No machinery of any kind or articles of unusual weight or size will be allowed in the Building without the prior written consent of Landlord. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense, in settings sufficient (including proper floor load), in Landlord's judgment, to absorb and prevent vibration, noise and annoyance to other tenants. 9. No additional lock or locks shall be placed by Tenant on any door in the Building without the prior written consent of Landlord. Two keys shall be initially be furnished to Tenant by Landlord; two addition keys shall be supplied to Tenant by Landlord upon request without charge; any additional keys requested by Tenant shall be paid for by Tenant. Tenant, its agents and employees shall not have any duplicate key made and shall not change any lock. All keys to doors and washrooms shall be returned to Landlord on or before the Expiration Date or earlier termination of this Lease, and, in the event of a loss of any keys furnished, Tenant shall pay Landlord the cost thereof. 10. No bicycles, vehicles (except wheelchairs) or animals of any kind shall be brought into or kept in or about the Premises. 11. The requirements of Tenant will be attended to only upon application at the office of Landlord or Landlord's property manager. Employees of Landlord or Landlord's property manager shall not perform any work for Tenant or do anything outside of 39 their regular duties unless under special instructions from Landlord. 12. The Premises shall not be used for lodging or sleeping purposes, and cooking therein is prohibited. 13. Tenant shall not conduct, or permit any other person to conduct, any auction upon the Premises; manufacture or store goods, wares or merchandise upon the Premises without the prior written approval of Landlord, except the storage of usual supplies and inventory to be used by Tenant in the conduct of its business; permit the Premises to be used for gambling; make any unusual noises in the Building; permit to be played any musical instrument in the Premises; permit to be played any radio, television, recorded or wired music in such a loud manner as to disturb or annoy other tenants; or permit any unusual odors to be produced upon the Premises. 14. Tenant shall be entitled to access to the Building by master key during non-business or overtime hours; it shall be Tenant's responsibility to secure the Premises at the nonbusiness hours when Tenant enters or leaves the Building. 15. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior consent of Landlord. All blinds must be of a quality, type, design and color, and attached in a manner, approved by Landlord. 16. Canvassing, soliciting and peddling on the Real Property or in the Building are prohibited, and Tenant shall cooperate to prevent the same. 17. There shall not be used in the Premises or in the Building either by Tenant or by others in the delivery or receipt of merchandise, supplies or equipment, any handtrucks except those equipped with rubber tires and side guards. If delivery or pickup is being made which requires the use of a handtruck on the elevator, Tenant shall ensure that proper padding shall be utilized in the elevator. 19. Landlord shall have the right to prohibit any advertising by Tenant which in Landlord's opinion tends to impair the reputation of the Building or its desirability for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 20. Each tenant, before closing and leaving the Premises, shall ensure that all windows are closed and all entrance doors are closed and locked. 40 21. No animals of any kind shall be allowed in the Building except for working dogs. 22. Landlord hereby reserves to itself any and all rights not granted to Tenant hereunder, including, but not limited to, the following rights, which are reserved for Landlord's purposes in operating the Building: (a) the exclusive right to the use of the name of the Building for all purposes, for Landlord or anyone Landlord might designate, except that Tenant may use the name as its business address and for no other purpose; (b) the right to change the name or address of the Building, without incurring any liability to Tenant for so doing; (c) the right to install and maintain a sign or signs on the exterior of the Building; (d) the exclusive right to use or dispose of the use of the roof of the Building; (e) the right to limit the space on the directory of the Building allotted to Tenant; (f) the right to grant to anyone the right to conduct any particular business or undertaking in the Building. 23. Tenant shall list all articles to be taken from the Building (other than those taken out in the usual course of business of Tenant) on Tenant's letterhead, or a blank which will be furnished by Landlord. Such list shall be presented at the office of the Building's property manager for approval before such articles are taken from the Building. 24. Tenant shall have the non-exclusive right to use in common with Landlord and other tenants of the Building and their employees and invitees the unassigned parking area provided by Landlord for the parking of passenger automobiles. Landlord may issue parking permits, install a gate system, and impose any other system as Landlord deems necessary for the use of the parking area. Tenant agrees that it and its employees and invitees shall not park their automobiles in parking spaces allocated to others by Landlord and shall comply with such rules and regulations for the use of the parking area as Landlord may from time to time prescribe. Landlord shall not be responsible for any damage to or theft of any vehicle in the parking area and shall not be required to keep parking spaces clear of unauthorized vehicles or to otherwise supervise the use of parking area. Landlord reserves the right to change any existing or future parking area, roads, or driveways, and may make any repairs or alterations it deems necessary to the parking area, roads and driveways and to temporarily revoke or modify the parking rights granted to Tenant hereunder. The persistent or frequent violation of this right by Tenant, its employees and invitees which continues after written notice from Landlord shall be deemed a default by Tenant under the terms of this Lease and shall also subject Tenant to a revocation by Landlord of Tenant's right to use any parking spaces. 25. Tenant shall not use the Premises or permit the Premises to be used for the sale of food and beverages. 41 26. For the protection of Tenant and Landlord, as their interests may appear, Tenant hereby agrees at its own expense to maintain in full force and effect at all times during the Term of this Lease policies of insurance, issued by a responsible carrier or carriers acceptable to Landlord, which afford the following coverage: A. Workmen's Compensation Statutory B. Employers Liability Not less than $100,000 C. Broad Form Comprehensive Not less than $1,000,000 General Liability Insurance combined single limit for including Contractual both bodily injury and Liability, Broad Form property damage Property Damage, Personal Injury, Completed Operations, Products Liability, Fire Damage 27. Tenant, its employees and agents hereby agree to abide by reasonable rules and regulations of which Tenant shall be notified in writing pertaining to the use of the Building as may be hereafter promulgated from time to time by Landlord. 42 EX-10.4 8 EMPLOYMENT AGREEMENT WITH HARVEY I. HOUTKIN EMPLOYMENT AGREEMENT made April 20, 1998 between All-Tech Investment Group, Inc., a Delaware corporation ("the Corporation"), with principal offices at 160 Summit Avenue, Montvale, New Jersey 07645 and HARVEY HOUTKIN, who resides at 99 Oratam Road, Airmont, New York 10952 ("the Employee"). In consideration of the covenants and agreements herein contained, the parties agree as follows: 1. Employment, Acceptance and Term. The Corporation hereby employs the Employee and the Employee hereby accepts employment from the Corporation for a term of three years, commencing on the effective date of the initial public offering of Common Stock by the Company. The term of employment hereunder may be extended from time to time by such additional period or periods as shall be mutually agreed to in writing by the Corporation and the Employee. 2. Duties and Authority. 2.1 During the term of his employment hereunder the Employee shall devote substantially all of his time and energies to the business and affairs of the Corporation. The Employee agrees to use his best efforts, skill and abilities to promote the Corporation's interests; to serve as a director and officer of the Corporation and any of its subsidiary corporations if elected by the Board of Directors or stockholders of the Corporation and any such subsidiary corporation; and to perform such duties (consistent with his status as set forth below in this Paragraph 2 as may be assigned to him by the Board of Directors of the Corporation. 2.2 Subject to the direction and control of the Corporation's Board of Directors, the Employee shall be the Chairman, Chief Executive Officer and Secretary of the Corporation. The Employee will perform his services subject only to the direction and control of the Corporation's Board of Directors and will report only to the Corporation's Board of Directors. 2.3 The Corporation's management will recommend to its Board of Directors that so long as the Employee's employment by the Corporation continues (i) the Employee be nominated for election as a director at each meeting of stockholders held for an election of directors; (ii) the Employee be elected as Chairman and Chief Executive Officer of the Corporation by the Board of Directors at its first meeting following the execution of this Agreement, and that the Employee be elected Chairman and Chief Executive Officer of the Corporation at each meeting of directors thereafter called therefor; (iii) if the Board of Directors of the Corporation shall appoint an Executive Committee, the Employee be elected to serve as a member of such committee; and (iv) the Corporation shall not confer on any other officer or employee, except its president, authority, responsibility or powers superior or equal to the authority, responsibility or powers vested in the Employee. 3. Compensation. 3.1 As an inducement to the Employee to enter into this Agreement, and in consideration of the services to be rendered by the Employee under this Agreement, the Corporation shall pay to the Employee during the each year he renders his services hereunder the amount of $500,000. 3.2 During the term of his employment hereunder the Corporation shall pay to the Employee, in addition to the amount paid to the Employee under the preceding Paragraph 3.1, the Employee shall be entitled to 5% of the net earnings before taxes of the Corporation for each such year, payable quarterly, to a maximum of $500,000 for each of the first two years of the term hereof and to a maximum of $1,500,000 for the third year of the term hereof. 3.3 In addition to the foregoing, the employee may elect to participate in the All-Tech Investment Group, Inc. 401(k) Plan in respect of any year. The Corporation agrees to review the Employee's compensation hereunder not less than annually and may make such increases therein as the Corporation shall, in its discretion, deem appropriate taking into account all relevant factors. 4. Expenses. 4.1 Upon submission of proper vouchers, the Corporation will pay or reimburse the Employee for all transportation (first-class), hotel and living expenses incurred by the Employee on business trips outside Montvale, New Jersey and for all other business and entertainment expenses reasonable incurred by him in connection with the business of the Corporation and its subsidiaries during the term of his employment hereunder. 4.2 In order to facilitate the performance of the Employee's duties hereunder, and otherwise for the convenience and in the interests of the Corporation, the Corporation will furnish to the Employee for his use seven days a week a passenger automobile. All expenses of operating, repairing, insuring, garaging and otherwise maintaining such automobile shall be borne and paid for by the Corporation. -2- 5. Stock Options; Insurance. 5.1 The Employee shall be entitled to participate in the Corporation's Qualified Stock Option Plan, a copy of which has heretofore been furnished to the Employee. 5.2 If the life insurance coverage provided to the Employee under the Corporation's general insurance plans shall be less than $1,000,000 the Corporation shall (subject to the Employee passing any required physical examination) furnish to the Employee and pay all premiums computed at standard premium rates on one or more additional policies of term life insurance having an aggregate coverage equal to the difference between $1,000,000 and the coverage available to the Employee under the said general insurance plans. The Employee shall be insured under such additional policies (which shall have benefits and other features no less favorable to the Employee than those applicable under the Corporation's general insurance plans) and shall have the right to designate all beneficiaries thereunder and to select any settlement options available thereunder. The Employee will take all action reasonable requested by the Corporation in connection with the procurement of such additional policies of life insurance. All references in this Paragraph 5.2 to life insurance provided under the Corporation's general insurance plans shall include all death benefits payable under the All-Tech Investment Group, Inc. 401(k) Plan and any subsequently adopted pension plan. 6. Additional Benefits. In addition to the compensation, expenses and other benefits to be paid or provided under Paragraphs 4 and 5, the Employee will be entitled to participate in any insurance, pension or other benefit plan of the Corporation or any of its subsidiaries now existing or hereafter adopted for the benefit of the executives or employees generally of the Corporation or any subsidiary. No payment under this Agreement shall be deemed to constitute payment to the Employee, his legal representatives or beneficiaries, in lieu of, or pension or other benefit or payment under any such insurance, pension or other benefit plan, and no payment under any such plan shall decrease any payment or benefit under this Agreement, except that any amounts paid on account to the Employee's contribution to any Benefit Plan shall be deemed part of Employee's compensation as provided in Paragraph 3.2. 7. Termination of Employee at End of Term; Amount of Such Termination. 7.1 In the event of the Employee's death during his employment by the Corporation, the Corporation shall pay to the Employee's estate the compensation due Employee hereunder through the last day of the calendar month in which death shall have occurred, or to such person or persons as Employee may designate by a writing -3- to the Corporation from time to time or, in if there is no such designation, to his legal representatives. Such compensation shall be determined by multiplying the Employee's salary by a fraction the numerator of which shall be the number of months of the year that shall have elapsed through the last day of the calendar month in which the Employee's death shall have occurred and the denominator of which fraction shall be twelve; from the amount so determined there shall be deducted all payments theretofore made to or for the benefit of the Employee under Paragraph 3.2 here in respect of the year involved. 7.2 This Agreement may be terminated by the Corporation before the expiration of the term of employment hereunder if the Employee becomes disabled during his employment hereunder so that he is unable to substantially perform his services hereunder for an aggregate of six months within any period of twelve consecutive months. Such termination shall be determined by resolution of the Corporation's Board of Directors after the expiration of said six months, said termination to be effective thirty (30) days after written notice to the Employee of the adoption of such resolution. The compensation due Employee hereunder shall be paid through the last day of the calendar month in which such termination shall have occurred. Such compensation shall be determined by multiplying Employee's salary by a fraction, the numerator of which shall be the number of months of the year that shall have elapsed through the last day of the calendar month in which such termination shall have occurred and the denominator of which fraction shall be twelve; from the amount so determined there shall be deducted all payments theretofore made to or for the benefit of the Employee under Paragraph 3.2 hereof in respect of the year involved. 7.3 If the Employee shall not be elected (and continued during the term of his employment hereunder) as Chairman and Chief Executive Officer of the Corporation and as a member of the Executive Committee (if any) appointed by the Board of Directors of the Corporation, or if the Employee shall not be afforded the authority, responsibilities and prerogatives contemplated in Paragraph 2.2 hereof; the Employee shall have the right to terminate his employment under this Agreement by sixty (60) days' prior written notice to the Corporation given at any time within ninety (90) days after such event. If the Employee elects to terminate his employment pursuant to this Paragraph 7.3, the Employee shall nevertheless have the right to continue to receive from the Corporation as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10 (in lieu of any other rights or claims the Employee may have in respect of this Agreement) (i) payment of all amounts that would otherwise have been paid to the Employee, at the time or times such amounts would otherwise have been paid to the Employee, as compensation under Paragraph 3.2 during the entire balance of the three year term of employment provided for in this Agreement and (ii) a continuation -4- for the entire balance of such three year term of the life insurance coverage to be provided and paid for by the Corporation for the entire balance of such three year term of the life insurance coverage to be provided and paid for by the Corporation pursuant to Paragraph 5.2; provided, however, if the unexpired portion of the term of employment hereunder shall be less than twenty-four months at the time such termination becomes effective, the amounts payable by the Corporation under the preceding clauses (i) and (ii), which amounts shall be paid as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10, shall be paid for a period of twenty-four months following the effective date of such termination. If the Employee shall die or become disabled subsequent to the termination of his employment under this Paragraph 7.3, such death or disability shall not diminish or impair his (or his legal representative's or other successor's) right to receive the payments and benefits provided for in this Paragraph 7.3. 7.4. If the Employee shall be discharged without cause during the term of his employment hereunder, he shall be entitled to receive from the Corporation (in lieu of any rights or claims the Employee may have in respect of this Agreement), as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10, amounts and life insurance coverage determined in the same manner and for the same period as provided in Paragraph 7.3. 7.5 If the Employee shall be discharged for cause during the term of his employment hereunder, the Corporation's obligation to pay compensation or other amounts payable hereunder to or for the benefit of the Employee shall terminate on the date of such discharge. As used herein the term "for cause" shall mean and include chronic alcoholism, drug addiction, dishonesty, malfeasance and misfeasance. 8. Payments Upon Expiration of Initial or Additional Employment Term. 8.1 If the Employee remains in the employ of the Corporation during the entire initial three year term of employment provided herein and if the Employee is willing to renew or extend the term of his employment for an additional period of not less than three years beyond the initial three year term of employment provided herein, on substantially the same terms and conditions applicable during the third year of such employment term (including, without limitation, the rate of compensation payable to the Employee under Paragraph 3.2, and the other benefits available to the Employee hereunder, during such third year), but the Corporation is unwilling to enter into a renewal or extension of the Employee's employment on such terms and conditions, then the Employee shall receive as severance compensation and in consideration of the Employee's continued compliance with the covenant not to compete contained in -5- Paragraph 10, for a period of twelve months following the expiration of the three year term of employment hereunder, (i) payment of all amounts that would otherwise have been paid to the Employee, at the time or times such amounts would otherwise have been paid to the Employee, as compensation under Paragraph 3.2 as if the provisions of such Paragraph 3.2 were applicable during such period of twelve months and (ii) a continuation during such period of twelve months of the life insurance coverage to be provided and paid for by the Corporation pursuant to Paragraph 5.2. The Employee acknowledges and agrees that not other payments or benefits hereunder shall be paid to or available to him in respect of such period of twelve months. If the Employee shall die or become disabled subsequent to the termination of the three year term of employment provided herein, such death or disability shall not diminish or impair his (or his legal representative's or other successor's) right to receive the payments and benefits provided for in this Paragraph 8.1. -6- 8.2 The terms and conditions applicable to the additional term of employment hereunder shall not obligate the Corporation to issue to the Employee any stock options. 9. Change of Control: Extension of Employment Term; Employee's Status; Payments Upon Termination During Extended Terms 9.1 If at any time during the three year term of employment hereunder control of the Corporation shall be obtained by any person or persons not now in control acting in concert (including, without limitation, the acquisition of control incident to the merger or consolidation of the Corporation with or into any other corporation, or the acquisition by any other corporation of all or substantially all of the assets and business of the Corporation), the term of the Employee's employment hereunder shall, without any further action by the Board of Directors of the Corporation or otherwise, automatically be extended for a period of months equal to such number of months as shall be necessary, when added to the number of months of the original three year term of employment then remaining, to bring the then remaining term of employment hereunder to three years, commencing on the effective date of such transfer of control. As used in this paragraph the word "control" shall mean the direct or indirect ownership of voting shares of stock of the Corporation (or any successor pursuant to a merger, consolidation or sale of all or substantially all of the assets and business of the Corporation) sufficient to direct or cause the direction of the management and policies of the Corporation. 9.2 If the term of the Employee's employment hereunder shall be automatically extended pursuant to Paragraph 9.1 in connection with the merger or consolidation of the Corporation with or into any other corporation, or the acquisition by any other corporation of all or substantially all of the assets and business of the Corporation, and if the Employee's status as chief operating officer or chief executive officer, as the case may be, of the Corporation immediately prior to the transaction involved shall not continue after such transaction with respect to the parent corporation of the combined or successor enterprise, or if with respect thereto he shall not be afforded the authority, responsibilities and prerogatives contemplated in -7- Paragraphs 2.2 and 2.3, the Employee shall have the right to terminate his employment hereunder pursuant to Paragraph 7.3. 9.3 If the term of Employee's employment hereunder shall be automatically extended pursuant to Paragraph 9.1 and thereafter during such extended term the Employee's employment hereunder shall terminate pursuant to Paragraph 7.3 or 7.4, the amounts payable pursuant to such applicable paragraph to or for the benefit of the Employee following such termination of employment shall, notwithstanding anything to the contrary contained in Paragraph 7.3 or 7.4, not be paid beyond the longer of (i) the period that would have been applicable under Paragraph 7.3 or 7.4, as the case may be, if the term of Employee's employment had not theretofore been extended pursuant to Paragraph 9.1 or (ii) twelve months. 