AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 3577 59-2327-381
(State or Other Jurisdiction of Incorporation or (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
</TABLE>
1810 N.E. 144TH STREET
NORTH MIAMI, FLORIDA 33181
(305) 944-7710
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
SLAV STEIN, PRESIDENT
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1810 N.E. 144TH STREET
NORTH MIAMI, FLORIDA 33181
(305) 944-7710
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------
COPIES OF ALL COMMUNICATIONS TO:
PHILIP B. SCHWARTZ, ESQ. LESLIE CROLAND, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. LUCIO, MANDLER, CROLAND, BRONSTEIN
ONE S.E. 3RD AVENUE & GARBETT, P.A.
28TH FLOOR 701 BRICKELL AVENUE, SUITE 2000
MIAMI, FLORIDA 33131-1704 MIAMI, FLORIDA 33131
(305) 374-5600 (305) 579-0012
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
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]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED AGGREGATE AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE PER SHARE (1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,$.001(2) 862,500 $5.00 $4,312,500 $1,306.82
- ----------------------------------------------------------------------------------------------------------------------------
Underwriters' Common Stock Purchase 75,000 $.001 $75 (4)
Warrants(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001(5) 75,000 $6.00 $450,000 $136.86
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $1,443.68
============================================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.
(2) Includes shares of Common Stock issuable in connection with the exercise of the Underwriters' over-allotment
option.
(3) To be issued to the Underwriters as set forth in the Prospectus comprising a portion of this Registration Statement.
(4) No fee due pursuant to Rule 457(g).
(5) Issuable upon the exercise of the Underwriters' Warrants, together with such indeterminate number of shares of
Common Stock as may be issuable by reason of the antidilution provisions contained therein.
</FN>
</TABLE>
----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
ITEM NO. CAPTION IN FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
- -------- -------------------- ---------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus........................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................. Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors....................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................ Use of Proceeds
5. Determination of Offering Price............................ Outside Front Cover; Underwriting
6. Dilution................................................... Dilution
7. Selling Security Holders................................... Not Applicable
8. Plan of Distribution....................................... Outside Front Cover Page; Underwriting
9. Legal Proceedings.......................................... Business - Litigation
10. Directors, Executive Officers, Promoters, and Control
Persons.................................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management................................................. Principal Shareholders; Certain Transactions
12. Description of Securities.................................. Description of Capital Stock
13. Interest of Named Experts and Counsel...................... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................. Management - Indemnification; Underwriting
15. Organization Within Last Five Years........................ Not Applicable
16. Description of Business.................................... Prospectus Summary; Risk Factors; Management's Discussion
and Analysis of Financial Condition and Results of Operation;
Business; Management; Principal Shareholders
17. Management's Discussion and Analysis or
Plan of Operation.......................................... Management's Discussion and Analysis of Financial Condition
and Results of Operation
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. CAPTION IN FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
- -------- -------------------- ---------------------------------
<S> <C> <C>
18. Description of Property.................................... Business - Property
19. Certain Relationships and Related Transactions............. Principal Shareholders; Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters........................................ Outside Front Cover Page; Risk Factors; Dividends;
Description of Capital Stock; Principal Shareholders
21. Executive Compensation..................................... Management - Executive Compensation and Employment
Agreements
22. Financial Statements....................................... Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure........................ Not Applicable
</TABLE>
ii
<PAGE>
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. Information
contained herein is subject to completion or amendment. 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 NOVEMBER 12, 1996
PROSPECTUS
- --------------------------------------------------------------------------------
750,000 SHARES
[LOGO] ADVANCED ELECTRONIC
SUPPORT PRODUCTS, INC.