10. Covenant Not to Compete. The Employee recognizes that the services to be performed by the Employee hereunder are special, unique and extraordinary and that by reason of his employment hereunder, the Employee will acquire confidential information and trade secrets concerning the Corporation's operation and the operations of the Corporation's affiliates. Accordingly, for all purposes hereunder or in respect hereof, the Employee agrees that during the longer of (i) any period or periods in or in respect of which the Employee is receiving or has received the compensation provided for in Paragraph 3.2 hereof whether or not the Employee is employed by or rendering services to the Corporation during such period or periods), or (ii) the period of the Employee's employment hereunder and a period of two years after termination of such employment (whether voluntary on the Employee's part or otherwise and for or without cause) (except that such period of two years shall be (A) reduced to one year if the Employee shall have remained in the employ of the Corporation hereunder for an aggregate period of at least six years and (B) eliminated entirely if such aggregate period shall be at least nine years), the Employee will not, directly or indirectly, as an officer, director, stockholder, partner, associate, employee, consultant, owner, agent, creditor, co-venturer or otherwise, become or be interested in or be associated with any other corporation, firm or business engaged, in any geographical area in which the Corporation or any of its affiliates are so engaged, in the same or any similar or competitive business with that of the Corporation or with that of the Corporation's affiliates. The Employee's ownership, directly or indirectly, of not more than two percent of the issued and outstanding stock (or debt obligations not aggregating more than $500,000) of any corporation the shares of which are regularly traded on a national securities exchange or in the over-the-counter market shall not in any event be deemed to be a violation of the provisions of this Paragraph. The Corporation shall be entitled, in addition to any other right and remedy it may have, at law or in equity, to an injunction, without the posting of any bond or other security, enjoining or -8- restraining the Employee from any violation or threatened violation of this Paragraph, and the Employee hereby consents to the issuance of such injunction; provided, however, the foregoing shall not prevent the Employee from contesting the issuance of any such injunction on the ground that no violation or threatened violation of this Paragraph had occurred. If any of the restrictions contained herein shall be deemed to be unenforceable by reason of the extent, duration or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form this paragraph shall then be enforceable in the manner contemplated hereby. A violation by the Employee of the covenant not to compete contained in this Paragraph 10 shall not give the Corporation a right to claim damages from the Employee based upon or measured by, in whole or in part, the amount paid to the Employee pursuant to Paragraph 3.1. 11. Confidentiality. The Employee shall not divulge to anyone, either during or at any time after the termination of his employment, any information constituting a trade secret acquired by him concerning the Corporation and its affiliates' trade secrets. The Employee acknowledges that any such information is of a confidential and secret character and of great value to the Corporation and its affiliates, and upon the termination of his employment the Employee shall forthwith deliver up to the Corporation all notebooks and other data in his possession relating thereto. The Corporation shall be entitled, in addition to any other right and remedy it may have, at law or in equity, to an injunction, without the posting of any bond or other security, enjoining or restraining the Employee from any violation or threatened violation of this Paragraph, and the Employee hereby consents to the issuance of such injunction; provided, however, the foregoing shall not prevent the Employee from contesting the issuance of any such injunction on the injunction on the ground that no violation or threatened violation of this Paragraph had occurred. 12. Indemnification. The Corporation will indemnify the Employee and his legal representatives, to the fullest extent permitted by the laws of the State of Delaware and the existing By-laws of the Corporation, and the Employee shall be entitled to the protection of any insurance policies the Corporation may elect to maintain generally for the benefit of its directors and officers, against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or preceding to which he or his legal representatives may be made a party by reason of his being or having been a director or officer of the Corporation or any of its subsidiaries. This Paragraph 12 will survive termination of Agreement. -9- 13. Notices. Any notice or other communication required to or which may be given to any party hereunder shall be in writing and shall be deemed given effectively if delivered personally to such party (or, in the case of the Corporation, to the General Counsel), if given by facsimile transmission, receipt confirmed, or if mailed by registered or certified mail, postage prepaid, addressed to such party as follows (the date of mailing of any such notice is deemed the date of delivery thereof): To Employee: Harvey Houtkin 99 Oratam Road Airmont, New York 10952 To the Corporation: All-Tech Investment Group, Inc. 160 Summit Ave. Montvale, NJ 07645 With a copy given in the aforesaid manner to: Linda Lerner, Esq. All-Tech Investment Group, Inc. Montvale, New Jersey 07645 Any party may change the persons and addresses to which notices or other communications are to be sent by giving notice of such change to the other party in the manner provided herein for giving notice. 14. Employee's Representations and Warranties. The Employee, in order to induce the Corporation to enter into and perform this Agreement, represents and warrants to the Corporation that he is not a party to any contract, agreement or understanding which prevents or prohibits the Employee from entering into this Agreement or fully performing all of his obligations hereunder. In the event of any material inaccuracy in or material breach of the foregoing representations or warranties, the Corporation shall have the right to terminate this Agreement forthwith without any liability, hereunder or otherwise, to the Employee. -10- 15. Miscellaneous. 15.1 The Employee recognizes that this Agreement is personal to him and none of the Employee's obligations under this Agreement may be assigned or delegated by him. The Corporation may assign to any affiliate such of the Corporation's rights and obligations hereunder as such assignee has the power to perform and as may be enjoyed or discharged by such affiliate without interfering with the rights or prerogatives of the Employee under this Agreement, but the Corporation nevertheless shall remain liable for the full performance of all of its obligations hereunder. This Agreement shall also be assignable by the Corporation and be binding upon any corporate successor in interest incident to any merger, consolidation or sale of all or substantially all of the assets and business of the Corporation. 15.2 This Agreement is to be governed by and interpreted in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed wholly within such State. 15.3 Notwithstanding anything to the contrary herein, nothing herein is intended to or shall operate to restrict the right of the Corporation and its subsidiaries to amend, terminate or modify, in accordance with the terms thereof, any or all of the employee benefit programs or practices referred to in this Agreement or otherwise heretofore or hereafter adopted by the Corporation or any of its affiliates; provided, however, no such amendment, termination or modification shall diminish or impair any rights specifically granted to the Employee in this Agreement. 15.4 As used herein the term "affiliate" of any corporation shall mean and include any other corporation, partnership or other entity or enterprise which, directly or indirectly, is controlled by, controls or is under common control with, such corporation. For the purposes of the preceding sentence the word "control" (including the terms "controlling," "controlled by" and "under common control with") shall mean 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. 15.5 If either party should waive any breach of any provision of this Agreement, such party will not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provisions of this Agreement. 15.6 This instrument is the entire agreement of the parties with respect to the subject matter hereof and may not be amended, supplemented, cancelled or discharged except by written instrument executed by both parties hereto. The parties do not intend to confer any benefit hereunder on any third person and, without limiting -11- the generality of the foregoing, the parties may, in writing, without notice to or consent of any third person, at any time waive any rights hereunder or amend this Agreement in any respect or terminate this Agreement. 15.7 The termination of the Employee's employment hereunder shall not affect those provisions of this Agreement that by their terms apply to any period or periods subsequent to such termination. 15.9 In the event any amounts or other benefits are payable to or for the Employee (or to his legal representatives or other successors) pursuant to Paragraphs 7.3, 7.4 or 8 in respect of any period following the termination of his employment hereunder, such amounts or other benefits shall not be reduced in any manner by reason of (i) the amount paid to the Employee pursuant to Paragraph 3.1 or (ii) any other earnings, income or benefits of or to the Employee from any other source. 15.10 Paragraph headings are inserted herein for convenience only and do not constitute a part and shall not affect the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ALL-TECH INVESTMENT GROUP, INC. By: s/Harvey Houtkin --------------------------- Chairman of the Board s/Harvey Houtkin --------------------------- Harvey Houtkin -12- EX-10.5 9 EMPLOYMENT AGREEMENT WITH MARK D. SHEFTS EMPLOYMENT AGREEMENT made April 20, 1998 between All-Tech Investment Group, Inc., a Delaware corporation ("the Corporation"), with principal offices at 160 Summit Avenue, Montvale, New Jersey 07645 and MARK SHEFTS, who resides at 2 East Lake Road, Tuxedo Park, New York 10987 ("the Employee"). In consideration of the covenants and agreements herein contained, the parties agree as follows: 1. Employment, Acceptance and Term. The Corporation hereby employs the Employee and the Employee hereby accepts employment from the Corporation for a term of three years, commencing on the effective date of the initial public offering of Common Stock by the Company. The term of employment hereunder may be extended from time to time by such additional period or periods as shall be mutually agreed to in writing by the Corporation and the Employee. 2. Duties and Authority. 2.1 During the term of his employment hereunder the Employee shall devote substantially all of his time and energies to the business and affairs of the Corporation. The Employee agrees to use his best efforts, skill and abilities to promote the Corporation's interests; to serve as a director and officer of the Corporation and any of its subsidiary corporations if elected by the Board of Directors or stockholders of the Corporation and any such subsidiary corporation; and to perform such duties (consistent with his status as set forth below in this Paragraph 2 as may be assigned to him by the Board of Directors of the Corporation. 2.2 Subject to the direction and control of the Corporation's Board of Directors, the Employee shall be the President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Corporation. The Employee will perform his services subject only to the direction and control of the Corporation's Board of Directors and will report only to the Corporation's Board of Directors. 2.3 The Corporation's management will recommend to its Board of Directors that so long as the Employee's employment by the Corporation continues (i) the Employee be nominated for election as a director at each meeting of stockholders held for an election of directors; (ii) the Employee be elected as President, Chief Operating Officer, Chief Financial Officer and Treasurer of the Corporation by the Board of Directors at its first meeting following the execution of this Agreement, and that the Employee be elected President and Chief Operating Officer of the Corporation at each meeting of directors thereafter called therefor; (iii) if the Board of Directors of -1- the Corporation shall appoint an Executive Committee, the Employee be elected to serve as a member of such committee; and (iv) the Corporation shall not confer on any other officer or employee, except its Chairman, authority, responsibility or powers superior or equal to the authority, responsibility or powers vested in the Employee. 3. Compensation. 3.1 As an inducement to the Employee to enter into this Agreement, and in consideration of the services to be rendered by the Employee under this Agreement, the Corporation shall pay to the Employee during the each year he renders his services hereunder the amount of $500,000. 3.2 During the term of his employment hereunder the Corporation shall pay to the Employee, in addition to the amount paid to the Employee under the preceding Paragraph 3.1, the Employee shall be entitled to 5% of the net earnings before taxes of the Corporation for each such year, payable quarterly, to a maximum of $500,000 for each of the first two years of the term hereof and to a maximum of $1,500,000 for the third year of the term hereof. 3.3 In addition to the foregoing, the employee may elect to participate in the All-Tech Investment Group, Inc. 401(k) Plan in respect of any year. The Corporation agrees to review the Employee's compensation hereunder not less than annually and may make such increases therein as the Corporation shall, in its discretion, deem appropriate taking into account all relevant factors. 4. Expenses. 4.1 Upon submission of proper vouchers, the Corporation will pay or reimburse the Employee for all transportation (first-class), hotel and living expenses incurred by the Employee on business trips outside Montvale, New Jersey and for all other business and entertainment expenses reasonable incurred by him in connection with the business of the Corporation and its subsidiaries during the term of his employment hereunder. 4.2 In order to facilitate the performance of the Employee's duties hereunder, and otherwise for the convenience and in the interests of the Corporation, the Corporation will furnish to the Employee for his use seven days a week a passenger automobile. All expenses of operating, repairing, insuring, garaging and otherwise maintaining such automobile shall be borne and paid for by the Corporation. -2- 5. Stock Options; Insurance. 5.1 The Employee shall be entitled to participate in the Corporation's Qualified Stock Option Plan, a copy of which has heretofore been furnished to the Employee. 5.2 If the life insurance coverage provided to the Employee under the Corporation's general insurance plans shall be less than $1,000,000 the Corporation shall (subject to the Employee passing any required physical examination) furnish to the Employee and pay all premiums computed at standard premium rates on one or more additional policies of term life insurance having an aggregate coverage equal to the difference between $1,000,000 and the coverage available to the Employee under the said general insurance plans. The Employee shall be insured under such additional policies (which shall have benefits and other features no less favorable to the Employee than those applicable under the Corporation's general insurance plans) and shall have the right to designate all beneficiaries thereunder and to select any settlement options available thereunder. The Employee will take all action reasonable requested by the Corporation in connection with the procurement of such additional policies of life insurance. All references in this Paragraph 5.2 to life insurance provided under the Corporation's general insurance plans shall include all death benefits payable under the All-Tech Investment Group, Inc. 401(k) Plan and any subsequently adopted pension plan. 6. Additional Benefits. In addition to the compensation, expenses and other benefits to be paid or provided under Paragraphs 4 and 5, the Employee will be entitled to participate in any insurance, pension or other benefit plan of the Corporation or any of its subsidiaries now existing or hereafter adopted for the benefit of the executives or employees generally of the Corporation or any subsidiary. No payment under this Agreement shall be deemed to constitute payment to the Employee, his legal representatives or beneficiaries, in lieu of, or pension or other benefit or payment under any such insurance, pension or other benefit plan, and no payment under any such plan shall decrease any payment or benefit under this Agreement, except that any amounts paid on account to the Employee's contribution to any Benefit Plan shall be deemed part of Employee's compensation as provided in Paragraph 3.2. 7. Termination of Employee at End of Term; Amount of Such Termination. 7.1 In the event of the Employee's death during his employment by the Corporation, the Corporation shall pay to the Employee's estate the compensation due Employee hereunder through the last day of the calendar month in which death shall have occurred, or to such person or persons as Employee may designate by a writing -3- to the Corporation from time to time or, in if there is no such designation, to his legal representatives. Such compensation shall be determined by multiplying the Employee's salary by a fraction the numerator of which shall be the number of months of the year that shall have elapsed through the last day of the calendar month in which the Employee's death shall have occurred and the denominator of which fraction shall be twelve; from the amount so determined there shall be deducted all payments theretofore made to or for the benefit of the Employee under Paragraph 3.2 here in respect of the year involved. 7.2 This Agreement may be terminated by the Corporation before the expiration of the term of employment hereunder if the Employee becomes disabled during his employment hereunder so that he is unable to substantially perform his services hereunder for an aggregate of six months within any period of twelve consecutive months. Such termination shall be determined by resolution of the Corporation's Board of Directors after the expiration of said six months, said termination to be effective thirty (30) days after written notice to the Employee of the adoption of such resolution. The compensation due Employee hereunder shall be paid through the last day of the calendar month in which such termination shall have occurred. Such compensation shall be determined by multiplying Employee's salary by a fraction, the numerator of which shall be the number of months of the year that shall have elapsed through the last day of the calendar month in which such termination shall have occurred and the denominator of which fraction shall be twelve; from the amount so determined there shall be deducted all payments theretofore made to or for the benefit of the Employee under Paragraph 3.2 hereof in respect of the year involved. 7.3 If the Employee shall not be elected (and continued during the term of his employment hereunder) as President of the Corporation and as a member of the Executive Committee (if any) appointed by the Board of Directors of the Corporation, or if the Employee shall not be afforded the authority, responsibilities and prerogatives contemplated in Paragraph 2.2 hereof; the Employee shall have the right to terminate his employment under this Agreement by sixty (60) days' prior written notice to the Corporation given at any time within ninety (90) days after such event. If the Employee elects to terminate his employment pursuant to this Paragraph 7.3, the Employee shall nevertheless have the right to continue to receive from the Corporation as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10 (in lieu of any other rights or claims the Employee may have in respect of this Agreement) (i) payment of all amounts that would otherwise have been paid to the Employee, at the time or times such amounts would otherwise have been paid to the Employee, as compensation under Paragraph 3.2 during the entire balance of the three year term of employment provided for in this Agreement and (ii) a continuation -4- for the entire balance of such three year term of the life insurance coverage to be provided and paid for by the Corporation for the entire balance of such three year term of the life insurance coverage to be provided and paid for by the Corporation pursuant to Paragraph 5.2; provided, however, if the unexpired portion of the term of employment hereunder shall be less than twenty-four months at the time such termination becomes effective, the amounts payable by the Corporation under the preceding clauses (i) and (ii), which amounts shall be paid as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10, shall be paid for a period of twenty-four months following the effective date of such termination. If the Employee shall die or become disabled subsequent to the termination of his employment under this Paragraph 7.3, such death or disability shall not diminish or impair his (or his legal representative's or other successor's) right to receive the payments and benefits provided for in this Paragraph 7.3. 7.4. If the Employee shall be discharged without cause during the term of his employment hereunder, he shall be entitled to receive from the Corporation (in lieu of any rights or claims the Employee may have in respect of this Agreement), as severance payments and in consideration of the Employee's continued compliance with the covenant not to compete contained in Paragraph 10, amounts and life insurance coverage determined in the same manner and for the same period as provided in Paragraph 7.3. 7.5 If the Employee shall be discharged for cause during the term of his employment hereunder, the Corporation's obligation to pay compensation or other amounts payable hereunder to or for the benefit of the Employee shall terminate on the date of such discharge. As used herein the term "for cause" shall mean and include chronic alcoholism, drug addiction, dishonesty, malfeasance and misfeasance. 8. Payments Upon Expiration of Initial or Additional Employment Term. 8.1 If the Employee remains in the employ of the Corporation during the entire initial three year term of employment provided herein and if the Employee is willing to renew or extend the term of his employment for an additional period of not less than three years beyond the initial three year term of employment provided herein, on substantially the same terms and conditions applicable during the third year of such employment term (including, without limitation, the rate of compensation payable to the Employee under Paragraph 3.2, and the other benefits available to the Employee hereunder, during such third year), but the Corporation is unwilling to enter into a renewal or extension of the Employee's employment on such terms and conditions, then the Employee shall receive as severance compensation and in consideration of the Employee's continued compliance with the covenant not to compete contained in -5- Paragraph 10, for a period of twelve months following the expiration of the three year term of employment hereunder, (i) payment of all amounts that would otherwise have been paid to the Employee, at the time or times such amounts would otherwise have been paid to the Employee, as compensation under Paragraph 3.2 as if the provisions of such Paragraph 3.2 were applicable during such period of twelve months and (ii) a continuation during such period of twelve months of the life insurance coverage to be provided and paid for by the Corporation pursuant to Paragraph 5.2. The Employee acknowledges and agrees that not other payments or benefits hereunder shall be paid to or available to him in respect of such period of twelve months. If the Employee shall die or become disabled subsequent to the termination of the three year term of employment provided herein, such death or disability shall not diminish or impair his (or his legal representative's or other successor's) right to receive the payments and benefits provided for in this Paragraph 8.1. -6- 8.2 The terms and conditions applicable to the additional term of employment hereunder shall not obligate the Corporation to issue to the Employee any stock options. 9. Change of Control: Extension of Employment Term; Employee's Status; Payments Upon Termination During Extended Terms 9.1 If at any time during the three year term of employment hereunder control of the Corporation shall be obtained by any person or persons not now in control acting in concert (including, without limitation, the acquisition of control incident to the merger or consolidation of the Corporation with or into any other corporation, or the acquisition by any other corporation of all or substantially all of the assets and business of the Corporation), the term of the Employee's employment hereunder shall, without any further action by the Board of Directors of the Corporation or otherwise, automatically be extended for a period of months equal to such number of months as shall be necessary, when added to the number of months of the original three year term of employment then remaining, to bring the then remaining term of employment hereunder to three years, commencing on the effective date of such transfer of control. As used in this paragraph the word "control" shall mean the direct or indirect ownership of voting shares of stock of the Corporation (or any successor pursuant to a merger, consolidation or sale of all or substantially all of the assets and business of the Corporation) sufficient to direct or cause the direction of the management and policies of the Corporation. 9.2 If the term of the Employee's employment hereunder shall be automatically extended pursuant to Paragraph 9.1 in connection with the merger or consolidation of the Corporation with or into any other corporation, or the acquisition by any other corporation of all or substantially all of the assets and business of the Corporation, and if the Employee's status as chief operating officer or chief executive officer, as the case may be, of the Corporation immediately prior to the transaction involved shall not continue after such transaction with respect to the parent corporation of the combined or successor enterprise, or if with respect thereto he shall not be afforded the authority, responsibilities and prerogatives contemplated in -7- Paragraphs 2.2 and 2.3, the Employee shall have the right to terminate his employment hereunder pursuant to Paragraph 7.3. 9.3 If the term of Employee's employment hereunder shall be automatically extended pursuant to Paragraph 9.1 and thereafter during such extended term the Employee's employment hereunder shall terminate pursuant to Paragraph 7.3 or 7.4, the amounts payable pursuant to such applicable paragraph to or for the benefit of the Employee following such termination of employment shall, notwithstanding anything to the contrary contained in Paragraph 7.3 or 7.4, not be paid beyond the longer of (i) the period that would have been applicable under Paragraph 7.3 or 7.4, as the case may be, if the term of Employee's employment had not theretofore been extended pursuant to Paragraph 9.1 or (ii) twelve months. 10. Covenant Not to Compete. The Employee recognizes that the services to be performed by the Employee hereunder are special, unique and extraordinary and that by reason of his employment hereunder, the Employee will acquire confidential information and trade secrets concerning the Corporation's operation and the operations of the Corporation's affiliates. Accordingly, for all purposes hereunder or in respect hereof, the Employee agrees that during the longer of (i) any period or periods in or in respect of which the Employee is receiving or has received the compensation provided for in Paragraph 3.2 hereof whether or not the Employee is employed by or rendering services to the Corporation during such period or periods), or (ii) the period of the Employee's employment hereunder and a period of two years after termination of such employment (whether voluntary on the Employee's part or otherwise and for or without cause) (except that such period of two years shall be (A) reduced to one year if the Employee shall have remained in the employ of the Corporation hereunder for an aggregate period of at least six years and (B) eliminated entirely if such aggregate period shall be at least nine years), the Employee will not, directly or indirectly, as an officer, director, stockholder, partner, associate, employee, consultant, owner, agent, creditor, co-venturer or otherwise, become or be interested in or be associated with any other corporation, firm or business engaged, in any geographical area in which the Corporation or any of its affiliates are so engaged, in the same or any similar or competitive business with that of the Corporation or with that of the Corporation's affiliates. The Employee's ownership, directly or indirectly, of not more than two percent of the issued and outstanding stock (or debt obligations not aggregating more than $500,000) of any corporation the shares of which are regularly traded on a national securities exchange or in the over-the-counter market shall not in any event be deemed to be a violation of the provisions of this Paragraph. The Corporation shall be entitled, in addition to any other right and remedy it may have, at law or in equity, to an injunction, without the posting of any bond or other security, enjoining or -8- restraining the Employee from any violation or threatened violation of this Paragraph, and the Employee hereby consents to the issuance of such injunction; provided, however, the foregoing shall not prevent the Employee from contesting the issuance of any such injunction on the ground that no violation or threatened violation of this Paragraph had occurred. If any of the restrictions contained herein shall be deemed to be unenforceable by reason of the extent, duration or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form this paragraph shall then be enforceable in the manner contemplated hereby. A violation by the Employee of the covenant not to compete contained in this Paragraph 10 shall not give the Corporation a right to claim damages from the Employee based upon or measured by, in whole or in part, the amount paid to the Employee pursuant to Paragraph 3.1. 11. Confidentiality. The Employee shall not divulge to anyone, either during or at any time after the termination of his employment, any information constituting a trade secret acquired by him concerning the Corporation and its affiliates' trade secrets. The Employee acknowledges that any such information is of a confidential and secret character and of great value to the Corporation and its affiliates, and upon the termination of his employment the Employee shall forthwith deliver up to the Corporation all notebooks and other data in his possession relating thereto. The Corporation shall be entitled, in addition to any other right and remedy it may have, at law or in equity, to an injunction, without the posting of any bond or other security, enjoining or restraining the Employee from any violation or threatened violation of this Paragraph, and the Employee hereby consents to the issuance of such injunction; provided, however, the foregoing shall not prevent the Employee from contesting the issuance of any such injunction on the injunction on the ground that no violation or threatened violation of this Paragraph had occurred. 12. Indemnification. The Corporation will indemnify the Employee and his legal representatives, to the fullest extent permitted by the laws of the State of Delaware and the existing By-laws of the Corporation, and the Employee shall be entitled to the protection of any insurance policies the Corporation may elect to maintain generally for the benefit of its directors and officers, against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit or preceding to which he or his legal representatives may be made a party by reason of his being or having been a director or officer of the Corporation or any of its subsidiaries. This Paragraph 12 will survive termination of Agreement. -9- 13. Notices. Any notice or other communication required to or which may be given to any party hereunder shall be in writing and shall be deemed given effectively if delivered personally to such party (or, in the case of the Corporation, to the General Counsel), if given by facsimile transmission, receipt confirmed, or if mailed by registered or certified mail, postage prepaid, addressed to such party as follows (the date of mailing of any such notice is deemed the date of delivery thereof): To Employee: Mark Shefts 2 East Lake Road Tuxedo Park, New York 10987 To the Corporation: All-Tech Investment Group, Inc. 160 Summit Ave. Montvale, NJ 07645 With a copy given in the aforesaid manner to: Linda Lerner, Esq. All-Tech Investment Group, Inc. Montvale, New Jersey 07645 Any party may change the persons and addresses to which notices or other communications are to be sent by giving notice of such change to the other party in the manner provided herein for giving notice. 14. Employee's Representations and Warranties. The Employee, in order to induce the Corporation to enter into and perform this Agreement, represents and warrants to the Corporation that he is not a party to any contract, agreement or understanding which prevents or prohibits the Employee from entering into this Agreement or fully performing all of his obligations hereunder. In the event of any material inaccuracy in or material breach of the foregoing representations or warranties, the Corporation shall have the right to terminate this Agreement forthwith without any liability, hereunder or otherwise, to the Employee. -10- 15. Miscellaneous. 15.1 The Employee recognizes that this Agreement is personal to him and none of the Employee's obligations under this Agreement may be assigned or delegated by him. The Corporation may assign to any affiliate such of the Corporation's rights and obligations hereunder as such assignee has the power to perform and as may be enjoyed or discharged by such affiliate without interfering with the rights or prerogatives of the Employee under this Agreement, but the Corporation nevertheless shall remain liable for the full performance of all of its obligations hereunder. This Agreement shall also be assignable by the Corporation and be binding upon any corporate successor in interest incident to any merger, consolidation or sale of all or substantially all of the assets and business of the Corporation. 15.2 This Agreement is to be governed by and interpreted in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed wholly within such State. 15.3 Notwithstanding anything to the contrary herein, nothing herein is intended to or shall operate to restrict the right of the Corporation and its subsidiaries to amend, terminate or modify, in accordance with the terms thereof, any or all of the employee benefit programs or practices referred to in this Agreement or otherwise heretofore or hereafter adopted by the Corporation or any of its affiliates; provided, however, no such amendment, termination or modification shall diminish or impair any rights specifically granted to the Employee in this Agreement. 15.4 As used herein the term "affiliate" of any corporation shall mean and include any other corporation, partnership or other entity or enterprise which, directly or indirectly, is controlled by, controls or is under common control with, such corporation. For the purposes of the preceding sentence the word "control" (including the terms "controlling," "controlled by" and "under common control with") shall mean 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. 15.5 If either party should waive any breach of any provision of this Agreement, such party will not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provisions of this Agreement. 15.6 This instrument is the entire agreement of the parties with respect to the subject matter hereof and may not be amended, supplemented, cancelled or discharged except by written instrument executed by both parties hereto. The parties do not intend to confer any benefit hereunder on any third person and, without limiting -11- the generality of the foregoing, the parties may, in writing, without notice to or consent of any third person, at any time waive any rights hereunder or amend this Agreement in any respect or terminate this Agreement. 15.7 The termination of the Employee's employment hereunder shall not affect those provisions of this Agreement that by their terms apply to any period or periods subsequent to such termination. 15.9 In the event any amounts or other benefits are payable to or for the Employee (or to his legal representatives or other successors) pursuant to Paragraphs 7.3, 7.4 or 8 in respect of any period following the termination of his employment hereunder, such amounts or other benefits shall not be reduced in any manner by reason of (i) the amount paid to the Employee pursuant to Paragraph 3.1 or (ii) any other earnings, income or benefits of or to the Employee from any other source. 15.10 Paragraph headings are inserted herein for convenience only and do not constitute a part and shall not affect the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ALL-TECH INVESTMENT GROUP, INC. By: s/Harvey Houtkin ------------------------ Chairman of the Board s/Mark Shefts ------------------------ Mark Shefts -12- EX-10.6 10 CLEARING AGREEMENT FULLY DISCLOSED CLEARING AGREEMENT This Fully Disclosed Clearing Agreement (the "Agreement") is executed and entered into by and between Southwest Securities, Inc. ("Southwest"), a Delaware corporation, and All-Tech Investment Group, Inc. ("Correspondent"), New York corporation. WHEREAS, Correspondent is in the process of registering or is registered with the Securities Exchange Commission ("SEC") as a broker-dealer of securities in accordance with Section 15(b) of the Securities and Exchange Act of 1934 (the "Act") and is applying for membership or is a member of the National Association of Securities Dealers, Inc. ("NASD"), and desires to enter into an agreement with Southwest for Southwest to clear and maintain customer accounts on behalf of Correspondent; and WHEREAS, Southwest meets all requirements of the SEC to function as a clearing broker or dealer, and desires to enter into an agreement to clear and maintain cash, margin or other accounts ("Accounts") for Correspondent or customers of Correspondent ("Customers"), (such Accounts of Correspondent and Customers being hereinafter referred to as "Correspondent Accounts" and "Customer Accounts," respectively). NOW, THEREFORE, in consideration of the mutual covenants contained herein, and of guarantee of this Agreement by any guarantor(s), and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. REPRESENTATIONS AND WARRANTIES; AGENCY RELATIONSHIP (a) Representations and Warranties of Correspondent. Correspondent represents and warrants to Southwest that: (i) Correspondent is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and authorized to conduct business in each state where such authorization is required. (ii) Correspondent has all the requisite authority in conformity with all applicable laws and regulations to enter into this Agreement and to retain the services of Southwest in accordance with the terms hereof. (iii) Correspondent shall not conduct any securities business in accordance with the terms of this Agreement unless or until it is accepted as a member in good standing of the NASD, its registration with the SEC is effective, and it is duly licensed in accordance with the provisions of any applicable state securities laws. (iv) Correspondent shall not conduct any business in securities unless it has all requisite authority, whether arising under applicable federal or state laws, rules and regulations, or under the bylaws and rules of any securities exchange or securities association to which Correspondent is subject. (v) Correspondent has no arrangement with any other firm for the provision by such other firm of clearing services for any Customer Accounts or Correspondent Accounts, or if any such arrangement exists Correspondent has fully disclosed the nature of such arrangement to Southwest in writing. (b) Representations and Warranties of Southwest. Southwest represents and warrants to Correspondent that: (i) Southwest is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and authorized to do business in each state where such authorization is required. (ii) Southwest is registered as a broker-dealer with the SEC and is in compliance with the rules and regulations thereof. (iii) Southwest is a member corporation in good standing of the NASD and is in compliance with the rules and regulations thereof. (iv) Southwest is in compliance with the rules and regulations of each national securities exchange of which it is a member. 2. CUSTOMER AND CORRESPONDENT ACCOUNTS Responsibility for compliance with the provisions of the NASD Rules of Fair Practice regarding opening, approving and monitoring Customer Accounts shall be allocated between Southwest and Correspondent as set forth in this Section 2. (a) Account Documentation. Correspondent will be responsible for obtaining and verifying all required information and the identity of each potential Customer. Correspondent will be responsible for obtaining and furnishing to Southwest all customary and necessary documents related to Customer Accounts and Correspondent Accounts, and such other documentation as Southwest may reasonably require from time to time, all in such form as shall be reasonably acceptable to Southwest. Correspondent also will be responsible for the transmissions of all required documents to Southwest on a timely basis, but in any event within seven (7) days after a request to open an account is made to Southwest. Correspondent acknowledges its obligations to retain all documents in an easily accessible place in accordance with any applicable rules and regulations of regulatory or self-regulatory agencies or bodies, and Correspondent agrees to provide original documents by overnight delivery or a legible copy by facsimile transmission of such documents within twenty-four (24) hours of a request from Southwest. Correspondent will be responsible for complying with the requirement of SEC Rule 15c2-5, if applicable. 2 (b) Knowledge of Customer and Customer's Investment Objectives. Correspondent will be responsible for learning and documenting all the facts relative to every Customer necessary to insure compliance by Correspondent with applicable rules and regulations, including the information and instructions submitted to Southwest pursuant to Section 2(a), any additional facts relative to the Customer's investment objectives, and to the nature of every Customer Account, every order and every person holding power of attorney over any Customer Account. Correspondent shall be solely responsible for any issues regarding the suitability of any investments for its Customers. (c) Acceptance of Accounts. An authorized officer of Correspondent shall accept and approve each Customer and Customer Account. Each Customer and Customer Account approved by Correspondent and opened with Southwest shall be subject to Southwest's acceptance. Southwest reserves the right to withhold acceptance of, or to reject, for any reason, any Customer, Customer Account, Correspondent Account or any transaction for any Account and to terminate any Account previously accepted by Southwest. Acceptance of each Account shall be conditioned upon Southwest's receipt of all required completed forms as required by Section 2(a). Correspondent shall not submit such forms with respect to any Customer Account unless Correspondent has in its possession the documentation of all information required pursuant to Section 2(b). Southwest shall be under, no obligation to accept any Account as to which any documentation required to be submitted to Southwest or maintained by Correspondent pursuant to Sections 2(a) and (b) is incomplete. Prior to acceptance of any Account, no action taken by Southwest or any of its employees, including, without being limited to, clearing a trade in any Account, shall be deemed to be or shall constitute acceptance of such Account. (d) Supervision of Transactions and Accounts. Correspondent will be responsible for the review and supervision of, and the suitability of, investments made by each and every one of its Customers and for the supervision and monitoring of all discretionary Accounts maintained by Correspondent, and Southwest shall have no responsibility for such. An authorized officer of Correspondent shall approve each transaction in each Customer Account accepted by Southwest. Correspondent shall be responsible for insuring that all transactions in and activities related to all Accounts opened by it with Southwest, including discretionary Accounts, will be in compliance with all applicable laws, rules and regulations of the United States, the states thereof, and regulatory and self-regulatory agencies and bodies, including any laws relating to Correspondent's fiduciary responsibilities to Customers, either under the Employee Retirement Income Security Act of 1974 or otherwise; and in this connection, Correspondent shall diligently supervise the activities of its officers, employees and representatives with respect to such Accounts. Southwest will perform clearing services provided for in this Agreement for Accounts accepted by it in accordance with the terms of this Agreement, as it may be amended from time to time, and otherwise in accordance with its reasonable business judgment. To the extent, if any, that Southwest accepts from Correspondent orders for execution in 3 accordance with Section 7(a). Correspondent shall be responsible for informing Southwest of the location of the securities that are the subject of the order so that Southwest may comply with the provisions of 3110 of the NASD Conduct Rules. (e) Accounts of Associated Persons. In each case in which a Customer is an employee or otherwise associated with an NASD member, Correspondent shall be responsible for notifying such member in accordance with the provisions of Article III, Section 28 of the NASD Rules of Fair Practice. (f) Account Responsibility for Certain Purposes. Notwithstanding anything herein to the contrary, for purposes of the Securities Investment Protection Act of 1970 and the financial responsibility rules of the Securities and Exchange Commission only, the Customer Accounts are the responsibility of Southwest. Nothing in this Section 2(f) will otherwise change or affect the provisions of this Agreement or any information provided to Customers (including the Customer Information Brochure provided to Correspondent by Southwest), which provide that each Customer remains a Customer of Correspondent for all other purposes, including but not limited to sales practices, supervision, suitability, etc, Further, it is understood that Correspondent is not Southwest's agent for sales purposes and neither Correspondent nor any of its employees or agents can bind Southwest or make representations on Southwest's behalf to any Customers regarding any transaction cleared by Southwest on Correspondent's behalf. 3. EXTENSION OF CREDIT Responsibility for compliance with the provisions of Regulation T issued by the Board of Governors of the Federal Reserve System pursuant to the Securities Exchange Act of 1934 ("Regulation T") and all other applicable rules, regulations and requirements of any exchange or regulatory agency affecting the extension of credit shall be allocated between Southwest and Correspondent as set forth in this Section 3. (a) Margin Agreements. At the time of opening of each margin account, Correspondent will furnish Southwest with a Southwest Margin and Short Account Customer Agreement, executed by Customer, on the form furnished to Correspondent by Southwest. (b) Margin and Margin Maintenance. Correspondent is responsible for assuring Customer's payment of Customer's initial margin requirements and of all amounts necessary to meet subsequent maintenance calls in each Customer Account, to insure compliance with Regulation T and the house rules of Southwest. Correspondent is responsible for the payment of initial margin requirements and of all amounts necessary to meet subsequent margin calls in each Correspondent Account. Southwest shall have the unlimited right to buy in or sell out positions in Accounts whenever Southwest in its sole discretion deems such action appropriate, and without regard to whether, if the Account is a Margin Account, any such Account is then in 4 compliance with applicable margin maintenance requirement or has requested an extension of time for any Account to make any payment required by Regulation T. Correspondent acknowledges that Southwest has the right to demand payment on any debit balance and that Correspondent is responsible to Southwest for any unsecured debit balance resulting from any failure of a Customer to make any such payments upon demand. (c) Margin Requirements. Southwest will be responsible for setting minimum margin requirements and advising Correspondent when calls are issued. Southwest may change the margin requirements applicable to any Account or class of accounts, as described in its house rules; Correspondent shall be responsible for advising its Customer of the changed requirements and for the payment by Customer of any additional margin necessary to insure compliance with such increased requirements. Correspondent may establish for any of its Customer Accounts higher minimum margin requirements than those requirements established by Southwest; however Southwest will not be responsible for monitoring the higher minimum on behalf of Correspondent, unless the higher standard is one that can be accommodated by the Southwest computer system. (d) Extensions. Correspondent will be responsible for advising Southwest to obtain extensions under appropriate federal regulations. Only Southwest shall perform the clerical function of obtaining requested extensions from the applicable regulatory authorities. (e) Losses. In addition to, and not in limitation of, Correspondent's agreement to indemnify Southwest pursuant to the provisions of Section 10, Correspondent indemnifies and holds harmless Southwest from and against any and all loss, cost, expense and liability (including legal and accounting fees and expenses) sustained by Southwest arising out of any of the following events: any failure by any Customer to comply with the terms of its Customer Margin and Short Account Agreement with Southwest; Southwest's re-booking of margin transactions as cash transactions; Southwest's broker's execution of a transaction for the account of a Customer; the failure of Correspondent or any Customer, in a margin transaction, to comply with Regulation T; the failure of Correspondent to satisfy its obligations under this Section 3; or in a cash transaction, the failure of delivery of securities sold or failure of payment for securities purchased in accordance with the provisions of Regulation T; the return to Southwest unpaid of any check given to Southwest by Correspondent or any Customer; or the payment for and/or delivery of all "when issued" transactions which Southwest may accept or execute for the Accounts. 