COMMON STOCK
- --------------------------------------------------------------------------------
Advanced Electronic Support Products, Inc. (the "Company") hereby
offers 750,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"). Prior to this offering (the "Offering"), there has not been a public
market for the Common Stock. It is currently estimated that the initial public
offering price will be $5.00 per share. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Company intends to apply for inclusion of its Common Stock on the
Nasdaq SmallCap Market under the symbol "AESP."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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=======================================================================================================================
UNDERWRITING
PRICE TO PUBLIC DISCOUNTS AND PROCEEDS TO THE
COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................................. $5.00 $.50 $4.50
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................................. $750,000 $375,000 $3,375,000
=======================================================================================================================
<FN>
(1) Does not include compensation to JW Charles Securities, Inc. and Corporate Securities Group, Inc. as the managing
underwriters (the "Representatives") among the companies underwriting this Offering (the "Underwriters") in the form of
(i) a 3% non-accountable expense allowance, (ii) Common Stock purchase warrants to purchase up to 75,000 shares of Common
Stock exercisable at $6.00 per share (120% of the price to the public), and (iii) a financial advisory agreement for the
Representatives to act as an investment banker for the Company for a period of two years for an aggregate fee of $48,000
($2,000 per month), payable at the closing of the Offering. In addition, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated at $__________, including the non-accountable
expense allowance payable to the Underwriters.
(3) The Company has granted the Underwriters a 45-day over-allotment option to purchase up to 112,500 additional shares of
Common Stock on the same terms and conditions as set forth above. If all such additional shares are purchased by the
Underwriters, the total Price to Public will be $__________, the total Underwriting Discounts and Commissions will be
$__________ and the total Proceeds to the Company will be $__________. See "Underwriting."
</FN>
</TABLE>
The shares of Common Stock are offered by the Underwriters on a firm
commitment basis, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. Delivery of the shares of Common Stock to the
Underwriters is expected to be made at the offices of JW Charles Securities,
Inc. and Corporate Securities Group, Inc., 980 North Federal Highway, Suite 310,
Boca Raton, Florida 33432, on or about __________, 1996.
JWCHARLES/CSG
THE DATE OF THIS PROSPECTUS IS __________, 1996
<PAGE>
[PHOTO TO BE PROVIDED WITH AMENDMENT]
Following consummation of this Offering, the Company will become
subject to the reporting requirements of the Securities Exchange Act of 1934
(the "Exchange Act") and in accordance therewith will file periodic reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such periodic reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549, at its Chicago Regional Office at Northwestern
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661-2511, and
at its New York Regional Office at 7 World Trade Center, Suite 1300, New York,
New York 10007, and copies of such materials can be obtained from the Public
Reference Section at prescribed rates. The Company intends to furnish its
shareholders with annual reports containing financial statements certified by
independent auditors and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE SHARES OF COMMON STOCK ON NASDAQ IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, REFERENCES TO THE
COMPANY REFER TO THE COLLECTIVE OPERATIONS OF ADVANCED ELECTRONICS SUPPORT
PRODUCTS, INC., A FLORIDA CORPORATION ("AESP"), AESP COMPUTERZUBEHOR GMBH ("AESP
GERMANY") AND ADVANCED ELECTRONIC SUPPORT PRODUCTS COMPUTERTILLBEHOR I SWEDEN
AKTIEBOLAG ("AESP SWEDEN").
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS (I) HAS BEEN ADJUSTED TO REFLECT A FORWARD STOCK SPLIT, TO BE
EFFECTED IMMEDIATELY PRIOR TO THE EFFECTIVENESS OF THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS FORMS A PART (THE "EFFECTIVE DATE"), IN WHICH THE 66 2/3
SHARES OF COMMON STOCK OUTSTANDING WILL BE CONVERTED INTO 812,500 SHARES OF
COMMON STOCK, AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION. ADDITIONALLY, IMMEDIATELY PRIOR TO THE EFFECTIVE DATE, (I) THE COMPANY
WILL OPT OUT OF ITS STATUS AS AN S-CORPORATION FOR FEDERAL INCOME TAX PURPOSES,
AND (II) THE PRINCIPAL SHAREHOLDERS OF THE COMPANY (SLAV STEIN AND ROMAN
BRISKIN) WILL CONTRIBUTE THEIR STOCK INTERESTS IN AESP GERMANY AND AESP SWEDEN
TO AESP FOR NO ADDITIONAL CONSIDERATION . SEE "BUSINESS" AND "CERTAIN
TRANSACTIONS."