5 4. MAINTENANCE OF BOOKS AND RECORDS (a) Southwest's Books and Records. Southwest will maintain stock records and other records on a basis consistent with generally accepted practices in the securities industry and will maintain copies of such records as are produced by Southwest, in accordance with all applicable rules and regulations of regulatory and self-regulatory agencies and bodies, including the NASD and SEC guidelines for record retention in effect from time to time. In connection with Customer Accounts, Southwest will maintain and preserve such books and records pertaining thereto, pursuant to the requirements of SEC Rule 17a-3, as are customarily made and kept by Southwest. (b) Correspondent's Books and Records. Notwithstanding the provisions of Section 4(a), Correspondent shall maintain ledgers (or other records) reflecting all assets and liabilities, income and expenses and capital accounts; monies borrowed and monies loaned (together with a record of the collateral therefor and any substitution in such collateral); a record of the computation of aggregate indebtedness and net capital pursuant to SEC Rule 15c3-1; and personnel files including applications for employment executed by each "associated person". Correspondent also shall maintain a memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted. Such memorandum shall show the terms and conditions of the order or instructions and of any modification or cancellation thereof, the account for which entered, the time of entry, the price at which executed and, to the extent feasible, the time of execution or cancellation. (c) Books and Records of Both Parties. Southwest and Correspondent shall each be responsible for preparing and filing the reports required by the regulatory and self-regulatory agencies and bodies that have jurisdiction over each, and Southwest and Correspondent will each provide the other with such information, if any, which is in the control of one party but is required by the other to prepare any such report. 5. RECEIPT, DELIVERY AND SAFEGUARDING OF FUNDS AND SECURITIES (a) Receipt and Delivery in the Ordinary Course of Business. As between Southwest and Correspondent, the party having possession of Customer funds or securities shall be responsible for safeguarding such funds and securities. Correspondent shall promptly transmit securities and/or funds to Southwest when securities and/or funds are to be delivered to Southwest. However, Southwest will not be responsible for any funds or securities delivered by a Customer or Correspondent, its agents or employees, until such funds or securities are physically delivered to Southwest's premises and accepted by an authorized representative of Southwest or deposited in bank accounts maintained in Southwest's name. Correspondent shall be responsible for the prompt payment to Southwest for securities purchased and prompt delivery of securities sold in Customer 6 Accounts. Correspondent shall be responsible for the authenticity of all certificates and delivery of certificates in good form by Customers to Southwest. With respect to all payments made or to be made to Southwest, by or for a Customer of Correspondent, Correspondent shall immediately forward all such funds to Southwest, either by U. S. Mail or mutually acceptable courier service or by deposit to local depositary bank, and an officer of Correspondent shall verify and warrant that said funds are credited to the proper Southwest Customer Account, and further shall notify Southwest to enter on Southwest's books and records said deposit of Customer funds. With respect to any securities certificates delivered to Southwest for a Customer of Correspondent, an officer of Correspondent shall verify and warrant (i) that any securities not bearing a restricted legend are fully paid for and freely tradable; (ii) that Correspondent has no reason to suspect any defect or irregularity with respect to any securities and any endorsements thereon; (iii) that the securities are free of any liens and adverse claims, (iv) that the party transferring the securities has legal title to them or the authority to effect the proposed transfer; and (v) that the regulatory requirements restricting the sale or transfer of securities that bear a restrictive legend (pursuant to SEC Rules 144 or 145 or otherwise) have been satisfied or will be satisfied within the appropriate time frames. Correspondent acknowledges that it is solely responsible for satisfying any loss or shortfall of a Customer Account, or for any other event which causes the assets in a Customer Account to be insufficient in amount or otherwise unavailable to timely meet the obligations of Customer to Southwest. (b) Custody Services. Whenever Southwest has been instructed to act as custodian of the securities in any Correspondent or Customer Account, or to hold such securities in "safekeeping," Southwest may hold the securities in the Customer's name or may cause such securities to be registered in the name of Southwest or its nominee or in the names of nominees of any depository used by Southwest. Southwest will perform the services required in connection with acting as custodian for securities in Correspondent and Customer accounts, such as (i) collection and payment of dividends; (ii) transmittal and handling (through Correspondent) of tenders or exchanges pursuant to tender offers and exchange offers; (iii) transmittal of proxy materials and other shareholder communications; and (iv) handling of exercises or expirations of rights and warrants, and of redemptions of securities. (c) Receipt and Delivery Pursuant to Special Instruction. Upon instruction from Correspondent and/or a Customer, Southwest will make such transfers of securities or Accounts as may be requested. Correspondent shall be responsible for determining if any securities held in Correspondent or Customer Accounts are "restricted securities" or "control stock" as defined by the rules of the SEC and that orders executed for such securities are in compliance with the applicable laws, rules and regulations. 7 (d) Draft-Issuing Authority. At its discretion Southwest may authorize certain of Correspondent's employees to sign drafts, with Correspondent as the drawer, payable to Correspondent's Customers in amounts and pursuant to conditions as may be determined by Southwest from time to time. Correspondent agrees that it will not request Southwest to authorize someone to sign drafts who is not an employee of Correspondent. With respect to any drafts so issued by Correspondent, an officer of Correspondent shall verify and warrant before causing the draft to be issued (i) that the funds to be transmitted are due payee and that payee has the authority to receive those funds; (ii) that the funds are free of any liens or adverse claims at the time of payment, and are not expected to become subject to any such liens or claims within the foreseeable future; and (iii) that the funds are not needed at the time of payment to satisfy margin or other collateral requirements of the Customer. Correspondent agrees to fully indemnify Southwest from the negligence, fraud or mistakes of Correspondent, Correspondent's employees, independent agents and contractors and Customers in connection with any draft issuing authority granted hereunder. Southwest may in its discretion require Correspondent to post a performance bond in such amount and with such deductible as Southwest may determine in order to protect Southwest against any such losses. Furthermore, Correspondent authorizes Southwest to charge any Correspondent Account or other assets of Correspondent held by Southwest with the amount of any such losses. Notwithstanding Section 5(a), Southwest will not be responsible for the safeguarding of funds withdrawn by Correspondent or Correspondent's employees pursuant to such draft issuing authority. Southwest may withdraw this draft issuing privilege without notice at any time during the term of this Agreement. Notwithstanding anything herein to the contrary, Southwest may at any time, at its sole discretion, despite any prior authorization, refuse payment on any draft for which Correspondent is drawer and Southwest is drawee. 6. CONFIRMATIONS AND STATEMENTS (a) Preparation and Transmissions. Southwest will prepare and send to Customers monthly statements of account (or quarterly statements if no activity occurs in an account during the calendar quarter covered by such statement), which statements shall meet Southwest's requirements as to format and quality and will indicate that Correspondent introduced the Account. Unless otherwise agreed, Southwest will be responsible for preparing and transmitting confirmations; provided, however, that Correspondent may elect to prepare and transmit confirmations, subject to prior approval by Southwest and compliance by Correspondent with the provisions of 2230 NASD Conduct Rules. Correspondent shall not generate and/or prepare any statements, billings or confirmations respecting any Account except as provided in this Agreement or pursuant to an agreement executed between Southwest and Correspondent that authorizes Correspondent to print and mail statements to Accounts on behalf of Southwest. If such an agreement has been executed, Correspondent covenants that it shall comply with all requirements for 8 statements imposed upon Southwest of which Correspondent has notice or has been advised of by Southwest under all applicable laws, rules and regulations, including, but not limited to, the SEC, NASD, Federal Reserve Board and all other regulatory and self-regulatory agencies and bodies. Correspondent further covenants that it shall not modify or amend the agreed upon statement form provided without the prior written consent of Southwest. (b) Examination and Notification of Errors. Correspondent shall examine promptly all monthly statements of account, monthly statements of clearing services and other reports provided to Correspondent by Southwest. Correspondent shall notify Southwest of any error claimed by Correspondent in any Account in connection with (i) any transaction prior to the settlement date of such transaction, (ii) information appearing on daily reports within seven (7) calendar days of such report, and (iii) information appearing on monthly statements or reports within thirty (30) calendar days of Correspondent's receipt of any monthly statement or report. Any notice of error shall be accompanied by such documentation as may be necessary to substantiate Correspondent's claim. Correspondent shall provide promptly upon Southwest's request any additional documentation which Southwest reasonably believes is necessary or desirable to determine and correct any such error. 7. ACCEPTANCE OF ORDERS, EXECUTION OF TRANSACTIONS, OTHER SERVICES (a) Customers' Orders. Orders received by Correspondent can be executed by Correspondent or forwarded to Southwest for execution. The party executing the order shall be responsible for errors in execution. Acceptance of orders from Customers shall be the responsibility of Correspondent, and Correspondent shall be responsible for the authenticity of all orders. Correspondent shall promptly transmit all orders to Southwest, and Southwest shall have no responsibility for orders not promptly transmitted. Correspondent shall advise each of its Customers that its relationship with Southwest is solely that of an introducing broker to a clearing broker and that, except as set forth in Section 2(f) above, Correspondent bears all responsibility for the Customer's Account. Southwest reserves the right to reject any Customer order transmitted to Southwest for execution or any order executed by Correspondent and reported to Southwest for clearance. Correspondent assumes the risk of failure by any dealer with which Correspondent executes an order in the event such dealer fails to perform, and will reimburse Southwest for any loss and/or costs incurred by it in the transaction. (b) Transaction Clearing. During the term of this Agreement, Southwest will clear transactions on a fully disclosed basis for Accounts of Correspondent and the Customers that Correspondent introduces and Southwest accepts as provided in Section 2-(c); provided that Southwest reserves the right not to clear any particular transactions for Correspondent or Correspondent's Customers. 9 (c) Other Services. Southwest will perform such other services, upon such terms and at such prices, as Southwest and Correspondent shall agree from time to time. 8. FEES AND SETTLEMENTS FOR SECURITIES TRANSACTIONS (a) Commissions; Fees for Clearing Services (i) Correspondent has provided to Southwest its basic commission schedule and Southwest will charge each Customer the commission shown on such schedule or which Correspondent otherwise directs Southwest to charge on each transaction. Correspondent's basic commission schedule may be amended from time to time by written instructions to Southwest from Correspondent; provided, however, that Southwest shall be required to implement such changes only to the extent they are within the usual capabilities of Southwest's data processing and operations systems and only over such reasonable time as Southwest may deem necessary or desirable to avoid disruption of Southwest's normal operational capabilities. Southwest may charge Correspondent for changes in the basic commission schedule. Correspondent's basic commission schedule shall be within the format of Southwest's computer system. (ii) Southwest will charge Correspondent for clearing services according to the fee schedule set forth in Schedule A attached hereto and, if applicable, Schedule B. (iii) Southwest may charge Correspondent expenses incurred by Southwest on behalf of Correspondent pursuant to this Agreement. Expenses incurred by Southwest on behalf of Correspondent that may be deducted from any payments due to Correspondent from Southwest include, but are not limited to, overlay of forms, system equipment expenses, special programming, changes to commissions schedules and financial report information related thereto, installation of data communication lines and brokerage related credit inquiries, legal transfers, Regulation T extensions, Mailgrams (buy-in or sellout), microfiche of records, insurance protection for Accounts in excess of the amounts provided by the Security Investors Protection Corporation, third party vendor fees and costs incurred in failure of Correspondent or Customers to provide correct social security or tax identification numbers. (b) Settlements. Southwest will collect commissions from Customers on behalf of Correspondent and through Correspondent. As soon as practicable after the end of each month, Southwest will forward to the Correspondent a statement showing the amount of commission and other amounts collected by Southwest on Correspondent's behalf, and all amounts due to Southwest from Correspondent (including, without being limited to, clearing charges, other charges, other fees and each Customer's unsecured debit items, however arising), together with the amount by which the total owed Correspondent exceeds the total owed Southwest. If such statement indicates that Correspondent owes 10 monies to Southwest, Correspondent shall promptly pay Southwest the amount by which the total owed Southwest exceeds the total owed Correspondent. If Correspondent fails to make such payment within the time period indicated on such statement, or in any event within thirty (30) calendar days, Southwest shall have the right to charge any other Account maintained by Southwest for Correspondent or any other assets of Correspondent held by Southwest (including the deposit required pursuant to Section 9 and positions and balances in Correspondent Accounts) for the net amount due Southwest. Any failure by Southwest to charge any Account or assets of Correspondent held by Southwest shall not act as a waiver of Southwest's right to demand payment of, or to charge Correspondent's Accounts for, the full amount due at any time. 9. DEPOSIT (a) Required Clearing Deposit. Contemporaneously with the signing of this Agreement, Correspondent will deliver cash to Southwest, as specified in Schedule A attached, for deposit in an account maintained by Southwest. If at any subsequent time Southwest, in its sole discretion, requires an additional deposit, Correspondent will deposit additional cash in an amount specified by Southwest. Any failure by Southwest to demand compliance with the requirement that Correspondent deposit additional amounts shall not act as a waiver of Southwest's right to demand compliance with such requirements at any time. If the deposit is not adequately funded as required by Southwest, Southwest may, in addition to all other rights under this Agreement, transfer cash or securities of Correspondent held by Southwest to the deposit account. Southwest shall be entitled to set-off against any deposit in addition to any and all other rights or remedies Southwest may have under this Agreement or otherwise. (b) Return of Required Clearing Deposit. When this Agreement has been terminated in accordance with the provisions hereof, and Southwest has received payment in full of any and all amounts owing to Southwest hereunder and Correspondent has satisfied each and every of Correspondent's outstanding obligations to Southwest hereunder, Southwest shall return the required clearing deposit to Correspondent within thirty (30) calendar days of the date on which all of said payments have been received and obligations satisfied. These obligations include, but are not limited to, any open and unsettled litigation matters between Correspondent or Customers and Southwest, any unresolved unsecured Correspondent Account or Customer Account debit balances, any open fails as a result of trades executed on behalf of Correspondent Accounts or Customer Accounts, and any failures to transfer to another broker any Customer Accounts introduced by Correspondent. 10. INDEMNIFICATION (a) Indemnity. Correspondent agrees to indemnify and hold harmless Southwest, each person who controls Southwest within the meaning of the Securities Exchange Act of 11 1934 and any directors, officers, employees, agents and attorneys of Southwest ("Southwest Indemnified Persons") for and against all claims, demands, proceedings, suits and actions and all liabilities, losses, expenses and costs (including any legal and accounting fees and expenses) relating to Southwest's defense of any failure, for any reason, fraudulent or otherwise, by Correspondent, Correspondent's employees, independent agents or contractors, or Customers to comply with any obligation under this Agreement or any other agreement executed and delivered to Southwest in connection with Southwest's performance of services hereunder and any act or failure to act by Southwest Indemnified Persons, except any act or failure to act which is the result of gross negligence or willful misconduct on the part of any such Southwest Indemnified Person. Without limiting the generality of the foregoing, such failure is explicitly intended by the parties to include failure resulting from (i) suspension of trading or bankruptcy or insolvency of any company, securities of which are held in Customer's Accounts; (ii) failure by any Customer to maintain adequate margin; or (iii) breach of any obligation existing between Correspondent and a customer of Correspondent or any law, rule or regulation of the United States, a state or territory thereof, or any regulatory or self-regulatory agency or body, applicable to any transaction contemplated by this Agreement. Southwest shall indemnify and hold Correspondent harmless against any losses, claims, damages, liabilities or expenses including without limitation those asserted by Customers (which shall include, but not be limited to, all costs of defense and investigation and all attorney's fees) to which Correspondent may become subject, insofar as such losses, claims, damages, liabilities or expenses arise out of, or are based upon the gross negligence or willful misconduct of Southwest or its employees in providing the services contemplated hereunder. Promptly after receipt by any indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof, but the emission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in and, to the extent that it may wish, to assume the defense thereof, subject to the provisions herein stated, with counsel satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to the indemnified party under this Section for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel satisfactory to the indemnified party. 12 (b) Security Interest and Authorization to Charge. Correspondent grants to Southwest a first lien and security interest in any Correspondent Account maintained by Southwest and any other assets of Correspondent now or hereafter held by Southwest and authorizes Southwest to discharge such lien by charging such Account and assets with all amounts owing to Southwest including, but not limited to, (i) any cost or expense resulting from failures to deliver or failures to receive, (ii) any losses resulting from unsecured debit balances in any Customer or Correspondent Account, (iii) any losses resulting from the failure by a Customer or Correspondent to promptly satisfy upon demand by Southwest any indebtedness of Customer or Correspondent to Southwest, including but not limited to any debit balances in any Customer Account or Correspondent Account and (iv) any amounts to which Southwest is otherwise entitled pursuant to the provisions of Section 10(a). Southwest shall have discretion to liquidate or sell any securities without notice to Correspondent, and to determine which securities to sell. Such charge may be made against Correspondent Accounts or assets at any time and in such amount as Southwest deems appropriate. No delay in charging any Correspondent Account or asset shall operate as a waiver of Southwest's right to do so at any time as and when Southwest deems appropriate. Southwest shall have the unlimited right to set-off any indebtedness or other obligations of Correspondent under this Agreement or otherwise (absolute or contingent, matured or unmatured) against any obligations of Southwest to Correspondent, including from the required clearing deposit (as described in Section 9) and/or, any other money, securities, or other property of Correspondent in Southwest's possession. (c) Reserves. In connection with any claim that does or could give rise to a claim for indemnification under this Section for Southwest or a Southwest Indemnified Person, Southwest may, in its discretion, in addition to any and all other rights and remedies under this Agreement, reserve and retain any money, securities or other property of Correspondent pending a determination of such claim. The money, securities or other property of Correspondent set aside in such a reserve shall be subject to Southwest's standard lien and security interest described in Section 10(b) above. 11. UNDERTAKINGS OF CORRESPONDENT (a) Financial Statements and Other Reports. Correspondent will furnish to Southwest promptly upon request copies of Correspondent's balance sheet and statement of earnings for the current fiscal year and for each of Correspondent's previous fiscal years. Each such balance sheet and statement of earnings shall be certified by independent public accountants. Correspondent also shall furnish to Southwest promptly upon request copies of Correspondent's monthly and quarterly Focus filing, and the results and/or reports of all exams from self-regulatory bodies, federal or state securities agencies. (b) Exclusive Agreement. It is intended by the parties that Southwest will be the exclusive provider of clearing services to Correspondent and its Customers during the term of this Agreement. Correspondent will not, without the express written consent of Southwest, retain any other broker or other entity to provide clearing services during the term of this Agreement. 13 (c) Disciplinary Action. In the event that Correspondent or any employee of Correspondent shall become subject to any disciplinary action, including but not limited to expulsion, suspension or restriction by any regulatory or self-regulatory agency or body having jurisdiction over Correspondent and Correspondent's securities business, Correspondent will notify Southwest immediately and Correspondent authorizes Southwest to take such steps as may be necessary for Southwest to maintain compliance with the rules and regulations to which Southwest is subject. Correspondent further authorizes Southwest, in any event, to comply with directives or demands made upon Southwest by any regulatory or self-regulatory agency or body relative to Correspondent and Customers. In connection with such directives or demands, Southwest may seek advice or legal counsel and Correspondent will reimburse Southwest for reasonable fees and expenses of such counsel. Correspondent shall, during the term of this Agreement, notify Southwest if Correspondent fails to remain in compliance with the net capital and financial reporting and record keeping requirements of the SEC, any state which has jurisdiction over Correspondent, or any regulatory or self-regulatory body which has jurisdiction over Correspondent, (d) Fixed Price Offerings. Correspondent agrees that in making sales of securities, as part of a fixed price offering, it will comply with all applicable rules of the NASD, including, without limitation, the NASD's Interpretations with respect to Free-Riding and Withholding and under 2740 of NASD Conduct Rules. (e) Customer Transactions. Correspondent represents that all orders and other transactions received by Southwest will be in accordance with their Customers' instruction. The parties hereto expressly agree that Southwest shall not be bound to any investigation into the facts surrounding any transaction that Correspondent may have with its Customers or other persons, nor shall Southwest be under any responsibility for compliance by Correspondent with any laws or regulations which may be applicable to Correspondent. (f) Inquiries on Certificates. Southwest agrees to act as Correspondent's direct inquirer under the Lost and Stolen Securities Program under SEC Rule 17f-1. (17 CFR 240.17f-1). (g) Compliance with Rules and Regulations. Correspondent shall comply with, and shall be responsible for complying with, all laws, rules and regulations to which it is subject, including but not limited to those promulgated by the SEC, the NASD and securities exchanges of which Correspondent is a member. (h) Certain Expenses. Correspondent will not hold Southwest responsible for any of Correspondent's office expenses or operating costs. Correspondent will reimburse Southwest for any costs or expenses Southwest may incur in complying with any request by a court, or regulatory or self-regulatory agency or body for any documents, papers or data in any form pertaining to any matters relating to this Agreement. If Southwest deems it necessary to retain legal counsel to advise Southwest in connection with any matter governed by this Agreement, including but not limited to Southwest's manner of handling any transaction on behalf of Correspondent or a Customer, Correspondent will reimburse Southwest for the fees of such counsel. 14 (i) Option Transactions. Correspondent shall appoint a Registered Option Principal before handling option transactions. Correspondent shall comply with all requirements of the NASD and other regulatory bodies regarding the handling of option transactions. (j) Correspondent Accounts. Correspondent shall be required to pay for securities purchased for its own Accounts on the settlement date. Notwithstanding the foregoing, Correspondent may finance any portion of the debit balance in a Correspondent Account under applicable stock exchange and Federal Reserve regulations. If such financing is extended by Southwest, Correspondent agrees to satisfy the debit balance of such Account upon demand by Southwest. Southwest shall charge interest on such debit balances at a rate set at the discretion of Southwest. Interest will be calculated by multiplying the average daily debit balance by the average interest rate (1/360 of the annual interest rate) times the number of days in the interest period. The rate of interest and method of calculation may be changed by Southwest automatically and without notice from time to time. Correspondent agrees to maintain in any Account which has a debit balance such positions and margins as may be required by applicable statutes, rules, regulations, procedures and customs, or as may be requested by Southwest from time to time. Any financing described in this Section 11(j) shall be subject to all other terms and provisions of this Agreement relating to obligations of the Correspondent to Southwest, including but not limited to being secured by the lien and security interest granted by Correspondent pursuant to Section 10(b) of this Agreement. In the case of an Event of Default, as defined below, all debit balances in any Correspondent Account, and interest thereon, shall bear interest at the highest lawful rate. An Event of Default shall be deemed to have occurred if (i) Correspondent fails to meet any call by Southwest for additional collateral to be deposited in a Correspondent Account; (ii) Correspondent fails to make payment of any debit balance in a Correspondent Account upon demand by Southwest; (iii) Correspondent becomes insolvent, makes an assignment for the benefit of creditors, applies for or consents to the appointment of a receiver, or institutes or has instituted against it any insolvency, reorganization, liquidation, dissolution or similar proceeding; (iv) a petition naming Correspondent as debtor shall be filed under the United States Bankruptcy Code; or (v) an attachment is levied against any Correspondent Account or Account in which Correspondent has an interest. Regardless of any provision of this Section 11(j), any other section of this Agreement or any other agreement between Southwest and Correspondent, all agreements between 15 Southwest and Correspondent, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of demand being made in respect of an amount due from Correspondent to Southwest, shall the amount paid, or agreed to be paid, for the use, forbearance or detention of money loaned by Southwest to Correspondent exceed the maximum nonusurious rate of interest permitted to be charged under applicable law (the "Highest Lawful Rate"). If, as a result of any circumstance whatsoever, fulfillment of or compliance with any provision hereof or of any of such other agreements at the time performance of such provisions shall be due or at any other time shall involve exceeding the amount permitted to contracted for, taken, reserved, charged or received by Southwest under applicable usury law, then ipso facto, the obligation to be fulfilled or complied with shall be reduced to the limit prescribed by such applicable usury law, and if, from any such circumstance, Southwest shall ever receive interest or anything that might be deemed interest under applicable law which would exceed the Highest Lawful Rate, such amount which would be excess interest shall be applied to the reduction of the principal amount owing on the Correspondent Account in question or the amounts owing on other obligations of Correspondent to Southwest, or if such excessive interest exceeds the unpaid principal balance of any amount owing on other obligations of Correspondent to Southwest, such excess shall be refunded to Correspondent. All sums paid or agreed to be paid to Southwest shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full of the principal (including the period of any renewal or extension thereof) so that the interest on account of such indebtedness shall not exceed the Highest Lawful Rate. Notwithstanding anything to the contrary contained in any agreement between Correspondent and Southwest, it is understood and agreed that if at any time the rate of interest which accrues on the outstanding balance of any indebtedness of Correspondent to Southwest shall exceed the Highest Lawful Rate, the rate of interest which accrues on the outstanding principal balance of any such indebtedness shall be limited to the Highest Lawful Rate, but any subsequent reductions in the rate of interest which accrued on the outstanding principal balance of any indebtedness shall not reduce the rate of interest which accrues on the outstanding principal balance of any indebtedness below the Highest Lawful Rate until the total amount of interest accrued on the outstanding principal of any indebtedness equals the amount of interest that would have accrued if such interest rate had been in effect at all times. In consideration for Southwest opening or maintaining one or more inventory Accounts for Correspondent, Correspondent agrees to allow Southwest at any time within the limitations imposed by applicable laws, rules and regulations, to pledge, hypothecate, and/or make deliveries with any and all securities in such Accounts, including fully paid and excess margin securities, without notice to Correspondent. Such securities will be segregated from other bona fide customers of Southwest in the event that they are pledged as collateral for bank loans. Without abrogating any of Southwest's rights under this Agreement and subject to any indebtedness of Correspondent to Southwest, Correspondent is entitled, upon demand, to receive delivery of fully paid for securities in Correspondent's inventory Accounts. 16 The provisions of this Section 11(j) shall be construed in conjunction with the express terms and conditions of any separate applicable Account agreement(s) between Southwest and Correspondent. (k) Forms BD and U4. Within thirty (30) days after the execution of this Agreement, Correspondent shall provide to Southwest a copy of Correspondent's Form BD, and copies of the Forms U4 for the principals and all registered employees of Correspondent, and copies of any other documents relating to Correspondent, its principals or employees that are available on the Central Registration Depository ("CRD"). Thereafter, within thirty (30) days after the hiring of any new employee, Correspondent shall provide to Southwest a copy of such new employee's Form U4 and other documents available on the CRD. Additionally, throughout the term of this Agreement, Correspondent shall promptly provide copies of any subsequent amendments of all Forms and other documents described in this Section 11(k). (1) Advertising. Correspondent shall obtain Southwest's prior written consent before using Southwest's name or logo, or the name or logo of any affiliate of Southwest, in any advertising in print, broadcast, electronic or any other media. Without the express written consent of Southwest, Correspondent also shall not display the name or logo of Southwest or any of its affiliates on any Internet web page or other electronic advertising; nor shall Correspondent display on any such web page or electronic advertising, a hyperlink to or the Internet address of any web page or electronic advertising of Southwest or any of its affiliates 12. TERMINATION OF AGREEMENT; TRANSFER OF ACCOUNTS (a) Effectiveness. This Agreement shall commence to be effective on the date set forth on the signature page hereof, subject to any required approval by the NASD and other regulatory or self-regulatory agencies or bodies, and shall remain in effect as more fully described in Schedule A. (b) Automatic Termination. In addition to any other provision for termination herein, this Agreement shall terminate immediately in the event that either Correspondent or Southwest ceases to conduct its business or that Southwest: (i) is no longer registered as a broker/dealer with the SEC; or (ii) is no longer a member in good standing of the NASD; or (iii) is suspended by any national securities exchange of which Southwest is a member for failure to comply with the rules and regulations thereof. 17 (c) Survival. Termination of this Agreement shall not affect Southwest's rights or liabilities relating to business transacted prior to the effective date of such termination. From the date of termination until transfer or delivery of all Customer and Correspondent Accounts, Southwest's rights and liabilities relating to business transacted after such termination shall be governed by the same terms as those set forth in this Agreement. (d) No Obligation to Release. Southwest shall not be required to release to Correspondent any securities or cash held by Southwest for Correspondent in one or more Correspondent Accounts until any and all amounts owing to Southwest pursuant to the provisions of this Agreement are paid; and Correspondent's outstanding obligations hereunder to Southwest are determined, including determination of any disputed amounts, and satisfied, and any property of Southwest in the possession of Correspondent is returned to Southwest. (e) Conversion of Accounts Upon Termination. In the event that this Agreement is terminated for any reason, it shall be Correspondent's responsibility to arrange for the conversion of Correspondent and Customer Accounts to another clearing broker. Correspondent will give Southwest notice (the "Conversion Notice") of. (i) the name of the broker that will assume responsibility for clearing services for Customers and Correspondent; (ii) the date on which such broker will commence providing such services; (iii) Correspondent's undertaking, in form and substance satisfactory to Southwest, that Correspondent's agreement with such broker provides that such broker will accept on conversion all Correspondent and Customer Accounts, then maintained by Southwest, and all positions of such Accounts; and (iv) the name of an individual within that organization who Southwest can contact to coordinate the conversion. The Conversion Notice shall accompany Correspondent's notice of termination or within thirty (30) days of the occurrence of an event specified in Section 12(b). If Correspondent fails to give the Conversion Notice to Southwest, Southwest may give to Customer such notice as Southwest deems appropriate of the termination of this Agreement and may make such arrangements as Southwest deems appropriate for transfer or delivery of Customer and Correspondent Accounts. In addition, Correspondent shall pay any costs incurred by Southwest as billed by any third party vendors such as transfer agents, etc. (f) Other Transfers of Accounts. When Southwest receives a properly executed authorization to transfer a Customer Account from the receiving broker/dealer, Southwest shall promptly transfer the Customer Account to such receiving broker/dealer. Correspondent shall discontinue doing business in any Customer Account scheduled for transfer. 18 13. CONFIDENTIALITY. (a) Documents and Business Information. All agreements, documents, papers and data in any form, supplied by either party hereto concerning the disclosing party's business or any Customers shall be treated by the receiving party as confidential. To the extent such documents or data are retained by the receiving party, they shall be kept in a safe place and shall be made available to third parties only as authorized by the disclosing party in writing or pursuant to any order or request of a court or regulatory body having appropriate jurisdiction. The receiving party shall give the disclosing party prompt notice of the receipt by the receiving party of any such order or subpoena, unless prohibited from doing so by the issuing authority, which notice shall be given prior to the receiving party's compliance therewith. Such documents shall be made available by the receiving party for inspection and examination by the disclosing party's auditors, by properly authorized agents or employees of any regulatory bodies or commissions or by such other persons as the disclosing party may authorize in writing. Notwithstanding anything herein to the contrary, the disclosing party expressly authorizes the receiving party to supply any information requested relating to the disclosing party, its business, or Customers to any regulatory body having appropriate authority. (b) Terms of Agreement. Correspondent agrees that it shall not disclose to any third party the terms and conditions of this Agreement, including but not limited to pricing information, except to the extent Correspondent is required to do so by the provisions of any law, rule or regulation, or in response to the order or request of a court or regulatory body having appropriate jurisdiction. 14. EMPLOYEES Neither party will solicit, engage in negotiations to employ, or employ any person who is, or within the preceding twelve (12) months has been, employed by the other party, without first obtaining such other party's express written consent. 15. NOTICE TO CUSTOMERS Subject to the requirements of the NASD Rules of Fair Practice, Correspondent shall provide to each Customer upon the opening of a Customer Account, in a manner which is reasonably acceptable to Southwest, a written notice which shall be furnished by Southwest describing the general nature of the services being performed by Southwest in accordance with this Agreement. 16. CUSTOMER COMPLAINT PROCEDURES Correspondent will be responsible for the initial handling of all Customer complaints. Any Customer who initiates a complaint with Southwest will be referred by Southwest to Correspondent. If any such complaint is based upon an alleged act or failure to act by Southwest, Correspondent will notify Southwest promptly of such complaint and the basis therefor; and will consult with Southwest. And the parties will cooperate in determining the validity of such complaint and the appropriate action to be taken. 19 17. REMEDIES CUMULATIVE The enumeration herein of specific remedies shall not be exclusive of any other remedies. Any delay or failure by any party to this Agreement to exercise any right, power, remedy or privilege herein contained, or now or hereafter existing under any applicable statute or law, shall not be construed to be a waiver of such right, power, remedy or privilege, nor to limit the exercise of such right, power, remedy or privilege, nor shall it preclude the further exercise thereof or the exercise of any other right, power, remedy or privilege. 18. GUARANTEE The corporation or indiviual(s) who guarantee the obligations of Correspondent under this Agreement by executing the signature lines designated for such purpose at the end of the Agreement (the "Guarantor(s)"), in consideration of Southwest's entering into the Agreement do(es) hereby personally guarantee(s) (jointly and severally, if more than one) the performance by Correspondent of the provisions of this Agreement (including without limitation the indemnification provisions of Section 10) and shall promptly pay any amount that is not paid by Correspondent to Southwest under this Agreement. This is an absolute, unconditional and unlimited guarantee of payment and may be proceeded upon by Southwest or a Southwest Indemnified Person before filing any action against Correspondent or after any action against Correspondent has been commenced. Guarantor(s) grant(s) to Southwest a first lien and security interest in any and all money and securities of Guarantor(s) held by Southwest. Southwest shall have the unlimited right to set-off any amounts owed to it by Correspondent or a Guarantor(s) against any obligation of Southwest to any Guarantor(s). Southwest also shall have the absolute and unlimited right to sell, transfer, or liquidate any of the assets in any of Guarantor(s)' accounts with Southwest for any amounts owed to it by Correspondent or a Guarantor(s). The obligations of Guarantor(s) shall not be discharged or impaired or otherwise affected by the failure of Southwest or a Southwest Indemnified Person to assert, claim, demand or enforce any remedy under this Agreement, nor by waiver, modification or amendment of this Agreement or any compromise, settlement or discharge of obligations of Correspondent under this Agreement, or any release or impairment of any collateral by Southwest or a Southwest Indemnified Person. 20 19. LIMIT ON LIABILITY; NO CONSEQUENTIAL DAMAGES In any action by Correspondent against Southwest for any claim arising out of the relationship created by this Agreement, Southwest shall only be liable to Correspondent in cases of negligence or willful misconduct, and in such cases Southwest shall only be liable for the amount or actual monetary losses suffered by Correspondent. Correspondent shall not, in any such action or proceeding or otherwise, assert any claim against Southwest for consequential damages on account of any loss, cost, damage or expense which Correspondent may suffer or incur related to transactions in connection with this Agreement or otherwise. 20. MISCELLANEOUS (a) Modification. Except as otherwise expressly provided herein, this Agreement may be modified only by a writing signed by both parties to this Agreement. Such modification shall not be deemed as a cancellation of this Agreement. Subject to the NASD Rules of Fair Practice and other applicable rules and regulations, this Agreement and all modifications may be required to be submitted to the NASD and other regulatory or self-regulatory agencies or bodies prior to effectiveness. It is expressly understood that services cannot be provided under this Agreement until such approval, if required, is received. (b) Assignment. This Agreement shall be binding upon all successors, assigns or transferees of both parties hereto irrespective of any change with regard to the name or of the personnel of Correspondent or Southwest. Any assignment of this Agreement shall be subject to the requisite review and/or approval of any regulatory or self-regulatory agency or body whose review and/or approval must be obtained prior to the effectiveness and validity of such assignment. No assignment of this Agreement shall be valid unless the non-assigning party, in its sole discretion, consents to such an assignment in writing. Notwithstanding the foregoing, Southwest, upon giving written notice to Correspondent, may assign it rights and obligations under this Agreement to any entity that purchases a majority of the stock or assets of Southwest or of any of Southwest's subsidiaries or affiliates, to any majority-owned subsidiary that Southwest may create or to any entity directly or indirectly controlled by, controlling or under common control with Southwest, and an assignment by Southwest to any such party will be deemed valid and enforceable in the absence of any consent from Correspondent. Neither this Agreement nor any operation hereunder is intended to be, shall not be deemed to be, and shall not be treated as a general or limited partnership, association, or joint venture or agency relationship between Correspondent and Southwest. (c) Choice of Law. The construction and effect of every provision of this Agreement, the rights of the parties hereunder and any questions arising out of the Agreement, shall be subject to the statutory and common law of the State of Texas, without regard to the choice of law provisions thereof. 21 (d) Severability. If any provision or condition of this Agreement shall be held to be invalid or unenforceable by any court, or regulatory or self-regulatory agency or body with appropriate jurisdiction, such invalidity or unenforceability shall attach only to such provision or condition. The validity of the remaining provisions and conditions shall not be affected thereby and this Agreement shall be carried out as if any such invalid or unenforceable provision or condition were not contained herein. (e) Notice. For the purposes of any and all notices, consents, directions, approvals, restrictions, requests or other communications required or permitted to be delivered hereunder, Southwest's address shall be: Southwest Securities, Inc. 1201 Elm Street Suite 3500 Dallas, Texas 75270 Attention: William D. Felder, Senior Executive Vice President And Correspondent's address shall be: All-Tech Investment Group, Inc. ------------------------------- 160 Summit Ave. ------------------------------- Montvale, NJ 07645 ------------------------------- Attention: Mark Shefts -------------------- Either party may provide notice or change its address for notice purposes by giving written notice pursuant to registered or certified mail, return receipt requested, addressed to the other party at its address for notice. 22 (f) Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute a single agreement. When each party has executed and delivered to the other a counterpart, this Agreement will become binding on both parties, subject only to any required approval by the NASD. MADE AND EXECUTED THIS 15th DAY OF July, 1997. SOUTHWEST SECURITIES, INC. By:/s/ William D. Felder ---------------------- William D. Felder Senior Executive Vice President All-Tech Investment Group,Inc. - ------------------------------ CORRESPONDENT: By: /s/ Mark Shefts ------------------ Name: Mark Shefts ---------------- Title: President --------------- 23 [letterhead] August 4, 1997 Mr. William Felder Southwest Securities, Inc. 1201 Elm St., Suite 3500 Dallas, TX 75270 Dear Bill: We have agreed that Paragraph 7(b) of that certain Fully Disclosed Clearing Agreement between Southwest Securities, Inc. and All-Tech Investment Group, Inc. executed July 15, 1997 shall be amended to insert the word "particular" between the words "any" and "transaction" appearing in the penultimate line thereof. Please indicate the agreement of Southwest that the foregoing accurately sets forth our understanding by signing the duplicate copy of this letter enclosed herewith and returning it to me. Very truly yours, ALL-TECH INVESTMENT GROUP, INC. By/s/Mark Shefts ----------------- Mark Shefts, President Accepted and Agreed: SOUTHWEST SECURITIES, INC. By/s/William D. Felder ------------------ William Felder SCHEDULE A -- Schedule of Commissions and Charges SCHEDULE B -- Schedule of Clearing Charges for Exchange and Nasdaq Listed Securities * The Company has filed a request with the Securities & Exchange Commission for confidential treatment of the fee Schedules. Accordingly, the schedules have been ommitted, however, they have been separately filed with the Commission pursuant to the Company's confidentiality request. EX-10.7 11 LICENSE AGREEMENT WITH PC QUOTE PC QUOTE - -------------------------------------------------------------------------------- STANDARD LICENSE AGREEMENT This Agreement made effective this 31st day of January, 1995 by and between PC QUOTE, INC. (hereinafter referred to as "PCQ"), a Delaware Corporation with its principal place of business at 300 S. Wacker Drive, Chicago, Illinois 60606, and: All-Tech Investment Group, Inc. - -------------------------------------------------------------------------------- (hereinafter referred to as "CUSTOMER") at: 160 Summit Ave - -------------------------------------------------------------------------------- Montvale, NJ 07645 Whereas PCQ provides a service (hereinafter referred to as the "SERVICE") consisting of software (hereinafter referred to as the "LICENSED SOFTWARE"), combined with information (hereinafter referred to as the "DATAFEED") obtained, selected and consolidated under the authority of various agencies and other information providers; and Whereas CUSTOMER desires to utilize LICENSED SOFTWARE and DATAFEED; Now, therefore, CUSTOMER and PCQ hereby agree to the following: 1. SOFTWARE AND DATAFEED LICENSE AGREEMENT A. PCQ agrees to grant and CUSTOMER agrees to accept on the following terms and conditions, a non-transferable and non-exclusive license to use the LICENSED SOFTWARE and DATAFEED provided by PCQ to CUSTOMER. B. PCQ shall retain title and all copyrights or proprietary rights to said LICENSED SOFTWARE. CUSTOMER shall have a non-exclusive license only to use the LICENSED SOFTWARE only in conjunction with the DATAFEED, and shall have no right to sell, transfer, sub-license, rent, lease, copy, modify, translate, convert to another programming language, decompile or disassemble the LICENSED SOFTWARE for any purpose. C. The license granted by PCQ to CUSTOMER to use the DATAFEED, in addition to being non-exclusive and non-transferrable, is limited to use only in conjunction with the LICENSED SOFTWARE. Further, CUSTOMER agrees to use the DATAFEED only within CUSTOMER's operations at the locations set forth in this Agreement. D. CUSTOMER acknowledges and agrees that DATAFEED is intended for the exclusive internal use of CUSTOMER and that said service, the data included in such service or any derivations thereof shall not be redistributed in any form to any third party, whether or not that third party's business involves further redistribution of said data to paying clients, without prior written consent. However, and notwithstanding anything to the contrary in this Agreement, CUSTOMER may provide and distribute to CUSTOMER's clients small subsets of specific data items included in the DATAFEED. 