THE COMPANY
The Company designs, manufactures, markets and distributes computer
connectivity and networking products nationally and internationally. The Company
currently offers a broad range of products to its customers, including computer
cables, connectors, installation products, data sharing devices, and fiber optic
cables, as well as a complete selection of networking products, such as
networking interface cards, hubs, transceivers, and repeaters for different
networking topologies. The Company contracts with various manufacturers to
manufacture and assemble the Company's products using designs and manufacturing
specifications (including quality control) provided by the Company. For these
designs and manufacturing specifications, the Company uses its own designs as
well as standard industry designs. The Company also assembles a very small
percentage of its products at the Company's North Miami Beach facility. The
Company's manufacturers are located primarily in the Far East, allowing the
Company to obtain competitive pricing for its products due to comparatively
lower labor-related costs of production. The Company offers its products to a
broad range of customers, including both original equipment manufacturers
("OEM") and retail customers (such as computer superstores and dealers, and mail
order customers) in North America, Latin America, Eastern and Western Europe,
and Japan.
The Company was founded in 1983 and until 1990 primarily offered
connectivity products for use with Apple computers. In 1991, the Company
expanded its product base to include PC (i.e., non-Apple) connectivity and
networking products which allowed customers to network computers, for example,
with other computers as compared to connectivity products which connected
computers with peripheral products, such as printers. Since 1993, the Company
has achieved significant sales growth in the United States, and, through AESP
Germany and AESP Sweden, significant sales growth in Europe. In 1995, the
Company began warehousing products in Germany to accommodate its growing product
line and to better service its expanding base of European customers, including
those in Eastern Europe.
The Company's growth strategy is to increase revenues and operating
income by increasing its share of its existing markets and expanding into new
markets. The Company intends to achieve this by continuing to increase the
breadth of its product lines and by continuing to expand its marketing efforts
to current and potential customers. The Company also intends to grow through
acquisitions of other companies, assets and product lines that would complement
or expand the Company's business. No material commitments or binding agreements
have been entered into to date and there can be no assurance that any
acquisitions will be consummated.
The Company's headquarters and its primary warehouse facility are
located at 1810 N.E. 144th Street, North Miami, Florida 33181. The Company's
telephone number is (305) 944-7710.
3
<PAGE>
THE OFFERING
Common Stock Offered by the Company..................... 750,000 shares (1)
Common Stock to be outstanding after the Offering....... 1,562,500 shares (1)(2)
Proposed Nasdaq SmallCap Market symbol.................. "AESP"
- -------------------------
(1) Excludes up to 112,500 shares of Common Stock issuable upon the
exercise of the Underwriters' over-allotment option. See "Underwriting."
(2) Excludes (i) currently outstanding options to purchase 263,000 shares
of Common Stock, (ii) 265,000 shares of Common Stock reserved for
issuance under the Company's Stock Option Plan, and (iii) shares of
Common Stock issuable upon the conversion of Convertible Subordinated
Promissory Notes held by the principal shareholders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation
- Financial Condition, Liquidity and Capital Resources," "Management -
Stock Option Plan," "Principal Shareholders," and "Certain
Transactions."
USE OF PROCEEDS
The Company intends to use the net proceeds from this Offering (i) to
temporarily repay all or a substantial portion of its $2.5 million revolving
line of credit, (ii) to make a $200,000 pre-payment to Messrs. Stein and Briskin
on the Convertible Subordinated Promissory Notes (see "Principal Shareholders"
and "Certain Transactions" for a description of the terms of the notes), (iii)
to open new sales offices, (iv) to increase research and development, and (v)
for working capital and general corporate purposes. See "Use of Proceeds."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk. Investors should consider the information under the caption "Risk
Factors" in this Prospectus.