1. CUSTOMER may not charge such clients separately for contents of the DATAFEED. 2. In client statements, client confirmations, client reports, and other publications as part of the ordinary course of CUSTOMER's existing business. 3. In connection with client financial transactions. 2. TERM A. The initial term of this license Agreement shall be 24 months (2) year(s) from its effective date. The effective date for purposes of this Agreement is the date upon which LICENSED SOFTWARE is authorized by PCQ to access the DATAFEED. Neither PCQ nor CUSTOMER shall terminate or alter this Agreement except as follows. B. At the conclusion of the initial term, this entire Agreement shall automatically renew itself annually for an additional one (1) year term unless either party sends notice to the other party at least sixty (60) days prior to the anniversary of the effective date of this Agreement, by certified mail to the address indicated above, expressing a desire to terminate the Agreement. Said termination will be effective as of the last day of the month in which this anniversary occurs. PC QUOTE, INC. STANDARD LICENSE AGREEMENT / 2 C. Notwithstanding the provisions of 2(A), and 2(B) above, should a party to this Agreement be in material breach of the Agreement, the other party may terminate the Agreement sixty (60) days after notice of said material breach is received and only if such material breach is not cured within thirty (30) days of receipt of notice. D. PCQ may terminate this Agreement for non-payment as provided in Sections 4(F), 5(A) and 5(D) below. 3. EQUIPMENT A. PCQ, to facilitate CUSTOMER's use of its DATAFEED and LICENSED SOFTWARE, may provide to CUSTOMER computer hardware, a satellite dish antenna or other equipment that may be required. PCQ shall retain title to any equipment if furnishes. CUSTOMER as lessor and user of such equipment, agrees to be responsible for it and shall reimburse PCQ for all damages sustained by the equipment or for the cost of replacing the equipment in the event that it is lost, stolen, or destroyed while in the possession of CUSTOMER. In the event that this Agreement is terminated by either party, CUSTOMER shall remain responsible for the safety of the equipment and shall reimburse PCQ for any damages sustained or its replacement cost if lost, stolen or destroyed, from the date that the Agreement is cancelled until such time trial PCQ repossesses such equipment. CUSTOMER agrees to insure all equipment owned by PCQ which is provided the CUSTOMER incident to the services purchased in a sum equal to its replacement value under a commercial multi-peril policy or its equivalent. CUSTOMER further agrees to name PCQ as an additional insured under said policy and to furnish PCQ with a certificate of insurance evidencing such coverage it so requested by PCQ. CUSTOMER agrees to provide access to the equipment for purposes of installation, removal, maintenance, or repair during reasonable business hours. B. PCQ will provide its standard installation, consisting of labor to connect communications equipment (satellite dish, modems or hardware), 100 feet of regular RG-59 coaxial cable, 6 feet of interface cable with appropriate RS-232 connectors, ground shipment of equipment, handling charge, and support for installation of software, at a cost as defined in the appended Schedule(s) of Services and Fees specified in Section 14. If during the installation a satellite dish is proven infeasible, the CUSTOMER shall pay all charges necessary to lease and install short haul modems or long haul modems as well as all other time and material expenses incurred by PCQ in excess of the standard installation provided that CUSTOMER receives prior notice and approves such expenses before incurred. CUSTOMER acknowledges that in the event data lines are necessary to install the service, CUSTOMER shall pay for such data lines, and CUSTOMER acknowledges that the monthly expense of such data lines may not be known prior to installation, and that this expense may be subject to change without notice based upon chances in local or long distance telephone carrier charges. Non-standard installation costs will be paid to PCQ by the CUSTOMER on a time and materials basis, provided that the CUSTOMER receives prior notice that the standard installation is inappropriate and an estimate of the cost of non-standard installation. C. Upon termination of this Agreement CUSTOMER shall, within thirty (30) days following the effective date of termination, return all property of PCQ held and used by the CUSTOMER and CUSTOMER shall pay all removal cost incurred. 4. PAYMENT A. During the initial term the CUSTOMER shall pay the monthly charges set fourth in the Schedule(s) of Services and Fees specified in Section 14. PCQ agrees that no increase in monthly charges shall occur during this initial term. B. Upon renewal of this Agreement for subsequent one (1) year terms, CUSTOMER shall pay, during each subsequent annual term, the prevailing price for services in existence of each Agreement anniversary date without further adjustment until the following anniversary date. C. All payments made pursuant to this Agreement shall be in United States currency only. D. Upon termination of this Agreement, CUSTOMER will pay all charges for services and fees for the entire month in which that termination becomes effective. E. The charges for each service set forth in the Schedule(s) of Services and Fees specified in Section 14 shall be invoiced monthly and CUSTOMER agrees to pay said charges within thirty (30) days of the invoice date. All payments which have not been received by PCQ within thirty (30) days of the invoice date shall be subject to a FINANCE CHARGE of 1.0% per month which is a corresponding ANNUAL PERCENTAGE RATE of 12% of the outstanding balance. F. In the event any invoice is not paid by CUSTOMER within thirty (30) days after receipts PCQ, at its sole option and discretion, without any notice whatsoever to CUSTOMER, may terminate this Agreement and CUSTOMER's access to and use of the LICENSED SOFTWARE and DATAFEED provided hereunder. Any invoice submitted by PCQ shall be deemed correct unless CUSTOMER advises PCQ in writing within thirty (30) days of the receipt of the invoice that it disagrees with the invoice and specifies the nature of the disagreement. The remedies contained herein are cumulative and are in addition to all other rights and remedies available to PCQ under this Agreement, by operation of law, or otherwise. 5. EXCHANGE AUTHORIZATION AND CONTRIBUTED DATA PC QUOTE, INC. STANDARD LICENSE AGREEMENT / 3 A. The CUSTOMER hereby acknowledges and agrees that the DATAFEED provided under this Agreement contains information obtained, selected and consolidated by PCQ under the authority of various agencies, including but not limited to, the New York Stock Exchange, American Stock Exchange, Pacific Stock Exchange, Midwest Stock Exchange, Chicago Board Options Exchange, the Options Price Reporting Authority, the Consolidated Tape Association, Chicago Board of Trade, Chicago Mercantile Exchange/International Monetary Market, Kansas City Board of Trade, Minneapolis Grain Exchange, Commodities Exchange Center, New York Futures Exchange, and Mid-America Commodity Exchange and that the CUSTOMER's use of the DATAFEED is authorized and regulated by said agencies. Prior to commencement of services under this Agreement, CUSTOMER's authority to use the information provided to PCQ by said agencies shall be obtained by CUSTOMER, with assistance by PCQ, directly from said agencies. If such authorization is not obtained within thirty (30) days of execution, this Agreement may be cancelled by PCQ without further notice. B. PCQ includes in the DATAFEED, additional information (hereinafter referred to as "CONTRIBUTED DATA") which PCQ obtains from "INFORMATION PROVIDERS" (hereinafter referred to as IPs") that may not require that CUSTOMER obtain authority to use such information directly from the contributing IPs. The term "CONTRIBUTED DATA" refers not only to such information, but also to the compilation and formal of such information, and associated documentation and software, and to the distribution of such information by IP to PCQ and by PCQ to CUSTOMER. CUSTOMER acknowledges and agrees that individual IPs may request that PCQ terminate CUSTOMER's access to said IP's data at any time and that PCQ will carry out such request in accordance with the provisions of said IP's agreement with PCQ. CUSTOMER further acknowledges and agrees that in the event that any agreement between PCQ and an IP is terminated in accordance with its provisions, the CONTRIBUTED DATA will no longer include that IP's data. C. CUSTOMER acknowledges that PCQ is required to report certain information related to CUSTOMER's use of the DATAFEED to the various agencies and IPs from whom the information selected and consolidated by PCQ is obtained. To enable PCQ to meet its obligation in this regard, CUSTOMER agrees to inform PCQ, in writing, whenever its usage of the DATAFEED changes materially. Such changes shall include, but not be limited to: 1. An increase or decrease in the number of simultaneously operable devices having the ability to display information obtained from the DATAFEED 2. The physical address(es) at which information from the DATAFEED is utilized. D. CUSTOMER agrees that PCQ shall have the right to audit and inspect during CUSTOMER's operational business hours all CUSTOMER's receiving terminals to insure that the information transmitted by PCQ is not being shared, distributed, or transmitted to unauthorized terminals, computers, screens or persons. E. CUSTOMER hereby agrees to pay any and all fees or charges for any agency or IP authorization involved. FAILURE TO PAY SAID AUTHORIZATI0N CHARGES SHALL RESULT IN IMMEDIATE TERMINATION OF CUSTOMER'S SERVICE AS DEFINED BY THIS AGREEMENT. 6. LIMITATIONS OF LIABILITY; REMEDIES ON DEFAULT A. The information and data used in the DATAFEED and LICENSED SOFTWARE provided under this Agreement, including, but not limited to, option prices, stock prices, commodity prices, dividends, dividend dates, volatilities, deltas and other variables, which are obtained by PCQ from the various agencies as described in Paragraph 5(A) which are believed to be reliable and PCQ agrees to run reasonable control checks thereon to verify that the data transmitted by PCQ is the same as the data received from the various exchanges and other sources. However, PCQ shall not be subject to liability for truth, accuracy, or completeness of the information received by PCQ from the various exchanges and other sources and conveyed to CUSTOMER or for errors, mistakes or omissions therein or for any delays or interruptions of the DATAFEED or LICENSED SOFTWARE from whatever cause. B. PCQ OBTAINS THE CONTRIBUTED DATA FROM IPs CONSIDERED TO BE RELIABLE AND BOTH PCQ AND IPs ENDEAVOR TO OBTAIN, SELECT, CONSOLIDATE AND DISTRIBUTE THE CONTRIBUTED DATA WITHOUT ERROR. HOWEVER, CUSTOMER ACKNOWLEDGES AND AGREES THAT THE CONTRIBUTED DATA IS DISTRIBUTED ON AN "AS-IS", "AS-AVAILABLE" BASIS AND THAT PCQ AND IPs DO NOT GUARANTEE OR MAKE ANY WARRANTIES WHATSOEVER WITH RESPECT TO THE CONTRIBUTED DATA OR TO THE SEQUENCE, ACCURACY, CURRENCY OR COMPLETENESS OF ANY QUOTATIONS, MARKET INFORMATION OR OTHER INFORMATION CONTAINED THEREIN, AND THAT NEITHER PCQ NOR IPs SHALL BE LIABLE TO CUSTOMER FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING THEREFROM OR OCCASIONED THEREBY AND WHETHER OR NOT RESULTING FROM NEGLIGENCE. C. CUSTOMER FURTHER ACKNOWLEDGES THAT NEITHER PCQ NOR IPs WARRANT THAT THE CONTRIBUTED DATA MAY BE RELIED UPON FOR TRADING PURPOSES OR FOR ANY OTHER PURPOSES AND THAT NEITHER PCQ NOR IPs SHALL BE LIABLE TO CUSTOMER FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR EXEMPLARY DAMAGES ARISING THEREFROM OR OCCASIONED THEREBY AND WHETHER OR NOT RESULTING FROM NEGLIGENCE. D. CUSTOMER and PCQ shall not be responsible for, nor be in default under this Agreement due to delays or failure of performance resulting from acts or causes beyond its control, including but not limited to: acts of God, strikes, lockouts, riots, acts of war, epidemics, government acts, fire, satellite malfunctions, communications line or equipment failures, power failures, earthquakes, or other disasters. PC QUOTE, INC. STANDARD LICENSE AGREEMENT / 4 E. CUSTOMER acknowledges that the LICENSED SOFTWARE provided by PCQ is designed and intended to be used with computer hardware and hardware configurations specifically delineated in the appended Schedule(s) of Services and Fees specified in Section 14. CUSTOMERS using non-authorized computer hardware or hardware configurations shall pay PCQ for any support services provided on a time and materials basis. F. LIABILITY UNDER THIS AGREEMENT FROM ANY AND ALL CAUSES, INCLUDING, BUT NOT LIMITED TO, PROGRAM MALFUNCTION OR OPERATIONAL NEGLIGENCE, SHALL BE LIMITED TO GENERAL MONEY DAMAGES IN AN AMOUNT NOT TO EXCEED ONE MONTH'S AVERAGE TOTAL MONTHLY CHARGES PAID BY CUSTOMER FOR THE SERVICES DURING THE TWELVE (12) MONTHS PRECEDING THE MONTH IN WHICH THE DAMAGE OR INJURY IS ALLEGED TO HAVE OCCURRED, OR SUCH LESSER NUMBER OF MONTHS IF CUSTOMER HAS NOT RECEIVED TWELVE (12) MONTHS' SERVICE. SUCH LIMITATION SHALL BE THE EXTENT OF PCQ'S LIABILITY REGARDLESS OF THE FORM IN WHICH ANY LEGAL OR EQUITABLE ACTION MAY BE BROUGHT AGAINST PCQ, AND THE FOREGOING SHALL CONSTITUTE CUSTOMER'S SOLE REMEDY. IN NO EVENT WILL PCQ BE RESPONSIBLE FOR LOST PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH CUSTOMER MAY INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT, EVEN IF PCQ HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. G. Any sales, use, excise, value added and local property taxes will be payable by CUSTOMER should such taxes be applicable. 7. WARRANTIES A. It is expressly understood and agreed to by the parties hereto that EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXCLUDED. B. CUSTOMER agrees not to use or permit anyone to use the LICENSED SOFTWARE or any information provided in the DATAFEED for any unlawful or unauthorized purpose. C. CUSTOMER agrees not to use the data included in the DATAFEED to develop, update or maintain a database for the purpose of looking up CUSIP numbers. 8. CONFIDENTIALITY OF PROPRIETARY INFORMATION A. CUSTOMER understands and acknowledges the proprietary nature of the SERVICE and LICENSED SOFTWARE provided by PCQ and that said SERVICE and LICENSED SOFTWARE have been developed as a trade secret of PCQ and at its expense. CUSTOMER agrees to hold said proprietary information in strictest confidence and shall not release, disclose, or divulge such proprietary information to any other person or company. Furthermore, CUSTOMER agrees not to attempt any reverse engineering of the DATAFEED to decode the signals used by PCQ in transmitting the information. B. The CONTRIBUTED DATA, as it exists from time to time during the term of this Agreement, whether or not the subject of copyright or patent protection, shall at all times be the property of PCQ and the data therein shall at all times be the property of IPs. CUSTOMER acknowledges that the CONTRIBUTED DATA constitutes confidential and proprietary information and a trade secret of PCQ and IPs in which they have invested significantly and which is of significant value to PCQ and IPs. CUSTOMER shall accord to the contents of the CONTRIBUTED DATA such protection as is necessary to prevent any unauthorized use, disclosure, dissemination or duplication, which protection shall be no less than that which CUSTOMER accords to its own confidential and proprietary information, and CUSTOMER shall comply with such instructions as PCQ may issue from time to time with regard to the return, destruction or other disposition of the contents of the CONTRIBUTED DATA and associated documentation after use. This provision shall survive the termination or expiration of this Agreement. C. PCQ understands the proprietary nature of any information belonging to CUSTOMER and recognizes the harm that can be occasioned to CUSTOMER by disclosure of information relative to CUSTOMER's activities. PCQ agrees to hold such information in the same manner as PCQ deals with its own proprietary information and trade secrets. 9. INDEMNIFICATION A. CUSTOMER hereby agrees to defend, indemnify and hold PCQ, its employees, agents, successors and assigns, harmless, including reasonable attorney's fees, from any and all claims, liabilities or obligations made against PCQ: 1. By the various agencies from whom PCQ has obtained selected and consolidated information for failure by CUSTOMER to pay any fees or charges owed by CUSTOMER to said agencies. 2. By any third party or parties arising in any way, directly or indirectly out of CUSTOMER's use of the SERVICE. PC QUOTE, INC. STANDARD LICENSE AGREEMENT / 5 3. Resulting from CUSTOMER's misrepresentations, breach or warranty or non-performance of any of the covenants or obligations under this Agreement or from any misrepresentations or omissions made by CUSTOMER to PCQ or any third party respecting any authorizations or certificates furnished or to be furnished to PCQ including specifically, but not limited to, any authority required of CUSTOMER pursuant to Section 5 hereof. B. PCQ hereby agrees to defend, indemnify and hold CUSTOMER harmless, including reasonable attorney's fees, from and against any claim that the LICENSED SOFTWARE infringes on the patent, copyright, or other propritary rights of another. 10. ASSIGNMENT This Agreement or any rights or obligations granted hereunder may not be assigned by CUSTOMER without the prior written consent of PCQ. 11. APPLICABLE LAW This Agreement shall be governed by the laws of the State of Illinois and the parties to this Agreement hereby vest the federal and state courts sitting in the City of Chicago with sole and exclusive jurisdiction over the interpretation and enforcement of this Agreement. 12. SEVERABILITY Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 13. ENTIRE AGREEMENT A. As used herein, the term "Agreement" includes any written amendments, modifications or supplements made in accordance herewith. B. CUSTOMER acknowledges that it has read this Agreement, understands it, and agrees to be bound by its terms and further acknowledges and agrees that it constitutes the entire agreement of the parties hereto and supersedes all other proposals, oral or written, and all other communications between the parties relating to the subject matter hereof and this Agreement may not be modified or terminated orally. No amendment to this Agreement shall be effective unless it is in writing and signed by all duly-authorized representatives of both parties. 14. APPENDED SCHEDULE(S) OF SERVICES AND FEES The following Schedule(s) of Services and Fees are appended to this Agreement: - -------------------------------------------------------------------------------- SCHEDULE TITLE NO. - -------------------------------------------------------------------------------- GNR-94-06 Schedule of Services and Fees - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto hereby execute this Agreement. - -------------------------------------------------------------------------------- AGREED TO: AGREED TO: PC QUOTE, INC, CUSTOMER - -------------------------------------------------------------------------------- By: By: Mark Shefts - -------------------------------------------------------------------------------- Name: Name: Mark Shefts - -------------------------------------------------------------------------------- Title: Title: Pres. - -------------------------------------------------------------------------------- Date: Date: 2-1-95 - -------------------------------------------------------------------------------- Sign Here
Reference: Service date: ----------- ------------- PC QUOTE Contract date: Contract Term: -------------- -------------- 1/31/95 12 mos - -------------------------------------------------------------------------------- Customer: All-Tech Pro/Non: Pro --------- -------- SCHEDULE OF Address: 160 Summit Ave. SERVICES AND FEES ------- Montvale, NJ 07645 Agreement date: --------------- Total Interrogation Devices: ---------------------------- - -------------------------------------------------------------------------------- GNR-94-06 MONTHLY SERVICES Item Quantity Site First Unit Add'l Units Total Hyperfeed Site Fee (To include both server as long as there is a 1 1000 $1,000 minimum of 10 PCW units. Otherwise $250/Month) Windows Workstation 10 100 100 $1,000 Nasdaq Level II 10 50 50 $500 Dow Jones News 10 25 25 30 day trial Agreement may be cancelled without penalty during 1st 60 days after installation if not 100% satisfied. 1st month of operation -- no charge. Monthly Total Payable to PC Quote $2,500 ONE TIME CHARGES Item Site First Unit Add'l Units Total Installation & Training 1500 $1,500 Final Months service $2,500 Total Due with Contract $4,000
EXCHANGE CHECKLIST Units Exchange Existing Acct. if any - -------------------------------------------------------------------------------- 10 New York Consolidated Last Sale 10 New York Consolidated Bid/Ask 10 American Last Sale 10 American Bid/Ask 10 American Stock Exchange 10 NASDAQ Last Sale NMS 10 NASDAQ Bid/Ask Level I 10 NASDAQ Level II 10 Options Price Reporting Authority Chicago Board of Trade Chicago Mercantile Exchange/International Monetary Market Commodities Exchange Center/New York Futures Exchange Commodity Exchange, Inc. (COMEX) Kansas City Board of Trade MidAmerican Commodities Exchange Minneapolis Grain Exchange Canadian Consolidated Equities Global HyperFeed please complete and attach International Exchange Checklist DOW JONES NEWS CHECKLIST Units For PC Quote for Windows or with Third Party Application - -------------------------------------------------------------------------------- 10 Dow Jones News Service (or Broadtape) FOR PC QUOTE FOR DOS & OS/2 or with third Party Application Interactive Headline News Dow Jones Financial Capital Markets Report SIGNATURES Sign Here Customer: Mark Shefts PC Quote, Inc. Title: Pres. Title: Date: 2-1-95 Date: PC Quote Customer Information CI-92-7 - -------------------------------------------------------------------------------- For Company or Individual - -------------------------------------------------------------------------------- Full Legal Name: All-Tech Investment Group, Inc. - -------------------------------------------------------------------------------- Address: 160 Summit Ave. Summit, NJ 07645 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Phone. 201-307-4000 Fax: 201-782-9090 County: Bergen - -------------------------------------------------------------------------------- For Individual Only - -------------------------------------------------------------------------------- Please describe your occupation: - -------------------------------------------------------------------------------- SSN: - -------------------------------------------------------------------------------- For Company Only Ownership [X] Corporation--state of incorporation: NY [ ] Partnership [ ] Proprietorship - -------------------------------------------------------------------------------- Type of Office: [X] Home [ ] Branch [ ] Independent [ ] Other: - -------------------------------------------------------------------------------- Primary Contact: Mark Shefts Phone or ext.: 201-782-0200 - -------------------------------------------------------------------------------- Secondary Contact: Harry Loftkuitz Phone or ext.: 201-782-0200 - -------------------------------------------------------------------------------- Technical Contact (if different): Phone or ext.: 201-782-0200 Mark Sandusky - -------------------------------------------------------------------------------- Tax ID No.: 13 2581640 Years in business:* 7 Yr - -------------------------------------------------------------------------------- For Company or Individual - -------------------------------------------------------------------------------- Bank.: United Jersey Bank - -------------------------------------------------------------------------------- Account No.: 154131806 Type: Checking - -------------------------------------------------------------------------------- Account No.: 154131733 Type: Checking - -------------------------------------------------------------------------------- Credit Reference: XXXXXXXXXXXXX - -------------------------------------------------------------------------------- Account No.: None Phone: 201-573-0370 - -------------------------------------------------------------------------------- Credit Reference: XXXXXXXXXXXXXXXXX - -------------------------------------------------------------------------------- Account No.: All-Tech Phone: 201-546-4458 - -------------------------------------------------------------------------------- Credit Reference: Computer Supplies International - -------------------------------------------------------------------------------- Account No.: 100041 Phone: 201-666-4306 - -------------------------------------------------------------------------------- All information provided above will be hold confidential but will be used for credit checking purposes. I/We hereby authorize PC Quote, Inc. to whom this application is made to investigate the references listed pertaining to my/our credit and financial responsibility. - -------------------------------------------------------------------------------- By: Mark Shefts - -------------------------------------------------------------------------------- Title: Pres. Date: 2-1-95 - -------------------------------------------------------------------------------- For service billed to company other than company or Individual above - -------------------------------------------------------------------------------- Please provide a letter from bill recipient accepting financial responsibility, plus the Information below. - -------------------------------------------------------------------------------- Company Name: - -------------------------------------------------------------------------------- Authorized Contact: Phone: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Less than 2 years in business: add'l credit information may be required. - -------------------------------------------------------------------------------- Internal Use Ref.: Rep: - -------------------------------------------------------------------------------- 1066 ALL-TECH INVESTMENT GROUP, INC. 160 SUMMIT AVE. MONTVALE, NJ 07645 55-216 54 ------------------ ------ 212 2/2 1995 PAY TO THE ORDER OF PC QUOTE $4,000.xx Four Thousand dollars and 00--------------------------------- DOLLARS UNITED JERSEY BANK 80 Chestnut Ridge Road, Montvale, NJ 07645 F0R ______________________________ _________Mark Shift___________MP "001066 021202162 154 " 13173" 3" Amendment to PC Quote Standard License Agreement Dated January 31, 1995 By and Between PC Quote, Inc. and All-Tech Investment Group, Inc. This amendment will supersede the Schedule of Services and Fees as set forth in the above captioned agreement and shall apply to all All-Tech offices as a group as set out below. Site Licenses: - -------------- At Montvale, NJ $1,200 per month to include two(2) NT dual Pentium servers At New York, NY $700 No machinery At Minneapolis, MN $700 No machinery Additional Sites $700 No machinery $ 450.00 per month per server for all additional servers required beyond those specified at all sites. Workstation Charges: - -------------------- All sites will be combined for purposes of determining applicable workstation charges. First fifty (50) w/s $100.00 per month per terminal All w/s above 50 $ 75.00 per month per terminal New Services (per feed) $ 25.00 per month per terminal* Charting $ 25.00 per month per terminal *Does not include news provider fees. Installation, Exchange Fees and One-Time Charges. - ------------------------------------------------- All of the original terms and conditions shall apply. IN WITNESS WHEREOF, the parties hereto hereby execute this Amendment. AGREED TO: AGREED TO: PC QUOTE, INC. ALL-TECH INVESTMENT GROUP, INC. Mark Shefts BY:--------------------- By:-------------------------- Mark Shefts NAME: ------------------ Name: ----------------------- Exec VP Title ------------------ Title: ----------------------- 2-23-96 Date: ------------------ Date: ----------------------- EX-10.8 12 DOW JONES SUBSCRIPTION AGREEMENT Dow Jones Financial News Services 2 YEAR PLAN SUBSCRIPTION AGREEMENT THIS AGREEMENT, between the undersigned firm or corporation ("Subscriber") and DOW JONES & COMPANY, INC. ("Dow Jones"), sets forth the terms under which Subscriber may receive the Dow Jones News Service(R) (the "DJ Service") within the United States. 1. Service Format. Subscriber hereby subscribes to the DJ Service in the following combined format: (A) interactive, retrievable format, which permits the user to search (by stock symbol or company/industry code) a database consisting of the most recent 90 days (or when made available by both Dow Jones for the Service in question and by Subscriber's third-party vendor, if any, 180 days) of stories appearing in the DJ Service; and (B) continuous, online printing of all headlines appearing in the DJ Service, Any Subscriber terminal, printer, or other device that receives the DJ Service is referred to herein as a "DJ Terininal". 2. Monthly Charges. Subscriber shall pay to Dow Jones in advance for the DJ Service the applicable monthly fees (the "Subscription Fees") corresponding to Subscriber's minimum commitment level, as set forth in Schedule A, plus applicable sales or similar taxes. (i) Commitment Levels. Subscriber's initial commitment level shall be 50 terminals. On or before April 1, 1997 Subscriber may elect to increase its commitment level with a corresponding change in the Subscription Fees, which shall then remain in effect for the duration of the Term. (ii) Minimum Monthly Charge. In any event, Subscriber shall pay Dow Jones the "Minimum Monthly Charge" corresponding to Subscriber's commitment level, which is calculated by multiplying the applicable Base Terminal Number by the applicable Volume-based Terminal Charges, as set forth on Schedule A; provided, however, that over the term hereof, Subscriber for any reason may cancel (and thereby reduce such Base Terminal Number with a corresponding reduction in such Minimum Monthly Charge) DJ Terminals such that the number of DJ Terminals receiving the DJ Service at all times during the Term is greater than or equal to the applicable Reduced Base Terminal Number, as set forth on Schedule A. In the event Subscriber cancels sufficient DJ Terminals so that the number of DJ Terminals is less than such Reduced Base Terminal Number, Subscriber shall pay Dow Jones a Minimum Monthly Charge equal to such Base Terminal Charge as applied to such Reduced Base Terminal Number. 3. Third-Party Vendor. Subscriber acknowledges that the DJ Service may be delivered to Subscriber by, and made available on equipment supplied by, a third-party vendor, and Subscriber agrees to pay to such vendor all applicable delivery or other fees charged by such vendor. If Dow Jones delivers any DJ Service directly to Subscriber, additional delivery fees may apply. 4. Dow Jones Equipment Charges. Subscriber may lease from Dow Jones any DJ Terminal, related equipment and communications lines (collectively, "Equipment") then available from Dow Jones at rates then in effect. Subscriber shall be responsible for any loss or damage to the Equipment while in its care and custody other than loss or damage caused by the negligence of Dow Jones or its agents. 5. Copyright; Redistribution Restrictions. Subscriber agrees that the DJ Service and the Equipment are the property of Dow Jones or its licensors and the DJ Service is protected by copyright Subscriber agrees that it shall permit access to the DJ Service hereunder (i) only through DJ Terminals located at Subscriber's premises and under its exclusive control, and (ii) only by its clients who have been authorized to access such DJ Terminals and who have signed Dow Jones' Individual User Agreement, a current copy of which is attached as Schedule B ("Authorized Clients"). Subscriber further agrees that neither it nor any Authorized Client shall store, copy, reproduce, retransmit, disseminate, sell, distribute, publish, broadcast or circulate the DJ Service in whole or in part to anyone, including, but not limited to, other employees of Subscriber, without the express prior written consent of Dow Jones; provided, however, that Authorized Clients may on an occasional basis include limited portions of the DJ Service in oral communications with others in the normal course of business. 6. Plan Reports; Records. Within 20 days after the end of each month during the term hereof, Subscriber shall supply Dow Jones with a report certifying the number of DJ Terminals and Authorized Clients and the originals of the Individual User Agreements signed by Authorized Clients during the period covered by the report. (If Subscriber receives the DJ Service through a third-party vendor, Dow Jones may, at its option, rely on such vendor's monthly report of the information described in this Paragraph 3). Subscriber shall maintain at all times during the Term of this Agreement adequate books and records, which shall include the information required for the above reports and the names and addresses of all Authorized Clients. Dow Jones shall have the right, upon reasonable advance notice, from time to time to inspect Subscriber's offices and records to confirm the accuracy of the information contained in such reports. 7. Disclaimer. SUBSCRIBER AGREES THAT NEITHER DOW JONES NOR ANY OF ITS DISTRIBUTORS, AFFILIATES, AGENTS OR LICENSORS WARRANT THE ACCURACY, COMPLETENESS, CURRENTNESS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE DJ SERVICE. IN NO EVENT WILL DOW JONES OR ANY OF ITS DISTRIBUTORS, AFFILIATES, AGENTS OR LICENSORS BE LIABLE FOR ANY LOSS, INCLUDING CONSEQUENTIAL, SPECIAL OR SIMILAR DAMAGES, RESULTING DIRECTLY OR INDIRECTLY FROM SUBSCRIBER'S USE OF THE DJ SERVICE OR THE EQUIPMENT, OR FROM ANY DECISION MADE OR ACTION TAKEN BY SUBSCRIBER OR ANY THIRD PARTY IN RELIANCE UPON INFORMATION CONTAINED IN THE DJ SERVICE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL THE LIABILITY OF DOW JONES, ITS DISTRIBUTORS, AFFILIATES, AGENTS AND LICENSORS ARISING OUT OF ANY CLAIM RELATED To THIS AGREEMENT EXCEED THE AGGREGATE AMOUNT PAID BY SUBSCRIBER HEREUNDER IN THE 12 MONTHS IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH CLAIM. 8. Term; Liquidated Damages. The term of this Agreement shall commence on the date of execution of this Agreement (the "Commencement Date") and shall continue for two (2) years from the Commencement Date (the "Term"). If Subscriber terminates this Agreement for any reason other than a default by Dow Jones, Subscriber shall pay to Dow Jones as liquidated damages (and not as a penalty) an amount equal to the Minimum Monthly Charge times the number of months remaining in the Term at the time of termination. 9. Miscellaneous. Neither party shall be liable to the other for any delay or failure of performance of any of its obligations hereunder (other than the payment of money) for reasons beyond the reasonable control of such party, including natural disasters, actions or decrees of governmental bodies or communications line failure not the fault of the affected party. This Agreement contains the entire understanding of the parties and supersedes and terminates all prior oral or written agreements on the subject hereof. Subscriber shall not assign this Agreement to anyone without Dow Jones' prior written consent. This Agreement shall not be contravened by any terms contained in any purchase order, confirmation or acknowledgment signed by the parties hereto, and no modification or amendment of this Agreement shall be deemed effected by any purchase order, confirmation or acknowledgment containing other or different terms. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts entered into and wholly performed in New York. DOW JONES & COMPANY, INC. ALL-TECH INVESTMENT GROUP, INC. ------------------------------- SUBSCRIBER By: Mark Hevy By: Mark Shefts - V.P. -------------------------- ---------------------------- Name(printed): Mark Hevy Name(printed): Mark Shefts Title: Account Executive Title: V.P. Dated: 1/16/98 Address: 160 Summit Ave. Activation Date: November 1, 1996 Montvale, NJ 07645 2 ALL-TECH INVESTMENT GROUP, INC. MEMBER: NATIONAL ASSOCIATION OF SECURITIES DEALERS o SECURITIES INVESTOR PROTECTION CORP. March 31, 1997 Mr. Mark Hevy Dow Jones and Company Inc. P.O. Box 300 Princeton, NJ 08543-0300 Re: Commitment Revision Dear Mark: Following our March 14, 1997 letter, please change our commitment level to fifty (50) terminals. We understand that the news service will now be $120.00 per unit per month for the balance of 1997 and will be increased to $122.00 for 1998. Should you have any questions, please feel free to give me a call. Very truly yours, /s/ Robert Varsalona ------------------------------ Robert Varsalona Controller 160 Summit Ave, Montvale, NJ 07645 (201) 782-0200 Fax (201) 782-9090 EX-10.9 13 S&P COMSTOCK SUBSCRIBER AGREEMENT ================================ S&P COMSTOCK ================================ Subscriber Agreement
========================================================================================================== Subscriber Name: All-Tech Investment Group, Inc. Acct# (Office Use only): DRY - ---------------------------------------------------------------------------------------------------------- Professional: x Tax Identification# ________________________ ----- Non Professional: Social Security# ________________________ ----- Vendor: ========================================================================================================== Installation Site: Billing Site: Primary Contact, Attn: Billing Contact, Attn: Mark D. Shefts - ---------------------------------------------------------------------------------------------------------- Street Address: 160 Summit Avenue Company: Same - ---------------------------------------------------------------------------------------------------------- Suite/Floor: Street Adress: - ---------------------------------------------------------------------------------------------------------- City: Montvale City: Suite/Floor: - ---------------------------------------------------------------------------------------------------------- State/Zip Code: NJ 07645 State/Zip Code: - ---------------------------------------------------------------------------------------------------------- Telephone: 201-782-0200 Telephone: - ---------------------------------------------------------------------------------------------------------- Technician: Exchange Contact: - ---------------------------------------------------------------------------------------------------------- Telephone: Telephone: - ---------------------------------------------------------------------------------------------------------- Any Additional Contact: Any Additional Contact: - ---------------------------------------------------------------------------------------------------------- General Use Facsimile: 201-782-9090 General Use Facsimile: - ---------------------------------------------------------------------------------------------------------- (Office Use Only) CTR UCTR MACCT HWC 4/1/95 - ----------------------------------------------------------------------------------------------------------
Subscriber Agreement Exhibit B Page #____ of ____if more than one Exhibit B Subscriber Name: All-Tech Investment Group Inc. Acct #(Office Use Only) DRY - ----------------------------------------------------- -------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- LAN or Stand Alone / # of Authorized Display Devices L/50 / / / / / - ----------------------------------------------------------------------------------------------------------------------------------- Software application: (Provided By S&P ComStock) TAL - ----------------------------------------------------------------------------------------------------------------------------------- software application: (Provided By Third Party) - ----------------------------------------------------------------------------------------------------------------------------------- Total Initial Display Devices= =================================================================================================================================== Optional Services: Subtotal - ----------------------------------------------------------------------------------------------------------------------------------- International Data Access $50 $0 - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Dial Back-Up Fee $100 $0 - ----------------------------------------------------------------------------------------------------------------------------------- Monthly High Speed Dial Back-Up Fee $200 $0 - ----------------------------------------------------------------------------------------------------------------------------------- S&P ComStock Access Software $10 $0 - ----------------------------------------------------------------------------------------------------------------------------------- S&P ComStock Fundamental Software $25 $0 - ----------------------------------------------------------------------------------------------------------------------------------- Leased Terminals $50 $0 - ----------------------------------------------------------------------------------------------------------------------------------- S&P News Retrieval Software $50 $0 - ----------------------------------------------------------------------------------------------------------------------------------- Nasdaq Level II Access $25 $0 - ----------------------------------------------------------------------------------------------------------------------------------- Total Optional Services Total(D): $0 =================================================================================================================================== =================================================================================================================================== S&P ComStock Monthly and One Time Fees: =================================================================================================================================== Monthly Fees: | One Time Fees: | Basic Monthly Fee: $520.00 (A) | Communication Installation: $1,500.00 --------- | --------- (Includes 1st Authorized Display Device (if Checked) x | Software Installation: | --------- Communication Fee: | Site Survey: | --------- Satellite Equipment $200.00 (B) | Expedite: (If service available) --------- | --------- Dedicated Land Line | Satellite Equipment: --------- | --------- Authorized Display Devices | Shipping: | ---------------------- --------- 1 to 75 for TAL @ $125 Ea. $6250 | Dial Back-up: - ------- ------ ------- --------- | for @ Ea. (C) | Modem(s): - ------- ------ ------- --------- | --------- @$ ------- --------- for @ Ea. (C) | Auto A/B Switch: - ------- ------ ------- --------- | --------- Total Optional Services (D) | S&P ComStock dial line installation: --------- | --------- Total S&P ComStock Monthly Fees: $6970 (E) | Other: ========= | ---------------------- --------- Total Exchange Fees | | ---------------------- --------- Billed Through S&P ComStock: (E) | --------- | ---------------------- --------- Total Third Party Fees: (F) | Equipment Deposit: --------- | (Fully Refundable) --------------- --------- | Total Monthly Fees: $6970 (F) | Total One Time Fees $1,500.00 ========= | ========= Total Payment Due for the Initiation of Service: | $8,470 - ----------------------------------------------------------------------------------------------------------------------------------- The initial term of this Subscriber Agreement is: 12 Months - ----------------------------------------------------------------------------------------------------------------------------------- The minimum number of Authorized Display Devices during the initial term of this agreement will be: 50 12/21/95 - -----------------------------------------------------------------------------------------------------------------------------------
Subscriber Agreement Exhibit C Subscriber Name: Acct# (Office Use only) DRY ================================================================================ Office Use Only Page #_____ of _____ if more than on Exhibit C - -------------------------------------------------------------------------------- Satellite:: (2') (2.5') (4') Phone Circuit:: Analog / Metro-Fiber - -------------------------------------------------------------------------------- LAN or Stand Alone / # of Display Devices / / / / / / Comments - -------------------------------------------------------------------------------- TID # / Port # / / / / / / - -------------------------------------------------------------------------------- Port Feature - Q, D, I - -------------------------------------------------------------------------------- Port Baud Rate / Terminal Type / / / / / / - -------------------------------------------------------------------------------- Software Code - -------------------------------------------------------------------------------- Exchange Services: (The Level of this Service is _____ ) $ Sub Total - -------------------------------------------------------------------------------- NYSE B/A (Q) N.P.: $4.25) * - -------------------------------------------------------------------------------- NYSE LS (N) * - -------------------------------------------------------------------------------- NYSE Listed Bonds (2) * - -------------------------------------------------------------------------------- AMEX B/A (R) N.P.: $3.25) - -------------------------------------------------------------------------------- AMEX LS (A) * - -------------------------------------------------------------------------------- NASDAQ (O) N.P.: $4.00) - -------------------------------------------------------------------------------- NASDAQ OTC Bulletin Board (3 (K)(I)) - -------------------------------------------------------------------------------- OPRA (Stocks & Indices) (P) N.P.: $2.00) - -------------------------------------------------------------------------------- Indices (D) $0 - -------------------------------------------------------------------------------- CME (M) $55/$10 - -------------------------------------------------------------------------------- CBT (B) $60/$10 - -------------------------------------------------------------------------------- CEC/NYFE $88/$9 - -------------------------------------------------------------------------------- COMEX $55/$10 - -------------------------------------------------------------------------------- NYMEX (6) $55/$10 - -------------------------------------------------------------------------------- London FOX (Lc) $75/$0 - -------------------------------------------------------------------------------- Amsterdam Stocks (Ld) $21/$21 - -------------------------------------------------------------------------------- LIFFE/LTOM (Lf,o,v) $30/$9 - -------------------------------------------------------------------------------- Frankfurt Stocks (Lk) $35/$35 - -------------------------------------------------------------------------------- DTB (Ll) $20/$20 - -------------------------------------------------------------------------------- Rudolf Wolff (Lm) $50/$0 - -------------------------------------------------------------------------------- MATIF (Lq) $30/$10 - -------------------------------------------------------------------------------- Paris Stocks (Lr) $15/$15 - -------------------------------------------------------------------------------- London Stocks (Ls) $30/$30 - -------------------------------------------------------------------------------- IPE (Lt) $55/$13 - -------------------------------------------------------------------------------- SEAQ Level I (Lu) $14/$14 - -------------------------------------------------------------------------------- SEAQ Level II $80/$80 - -------------------------------------------------------------------------------- LME (Ly) $75/$3.20 - -------------------------------------------------------------------------------- Swiss & Zurich Stocks/SOFEX T(b,g,o,z) $25/$25 - -------------------------------------------------------------------------------- Hong Kong Futures (Tf) $4/$4 - -------------------------------------------------------------------------------- Hong Kong Metals (Tm) $4/$4 - -------------------------------------------------------------------------------- SIMEX (Ts) $6/$6 - -------------------------------------------------------------------------------- Sydney Futures (Ty) $65/$8 - -------------------------------------------------------------------------------- Canadian Stocks 3(abmntuvw) ** - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Exchange Fees Billed Through S&P ComStock Total (E) $0.00 - -------------------------------------------------------------------------------- All Sources are Real Time unless Delay (DL) or End of Day (ED) is indicated in the appropirate box. - -------------------------------------------------------------------------------- Third Party Services: - -------------------------------------------------------------------------------- S&P Basic Fundamental Data *** $25/$0 - -------------------------------------------------------------------------------- S&P Fundamental Data 1 and 2 $35/$35 - -------------------------------------------------------------------------------- S&P Marketscope Alert $100/$65 - -------------------------------------------------------------------------------- MMS International ** - -------------------------------------------------------------------------------- Dow Jones Broadtape ** - -------------------------------------------------------------------------------- Futures World News $75/$50 - -------------------------------------------------------------------------------- Bear Stearns / Street Software, Fixed Income 40/40 - -------------------------------------------------------------------------------- S&P ComStock Forex L(x) $50/$50 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Third Party Fees (Non Exchange Fees) Total (F) $0.00 - -------------------------------------------------------------------------------- *For Professionals, Sources Bill Directly **For Professionals and Non Professionals, Sources Bill Directly ***(W)SPC and QDS Applications only. 8/97 SUBSCRIBER AGREEMENT SUBSCRIBER NAME ____________________ A# (For Office Use Only ___________/_______ The Subscriber set forth above ("Subscriber") hereby subscribes to the information service provided by S&P ComStock, Inc., known as the S&P ComStock Service and comprised of the information and software components (including documentation) selected by Subscriber as set forth in Exhibit B hereto (any and all such components collectively referred to herein as "the Service"), to be furnished to the Subscriber address completed on Exhibit A hereto (any such software components and related documentation collectively referred to herein as "the Software"). Prompt written notice of any change of the name, nature, or place of Subscriber's business shall be given by Subscriber to S&P ComStock, Inc. Subscriber and S&P ComStock, Inc. hereby mutually agree as follows: 1. The initial term of this Agreement is specified in Exhibit B and begins on the day that S&P ComStock, Inc. has completed its installation of the S&P ComStock Service. Thereafter, this Agreement shall automatically renew at the end of each term for successive renewal terms, each of the same duration as the initial term, unless it is terminated effective at the end of any term with written notice by either party given to the other party at least thirty (30) days prior to the end of the then-current term. 2. The Service is to be received by Subscriber solely for its internal use in the Subscriber's business on the number of Authorized Display Device(s) initially as set forth in Exhibit B and as may be subsequently increased or decreased (but provided that Subscriber at all times shall be considered to have at least the minimum number of Authorized Display Devices set forth in Exhibit B) from time to time by written notice to S&P ComStock, Inc., and at the installation address designated in Exhibit A. Subscriber will not communicate, distribute, transfer, sell or otherwise furnish or permit to be furnished the Service or any of the data, information, or Software contained therein to any branch office, other place of business, or to any third party person, firm or corporation, without the express prior written consent of S&P ComStock, Inc. Subscriber will adopt and enforce all measures which S&P ComStock, Inc. reasonably requires in order to prevent data, information or Software from the Service from being redistributed or relocated from its authorized place of business. Subscriber further agrees that it will comply with any and all reasonable restrictions concerning the location of the S&P ComStock, Inc. equipment or Software in its place of business. 