4
<PAGE>
SUMMARY FINANCIAL DATA
THE FOLLOWING TABLE PRESENTS SELECTED HISTORICAL CONSOLIDATED DATA OF
THE COMPANY FOR EACH OF THE YEARS IN THE TWO YEAR PERIOD ENDED DECEMBER 31, 1995
AND FOR EACH OF THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996. THE SUMMARY
FINANCIAL DATA SET FORTH BELOW IS DERIVED FROM AND SHOULD BE READ IN CONJUNCTION
WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO AND THE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION"
CONTAINED ELSEWHERE IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- ------------------------------------
1994 1995 1995 1996
--------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $8,797,001 $13,721,014 $4,858,520 $6,581,211
Gross profit..................... 3,891,858 5,213,494 1,997,873 2,603,363
Income from operations........... 898,158 1,261,563 468,635 596,071
Other income (expenses), net..... 88,201 73,911 (39,540) (15,775)
--------------- --------------- ---------------- --------------
Income before pro forma income taxes 986,359 1,335,474 429,095 580,296
Pro forma income taxes (1)....... 347,534 483,680 159,512 203,282
--------------- --------------- ---------------- --------------
Pro forma net income (1)......... $638,825 $851,794 $269,583 $377,014
=============== =============== ================ ==============
PER SHARE DATA (1):
Pro forma net income per share... $.53 $.71 $.22 $.31
==== ==== ==== ====
Weighted average
shares outstanding (3)......... 1,204,018 1,204,018 1,204,018 1,204,018
========= ========= ========= =========
Supplemental pro forma net income
per share (4).................. $.64 $.27
==== ====
</TABLE>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(2)
---------- --------------
BALANCE SHEET DATA:
Accounts receivable.................... $2,850,322 $2,850,322
Inventories............................ 3,169,897 3,169,897
Working capital........................ 3,405,667 6,205,667
Total assets........................... 6,725,599 8,025,599
Total current liabilities.............. 2,924,755 1,424,755
Long-term debt......................... - 1,347,670
Shareholders' equity................... 3,800,844 5,253,174
- --------------------
(1) Includes pro forma adjustments as if the Company had been taxed as a
C-corporation since January 1, 1994 (assuming an estimated effective
tax rate of 39%). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Excludes the effect of
an estimated distribution of approximately $186,000 to the principal
shareholders of the Company representing the income taxes due from them
(based upon the current status of the Company as an S-corporation for
federal income tax purposes) on the Company's income for the six months
ended June 30, 1996 and additional amounts required to pay taxes
attributable to the Company's income between July 1, 1996 and the
Effective Date.
(2) Adjusted for (i) the issuance to Messrs. Briskin and Stein, immediately
prior to the Effective Date, of convertible subordinated promissory
notes (the "Principal Shareholders' Notes") in the aggregate principal
amount of $1,328,095 (plus additional amounts equal to 39% of the
Company's undistributed net pre-tax income for periods after December
31, 1995), which are being issued for the purpose of reimbursing
Messrs. Stein and Briskin for the lost tax benefits which otherwise
would be available to them due to the conversion at the Effective Date
of the Company from an S-corporation for federal income tax purposes to
a C-corporation, and (ii) the sale of 750,000 shares at an offering
price of $5.00 per share in the Offering and the application of the net
proceeds therefrom. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Transactions"
and "Principal Shareholders" for information regarding the terms of the
Principal Shareholders' Notes.
(3) Assumes conversion of the Principal Shareholders' Notes and options
granted to Timothy E. Mahoney to purchase 23,000 shares of Common Stock
exercisable at $4.00 per share. See "Management - Consulting Agreement
with Timothy Mahoney." Other outstanding options priced at the public
offering price or above are excluded from this computation because
their impact would be antidilutive.
(4) Supplemental pro forma net income per share for the year ended December
31, 1995 and for the six months ended June 30, 1996 is based on the
weighted average number of outstanding shares of Common Stock used in
the computation of pro forma net income per share plus a portion of the
shares being sold by the Company in the Offering to repay borrowings
(including the $200,000 payment to be made to the principal
shareholders with respect to the Principal Shareholder Notes, of
$1,175,000 at December 31, 1995 (235,000 shares) and $1,700,000 at June
30, 1996 (340,000 shares), respectively). The computation gives effect
to elimination of interest costs associated with the borrowings, net of
pro forma income taxes.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL CONSIDERATION, AMONG OTHER
ITEMS, TO THE FOLLOWING FACTORS BEFORE MAKING AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY. THIS INVESTMENT IS NOT RECOMMENDED FOR THOSE WHO CANNOT BEAR THE
RISKS DESCRIBED BELOW.
RAPID TECHNOLOGICAL CHANGE. In general, the computer industry is
characterized by rapidly changing technology. The Company must continuously
update its existing products to keep them current with changing technology and
must develop new products to take advantage of new technologies that could
render existing products obsolete. These products must be compatible with the
computers and other products with which they are used. The Company's future
prospects are dependent in part on its ability to develop new products that
address new technologies and achieve market acceptance. There can be no
assurance that the Company will be successful in these efforts. If the Company
were unable, due to resource constraints or technological or other reasons, to
develop and introduce such products in a timely manner, this inability could
have a material adverse effect on the Company's results of operations. In
addition, due to the uncertainties associated with the evolving markets being
addressed by the Company, there can be no assurance that the Company will be
able to respond effectively to product demands, fluctuations, or to changing
technologies or customer requirements and specifications.