3. Subscriber shall not access or use for any purpose any data or information which are not selected by Subscriber in Exhibit B and Exhibit C hereto or in a written signed amendment to this Agreement. Subscriber shall, prior to commencing any use of the Service, submit application to and receive written approval from each and every entity whose approval is required for receipt of those portions of the Service which Subscriber elects to receive. Subscriber shall, where applicable, and as required, enter into separate agreements with exchanges or other third party data and/or Software providers and comply with any conditions, restrictions, or limitations imposed therein. Failure of Subscriber to comply with the provisions of this Paragraph shall constitute a material breach of this Agreement. In addition, Subscriber agrees to indemnify and hold S&P ComStock, Inc. and its affiliates and its third party data Software providers harmless from any and all losses, damages, liabilities, costs, charges, and expenses, including reasonable attorneys' fees and such fees and/or penalties as any exchanges or other third party data or Software providers may impose, arising out of any breach or alleged breach by Subscriber of its obligations under this Agreement or any failure to comply with the requirements of or obligations imposed by any such exchange or third party data or Software provider; the foregoing indemnification obligation shall survive any termination of this Agreement. 4. (a) Subscriber expressly acknowledges that the Service is prepared by S&P ComStock, Inc., the exchanges, and other third party data and Software providers through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money. Subscriber acknowledges that the Service (including but not limited to the Software) contains trade secrets and proprietary data and that nothing in this Agreement shall be construed to convey any title or ownership rights in the Service or any portion thereof to Subscriber. Subscriber may not use, copy, -1- modify, or transfer the Software, in whole or in part, except as expressly provided for herein. Subscriber agrees to protect all proprietary rights of S&P ComStock, Inc., the exchanges, and S&P ComStock, Inc.'s other third party data and Software providers in their respective portions of the Service; and Subscriber shall honor and comply with all reasonable requests to protect the contractual, statutory, and common law rights of S&P ComStock, Inc., the exchanges, and S&P ComStock, Inc.'s other third party data and Software providers. (b) Subscriber agrees and acknowledges that the ComStock Data Specifications for TID Interrogation Format and TID Data Stream format ("the Specifications") are confidential and proprietary to S&P ComStock, Inc. and that nothing in this Agreement conveys any rights whatsoever with regard to the use of the Specifications unless Subscriber has executed, and S&P ComStock, Inc. has accepted, a Confidentiality Agreement with regard to the Specifications. Subscriber shall not use the Specifications for any purpose other than as expressly permitted by such Confidentiality Agreement. Subscriber may not copy, disclose, convey, provide, transmit, sell or otherwise transfer the Specifications to any other entity without S&P ComStock, Inc.'s express prior written consent. Subscriber further agrees to take all steps necessary to prevent the Specifications from being disclosed to any unauthorized persons and to otherwise safeguard the confidentiality of the Specifications. (c) Subscriber agrees not to reverse engineer, decompile, dissassemble or otherwise seek to duplicate the performance characteristics of the Software or any part thereof, nor to sell, assign or distribute the Software or any part thereof to any other person, firm, corporation or entity and Subscriber further agrees to transfer knowledge of and access to the Software only to its employees who require such knowledge and access in the ordinary course and scope of their employment by Subscriber. (d) Subscriber may make one (1) copy of each authorized Software program for archival and back-up purposes, provided that such copy shall be subject to this Agreement (including fees) and bear the appropriate trademarks, copyright notices and other proprietary notices contained in versions of the Software provided by S&P ComStock, Inc. under this Agreement. From and after the date of a written request by S&P ComStock, Inc., Subscriber shall deliver to S&P ComStock, Inc. on a monthly basis a written report certifying the number of authorized display devices using or displaying the Software. 5. Subscriber represents that it is not engaged in the business of vending financial quotation information and that Subscriber's place of business designated in Exhibit A is not and shall not be directly connected by any private or other means of outgoing communication with any place of business engaged in vending financial quotation information without the express written consent of S&P ComStock, Inc. 6. Subscriber will advise S&P ComStock, Inc. in advance of any equipment not supplied by S&P ComStock, Inc. which is to be used in connection with the Service and shall adhere to any reasonable restrictions imposed by S&P ComStock, Inc. with respect thereto. 7. At all times, upon 24 hours notice to Subscriber, any person or persons designated by S&P ComStock, Inc. will have full and free access to the place of business designated in Exhibit A to observe the use of the Service and associated equipment and/or Software and to inspect, maintain, and/or remove any S&P ComStock, Inc. equipment or Software. 8. Subscriber agrees to pay S&P ComStock, Inc. in advance on the first day of each month the applicable S&P ComStock, Inc. monthly fees for the Service and other fees and charges as set forth in Exhibit B and Exhibit C, (including any Software license, maintenance, and installation fees) plus any applicable federal, state or local sales, use, property, or other taxes, duties, or assessments imposed on transactions hereunder. It is understood that such monthly fees will include exchange fees and third party data and Software provider fees for those exchanges and other third party data and Software providers which bill through S&P ComStock, Inc.; such fees will -2- be remitted by S&P ComStock, Inc. to the appropriate exchanges and other third party data and Software providers. Subscriber agrees to pay all exchange fees and third party data and Software provider fees as billed by S&P ComStock, Inc. or as may be billed to Subscriber directly by the exchanges or such other providers. 9. S&P ComStock, Inc. may, in its sole discretion, revise the S&P ComStock, Inc. monthly fees and other fees and charges set forth in Exhibit B and Exhibit C, effective as of the end of the first term by giving at least six (6) weeks' prior written notice to Subscriber. Thereafter, S&P ComStock, Inc.may in its sole discretion revise the S&P ComStock, Inc. monthly fees and other fees and charges to Subscriber at any time by giving at least six (6) weeks' prior written notice to Subscriber; provided, however, that S&P ComStock, Inc. shall not make more than one (1) such revision in any twelve (12) month period. Upon receipt of notice of increase in the S&P ComStock, Inc. monthly fees, and/or other fees and charges, Subscriber shall thereupon have the right to terminate this Agreement by giving written notice to S&P ComStock, Inc. within such six-week notice period. All exchange fees (including quote server connection fees) and third party data and Software provider fees are subject to change at any time. 10. In addition to and notwithstanding any other term of this Agreement, S&P ComStock, Inc. may, in its sole discretion, make a Cost of Living Adjustment (COLA) to the monthly fees at the end of any twelve month period without prior notice, provided that the COLA percentage increase is limited to the percentage increase in the U.S. Government's Consumer Price Index for the period of time since the last such COLA adjustment was made to the monthly fees charged to Subscriber. 11. (a) In addition to the monthly fees, Subscriber agrees to pay any applicable standard S&P ComStock, Inc. charges for order cancellation prior to installation, disconnection, or removal of any S&P ComStock, Inc. equipment or Software, for addition or deletion of exchange or third party data or Software, for addition of S&P ComStock, Inc. equipment, or for other Subscriber-requested modifications to the Service, as may be in effect from time to time. Subscriber agrees to pay all other charges (such as installation, configuration, shipping, purchases) as incurred by Subscriber and billed by S&P ComStock, Inc. Current charges are available from S&P ComStock, Inc. as part of its standard price sheet. (b) Any equipment deposit will be returned to Subscriber upon termination, settlement of any outstanding balances due, and return of all S&P ComStock, Inc. equipment in good condition. 12. The furnishing of the Service is conditioned upon Subscriber's strict compliance with the provisions of this Agreement and with all federal, state, local, and exchange rules, regulations, and contract terms which may pertain to the use of the Service. Notwithstanding any other term of this Agreement, it is understood and agreed by Subscriber that S&P ComStock, Inc. may discontinue the Service or portions thereof, without notice or liability, whenever the exchanges, or cable operators, or other third party data or software providers require such discontinuance. In addition, S&P ComStock, Inc. shall not be liable for any actions taken by any cable operators which may affect the Service, including, without limitation, actions which result in the termination or interruption of the Service. 13. S&P ComStock, Inc. represents and warrants that it has the right to provide the Service and the data and information contained therein. THIS WARRANTY IS IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. NEITHER S&P COMSTOCK INC., ANY OF ITS AFFILIATES, THE EXCHANGES OR OTHER THIRD PARTY DATA AND SOFTWARE PROVIDERS AND DEVELOPERS WARRANT THAT THE SERVICE WILL BE UNINTERRUPTED OR ERROR-FREE, NOR DO THEY MAKE ANY WARRANTIES AS TO RESULTS TO BE OBTAINED FROM USE OF THE SERVICE. SUBSCRIBER EXPRESSLY AGREES THAT USE OF THE SERVICE IS AT SUBSCRIBER'S SOLE RISK. -3- 14. S&P ComStock, Inc., its affiliates, and the exchanges and third party data and Software providers and developers will in no way be liable to Subscriber or to any other entity for any inaccuracies, errors, omissions, or delays regardless of cause, in the Service or in any of the data and information and Software contained therein, or caused by any S&P ComStock, Inc. or third party equipment or Software used in connection therewith, or for any damages (whether direct or indirect, or consequential, punitive, special or exemplary, including but not limited to loss of profits) resulting therefrom, regardless of cause. Liability of S&P ComStock, Inc. and its affiliates and its third party data and Software providers and developers in any and all categories, whether arising from contract, warranty, negligence, or otherwise shall, in the aggregate, in no event exceed the average monthly fees charged for the Service. 15. (a) Notwithstanding any other term of this Agreement, S&P ComStock, Inc. may, in its sole discretion and at any time, change the communications carriers used by S&P ComStock, Inc. (b) If communications carrier charges incurred by S&P ComStock, Inc. are increased by the carriers, S&P ComStock, Inc. may, on written notice to Subscriber, immediately increase the monthly fees charged to Subscriber to reflect such increase in communications charges. In the event of such an increase, Subscriber shall have the right to terminate this Agreement without penalty provided that Subscriber gives written notice of termination to S&P ComStock, Inc. within thirty (30) days of receipt of notice from S&P ComStock, Inc. 16. Failure by Subscriber to pay any monthly fees or other fees or charges in connection with the Service within thirty (30) days of the due date shall constitute a material breach of this Agreement. S&P ComStock, Inc. reserves the right, in addition to other remedies, to suspend access to the service. S&P ComStock, Inc. may assess a late charge at a rate not exceeding 1.5% per month on all amounts payable which Subscriber has not paid within thirty (30) days of the due date. 17. Subscriber shall have no right in or to any S&P ComStock, Inc. equipment, Software, or to data and information received, except the right to use the same in the course of Subscriber's business consistent with the provisions herein. Subscriber shall not move the S&P ComStock, Inc. equipment or Software without written permission by S&P ComStock, Inc. Subscriber shall pay for any extraordinary costs of installation, repair or replacement, over and above ordinary installation costs and/or maintenance. Extraordinary installation includes special cable requirements such as teflon, cabling in excess of 100 feet, installation work performed during non-business hours, electrical work done external to the S&P ComStock, Inc. equipment, maintenance of accessories or attachments; and includes repair of damage to the equipment, earth station, antenna, or the modem resulting from accident, neglect, misuse, failure of electrical power or causes other than ordinary use. Subscriber shall not assign, pledge, or encumber the S&P ComStock, Inc. equipment or Software and Subscriber shall keep the S&P ComStock, Inc. equipment and Software free and clear of all liens, levies, and encumbrances; failure to do so shall constitute a material breach of this Agreement. Subscriber will promptly return to S&P ComStock, Inc. or its contractors or agents the S&P ComStock, Inc. equipment and Software in good condition, ordinary wear and tear excepted, when the Service is terminated, or when swapout is required for maintenance. Subscriber agrees and understands that it shall be responsible for the replacement cost to S&P ComStock, Inc. or its agents of any S&P ComStock, Inc. equipment and Software not returned in good working condition within thirty (30) days of notification. Subscriber will pay all S&P ComStock, Inc. equipment shipping and handling charges as billed in addition to any other non-recurring charges. -4- 18. (a) During the term of this Agreement, if Subscriber licenses Software from S&P ComStock, Inc. and pays all the required fees, S&P ComStock, Inc. or its authorized agents shall provide maintenance service to Subscriber for the Software and will use reasonable efforts to attempt to correct identifiable and reproducible material errors due solely to causes within the reasonable control of S&P ComStock, Inc. or its third party Software providers or developers. In such case, S&P ComStock, Inc. shall have the option to either promptly replace or correct the Software so that the Software performs free of such errors, or to credit the applicable fee on a pro-rata basis according to the amount of time during which the Software failed to perform. S&P ComStock, Inc. does not guarantee maintenance service results or represent or warrant that all errors will be corrected. Subscriber agrees and understands that it will be separately and additionally charged for any training, copies of materials, assistance in installation, and upgrades. Provision of maintenance services for any software program is dependent upon Subscriber's compliance with all minimum hardware and operating system requirements for such Software in conformity with specifications provided by S&P ComStock, Inc. To permit S&P ComStock, Inc. to provide maintenance services, S&P ComStock, Inc. requires that Subscriber isolate and document Software problems, provide appropriate modems and lines for S&P ComStock, Inc. to access Subscriber's system remotely, install and test all fixes and updates, install Subscriber's system from backup, and perform those other actions reasonably required by S&P ComStock, Inc.; if S&P ComStock, Inc. performs any such services, Subscriber will be additionally charged at S&P ComStock, Inc.'s then-current rates. (b) S&P ComStock, Inc. may change or discontinue Software maintenance services for any reason at any time after the initial term of this Agreement upon six (6) month's notice after the initial term of their agreement has been completed. (c) S&P ComStock, Inc. shall have no responsibility whatsoever with regard to the maintenance of any third party software which is not Software specifically listed in Exhibit B. 19. Should Subscriber file a petition in bankruptcy or be adjudicated a bankrupt, or if a petition in bankruptcy is filed against Subscriber, or Subscriber makes an assignment for the benefit of its creditors or an arrangement pursuant to any bankruptcy act or takes advantage of the insolvency laws of any State, or if Subscriber discontinues all of its business, the Service may be immediately terminated by S&P ComStock, Inc. without notice. S&P ComStock, Inc. may terminate the Service, upon written notice to Subscriber, if in S&P ComStock, Inc.'s reasonable judgment Subscriber is in material breach of any of its obligations under this Agreement. Termination of this Agreement under the provisions of this paragraph shall be without prejudice to any other remedy which S&P ComStock, Inc. may have against the Subscriber. Upon termination of this Agreement, all fees and charges incurred to such date shall become immediately due and payable. In addition to and notwithstanding the above, if Subscriber or any of its employees, agents or representatives, shall attempt to use or dispose of the Service in a manner contrary to the terms of this Agreement, S&P ComStock, Inc. shall have the right, in addition to such other remedies as may be available to it, to injunctive relief enjoining such acts or attempts, it being acknowledged that legal remedies are inadequate. 20. Subscriber agrees that it will not engage in, and represents that it is not currently engaged in, the operation of any unlawful transactions or business and that it will not use or permit anyone to use the Service for any unlawful purpose. 21. The relationship between Subscriber and S&P ComStock, Inc. is that of independent contractors and nothing contained in this Agreement shall be construed to constitute the parties as partners, joint ventures or agents of one another. This Agreement shall not be assigned or otherwise transferred by Subscriber without the prior written consent of S&P ComStock, Inc. -5- 22. Subscriber represents that the signatory below is authorized to act in behalf of the named Subscriber. This Agreement constitutes the entire agreement between the parties and supersedes any prior agreements between the parties with respect to its subject matter, and nothing stated heretofore or hereafter will be considered part of this Agreement without a mutually agreeable amendment executed by authorized representatives of the parties. None of the provisions of the Agreement shall be deemed to be waived or modified, other than as expressly stated in writing signed by both parties. The failure of either of the parties hereto to enforce, or the delay by either party in enforcing, any of its rights under this Agreement shall not be deemed to be a waiver or modification by the parties of any of their rights under this Agreement. Any notices required to be sent hereunder shall be sent by mail to the respective address set forth below or by fax to the number set forth below, unless either party notifies the other of a change in such address or number. 23. This Agreement shall be governed by the laws of the State of New York, without regard to the choice of law provisions thereof, and Subscriber agrees that any action arising out of this Agreement or the breach thereof shall be resolved in New York and Subscriber hereby agrees to submit to the exclusive jurisdiction of the New York courts for the resolution of any such dispute. 24. In the event any legal action is taken by S&P ComStock, Inc. with respect to the Service, Subscriber agrees to pay all court costs, including disbursements and reasonable attorneys' fees. 25. Neither party shall have any liability for any default resulting from force majeure, which shall be deemed to include any circumstances beyond its control. Such circumstances shall include, but are not limited to: acts of the government, fires, floods, strikes, civil disturbances or terrorism, or power, communications line, satellite or network failures. SERVICE REQUESTED BY: SUBSCRIPTION ACCEPTED BY: /s/ Mark Sheft - ----------------------------------- ----------------------------------------- (Authorized Signature) (S&P ComStock, Inc. Authorized Signature) Mark Sheft - President - ----------------------------------- (Name & Title - Please Print) S&P ComStock, Inc. 600 Mamaroneck Avenue All Tech Investment Group Inc. Harrison, New York 10528 - ----------------------------------- (Subscriber Name) 11-21-97 - ----------------------------------- ---------------------------------------- (Date) (Date) OTHER (complete if applicable) Subscriber has made arrangements with ______________________________, an authorized broker, for receipt of the Service. S&P ComStock, Inc. will not bill Subscriber for the Service but will receive payment solely from such authorized broker. Subscriber represents that it intends to use the Service for research purposes for the benefit of its customers. Subscriber, as a condition of the receipt of the Service, agrees to abide by the terms and conditions of this Agreement (excepting those relating to payment). -6- ComStock 600 Mamaroneck Avenue 5th Floor Harrison, NY 10528-1624 Tel 914 381 7000 Fax 914 381 7021 Standard & Poor's A Division of The McGraw-Hill Companies [LOGO] RIDER A TO SUBSCRIBER AGREEMENT BETWEEN S&P COMSTOCK, INC. AND ALL-TECH INVESTMENT GROUP, INC. Subscriber shall have the right to terminate this Agreement on thirty (30) days prior written notice to ComStock if, in Subscriber's reasonable judgment, any new statute, rule, regulation or interpretation thereof of the Securities and Exchange commission, any state or any self regulatory organization materially negatively affects active intra-day electronic trading or imposes substantial costs or otherwise substantially affects Subscriber's use of the services provided by ComStock hereunder. S&P ComStock will charge Subscriber full installation Fees per actual installed site, if Subscriber fails to maintain any site for less than twelve (12) concurrent months. ALL-TECH INVESTMENT GROUP, INC. S&P COMSTOCK, INC. By: /s/ Mark Sheft By: /s/ David R. Young ------------------------------- ------------------------------- Title: President Title: National Sales Manager ---------------------------- ---------------------------- Date: November 21, 1997 Date: January 5, 1998 ----------------------------- ----------------------------- EX-23.1 14 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the use in this Registration Statement on Form S-1 filed with the Securities and Exchange Commission of our report dated August 12, 1997 with respect to the financial statements of All-Tech Investment Group, Inc. included herein and to the reference to us under the caption "Experts" in the Prospectus. WOLINETZ, GOTTLIEB & LAFAZAN, P.C. Rockville Centre, New York July 10, 1998 EX-27.1 15 FINANCIAL DATA SCHEDULE
CT 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 3,798,587 0 0 15,469 1,839,189 3,798,587 16,063,816 664,505 937,436 0 0 0 937,436 .06 0
EX-27.2 16 FINANCIAL DATA SCHEDULE
BD 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 641,414 98,033 0 0 2,243,007 411,322 3,798,587 0 1,575,129 0 0 368,800 0 0 0 15,469 1,839,189 3,798,587 132,421 0 15,392,862 0 0 0 0 1,601,941 0 0 0 937,436 .06 0
EX-27.3 17 FINANCIAL DATA SCHEDULE
CT 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 3,046,069 0 0 15,469 1,870,056 3,046,069 13,148,761 27,000 201,808 0 0 0 201,808 .01 0
EX-27.4 18 FINANCIAL DATA SCHEDULE
BD 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 603,586 424,385 0 0 1,350,841 508,510 3,046,069 0 726,302 0 0 434,242 0 0 0 15,469 1,870,056 3,046,069 (147,105) 0 12,423,182 0 0 0 0 228,808 27,000 0 0 201,808 .01 0
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