Although the computer connectivity and networking industry is not
generally affected as much by rapidly changing technology as the computer
industry as a whole, the Company is aware of and monitoring the development of
universal interfaces and any potential effect such developments would have on
the Company. In general, these interfaces would be used to facilitate the
interaction between many different computers. Specifically, these universal
interfaces would allow many different devices (such as, monitors, keyboards,
modems and printers) which are currently connected by different connectors, to
be connected using one universal interface for each device. It is possible that
the different connectors which currently connect each of the devices will be
replaced by such universal interfaces. Although the Company anticipates that the
sales volume of these universal interfaces should be at a similar level to the
aggregate sales volume for the connectors that they replace, it is possible that
the profit margin associated with the new universal interfaces may be lower than
the Company's current connectors. Although, in the short term, demand for these
universal interfaces may create a new product for the Company, the Company
cannot determine with any certainty how its other similar products will be
affected or what the long-term effect will be on the Company's sales and
operating results. No assurance can be given that the industry will agree on one
or more of these universal interfaces or that such interfaces will be accepted
by the market. See "Business - Products and Services."
COMPUTER INDUSTRY CYCLICALITY. The computer industry has been affected
historically by general economic downturns, which have had an adverse economic
effect upon manufacturers, distributors and retailers of computers and
computer-related products. See "Business - The Computer Connectivity Industry
and Competition." General economic downturns have traditionally had adverse
effects upon the computer-related industry due to the restrictions on expenses
for products of this industry during recessionary periods. There can be no
assurance that the Company will be able to predict or respond to such cycles
within the industry.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND ASSEMBLY; ABSENCE OF
SUPPLY AGREEMENTS. The Company is dependent on a number of manufacturers, both
domestic and foreign, for the manufacture and assembly of its products pursuant
to the Company's design specifications. Although the Company purchases its
retail products from several different manufacturers, the Company often relies
on an individual manufacturer to produce a particular line of OEM products.
Although the Company has several different product lines, and despite the
Company's efforts to minimize such reliance by having other manufacturers
available should the need arise, these manufacturers are sometimes not under
contractual obligations to supply the Company with these products and the loss
of one or more manufacturers of OEM products may have a material adverse impact
on the Company. While most of the retail products sold by the Company are
available from multiple sources, there can be no assurance that the Company will
be able to replace lost manufacturers of retail products with others offering
products of the same quality, with timely delivery and/or similar
6
<PAGE>
terms. One manufacturer located in Hong Kong, supplies approximately 10 percent
of the Company's products. No other manufacturer accounts for more than 10
percent of the Company's supplies. See "Business - Manufacturing and Suppliers."
FOREIGN SUPPLIERS AND MANUFACTURERS. Most of the components utilized by
the Company in the manufacture and assembly of its products are obtained from
foreign countries and a majority of the Company's products are manufactured or
assembled in foreign countries, such as South Korea, China and Taiwan. The risks
of doing business with companies in these areas include potential adverse
changes in the diplomatic relations of foreign countries with the United States,
changes in the relative purchasing power of the United States dollar, hostility
from local populations, changes in exchange controls and the instability of
foreign governments, increases in tariffs or duties, changes in China's or other
countries' most favored nation trading status, changes in trade treaties,
strikes in air or sea transportation, and possible future United States
legislation with respect to import quotas on products from foreign countries and
anti-dumping legislation, any of which could result in delays in manufacturing,
assembly and shipment and the inability of the Company to obtain supplies and
finished products. Alternative sources of supply, manufacture or assembly may be
more expensive. Although the Company has not encountered significant
difficulties in its transactions with foreign suppliers and manufacturers in the
past, there can be no assurance that the Company will not encounter such
difficulties in the future. See "Business - Manufacturing and Suppliers."
DEPENDENCE ON THIRD PARTIES FOR DISTRIBUTION. Substantially all of the
Company's revenues are derived from the sale of its products through third
parties. Domestically, the Company's products are sold to end users primarily
through OEM customers, wholesale distributors, value added resellers ("VARs"),
mail order companies, computer superstores and dealers. Internationally, the
Company's products are sold through wholesale distributors and mail order
companies, dealers, VARs, as well as OEM customers. Accordingly, the Company is
dependent on the continued viability and financial stability of its resellers.
The Company's resellers often offer products of several different companies,
including, in many cases, products that are competitive with the Company's
products. There can be no assurance that the Company's resellers will continue
to purchase its products or provide them with adequate levels of support. The
loss of, or a significant reduction in sales volume to, a significant number of
the Company's resellers could have a material adverse effect on its results of
operations. See "Business - Marketing and Sales."
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's two largest
customers accounted for approximately 16.5 percent and 12 percent of the
Company's net sales for the year ended 1995 and three of the Company's customers
accounted for approximately 16 percent, 12 percent, and 11 percent of the
Company's net sales for the six months ended June 30, 1996. No other customer of
the Company accounted for more than 10 percent of the Company's net sales for
those same periods. The Company's top 10 customers accounted for approximately
90 percent of the Company's net sales for the year ended 1995 and approximately
50 percent of the Company's net sales for the six months ended June 30, 1996.
The loss of one or more significant customers could have a material adverse
effect on the Company's business and results of operations. See "Business -
Customer Base."
SIGNIFICANT INVENTORY; RISK OF PRODUCT RETURNS. Although the Company
monitors its inventory on a regular basis, the Company needs to maintain a
significant inventory in order to ensure prompt response to orders and to avoid
backlogs. The Company may need to hold such inventory during periods of low
sales activity. The capital necessary to hold such inventory restricts the funds
available for other corporate purposes. The Company provides allowances for
anticipated product returns, and believes its existing policy results in the
establishment of allowances that are adequate. There can be no assurance that
product returns will not increase in the future. See "Business - Manufacturing
and Suppliers."
FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly and annual
operating results are impacted by many factors, including the timing of orders
and the availability of inventory to meet customer requirements. A large portion
of the Company's operating expenses are relatively fixed. Since the Company
typically does not obtain long-term purchase orders or commitments from its
customers, it must anticipate the future volume of orders based upon the
historic purchasing patterns of its customers and upon its discussions with its
customers as to their future requirements. Cancellations, reductions or delays
in orders by a large customer or a group of customers could have a material
adverse
7
<PAGE>
impact on the Company's business, financial condition and results of operations.
See "Business - Customer Base" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
COMPETITION. The Company competes with many companies that manufacture,
distribute and sell computer connectivity products. While these companies are
largely fragmented, throughout different sectors of the computer connectivity
industry, several of these companies have greater assets and possess greater
financial and personnel resources than those of the Company. Some of these
competitors also carry product lines which the Company does not carry and
provide services which the Company does not provide. There can be no assurance
that competitive pressure from these companies will not materially adversely
affect the Company's business and financial condition. In the event that more
competitors begin to carry products which the Company carries and price
competition with respect to the Company's products significantly increases,
competitive pressures could cause the Company to reduce the prices of its
products, which would result in reduced profit margins. Prolonged price
competition would have a material adverse effect on the Company's operating
results and financial condition. A variety of other potential actions by the
Company's competitors, including increased promotion and accelerated
introduction of new or enhanced products, could have a material adverse effect
on the Company's results of operations. There can be no assurance that the
Company will be able to compete successfully in the future. See "Business - The
Computer Connectivity Industry and Competition."
GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS. A key
element of the Company's growth strategy involves growth through the acquisition
of other companies, assets or product lines that would complement or expand the
Company's business. The Company's ability to grow by acquisition is dependent
upon, and may be limited by, the availability of suitable acquisition candidates
and capital, and by restrictions contained in the Company's credit agreements,
which restrictions include maintaining certain minimum ratios of assets versus
liabilities and not permitting any indebtedness, guarantees or liens which would
materially affect the Company's ability to repay its loan to the bank. In
addition, acquisitions involve risks that could adversely affect the Company's
operating results, including the assimilation of the operations and personnel of
acquired companies, the possible amortization of acquired intangible assets and
the potential loss of key employees of acquired companies. There can be no
assurance that the Company will be able to consummate any acquisitions on
suitable terms. No material commitments or binding agreements have been entered
into to date and there can be no assurance that any acquisitions will be
completed. See "Business - Company Strategy."
CREDIT FACILITY RESTRICTIONS; FUTURE AVAILABILITY. The Company has a
$2,500,000 credit facility with a financial institution. The agreement governing
the line of credit contains covenants that impose limitations on the Company,
and requires the Company to be in compliance with certain financial ratios. If
the Company fails to make required payments, or if the Company fails to comply
with the various covenants contained in its agreement, the lender may be able to
accelerate the maturity of such indebtedness. As of October 1, 1996, the Company
was in compliance with the required financial ratios and the Company believes
that it is presently in compliance with all other covenants under this
agreement. The receivables, inventory and all other assets of the Company are
pledged to the lender to secure its revolving line of credit. The revolving line
of credit agreement expires on July 26, 1997. To the extent that there is an
increase in interest rates, or present borrowing arrangements are no longer
available, the Company could be adversely impacted. See " Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROL BY PRINCIPAL SHAREHOLDERS. After the consummation of this
Offering (without assuming the exercise of the Underwriters' over-allotment
option), the current shareholders of the Company, Messrs. Stein and Briskin,
will own 812,500 shares of the Common Stock of the Company, representing
approximately 52 percent of the outstanding Common Stock (or 48.5 percent
assuming the exercise of the Underwriters' over allotment option). This
percentage does not include shares of Common Stock issuable upon the conversion
of the Principal Shareholders' Notes held by Messrs. Stein and Briskin, nor an
aggregate of 200,000 shares of Common Stock issuable to Messrs. Stein and
Briskin upon the exercise of outstanding stock options. See "Principal
Shareholders" and "Certain Transactions." Neither the Company's Articles of
Incorporation or Bylaws provide for cumulative voting. As a result of their
ownership of these securities, Messrs. Stein and Briskin will be able to control
the Company after the Offering through the election of its Board of Directors.
8
<PAGE>
RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES. The continued success
of the Company is dependent to a significant degree upon the services of Slav
Stein and Roman Briskin and upon the Company's ability to attract and retain
qualified personnel experienced in the various phases of the Company's business.
The ability of the Company to operate successfully could be jeopardized if one
or more of its executive officers were unavailable and capable successors were
not found. Upon the completion of this Offering, the Company will enter into
employment agreements with Messrs. Stein and Briskin. See "Management."
EXERCISE OF UNDERWRITERS' WARRANTS. In connection with this Offering,
the Company will sell to the Underwriters, for nominal consideration, warrants
(the "Underwriters' Warrants") to purchase an aggregate of 75,000 shares of
Common Stock. The Underwriters' Warrants will be exercisable commencing one year
after the Effective Date and ending 5 years after such date at an exercise price
equal to 120% of the public offering price ($6.00 per share). The holders of the
Underwriters' Warrants will have the opportunity to profit from a rise in the
market price of the Common Stock, if any, without assuming the risk of
ownership. At any time when the holders of the Underwriters' Warrants might be
expected to exercise them, the Company probably would be able to obtain
additional equity capital on terms more favorable than those provided by the
Underwriters' Warrants. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Underwriters' Warrants are outstanding. To the extent that any of the
Underwriters' Warrants are exercised, the ownership interest of the Company's
shareholders may be diluted. The Company also has granted registration rights
with respect to the shares of Common Stock underlying the Underwriters'
Warrants. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. The 812,500 shares of Common Stock
held by the Company's principal shareholders (assuming no conversion of shares
of Common Stock underlying the Principal Shareholders' Notes and no exercise of
the Principal Shareholders' Options) are "restricted securities" as defined in
Rule 144 under the Securities Act, and in the future may be sold in compliance
with Rule 144. All of the Company's present shareholders have entered into
written agreements not to sell, transfer, encumber, assign or otherwise dispose
of any of their Common Stock for 24 months from the Effective Date without the
prior written consent of the Representatives. Sales of Common Stock by the
Company's present shareholders pursuant to Rule 144 or otherwise may, in the
future, have a depressive effect on the price of the Common Stock should a
market for the Common Stock develop and be sustained. See "Description of
Capital Stock - Shares Eligible for Future Sale."
NO DIVIDENDS. The Company does not intend to declare or pay cash
dividends in the foreseeable future. Earnings, if any, are expected to be
retained to finance the development and expansion of the Company's business. See
"Dividend Policy."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to
this Offering there has been no public market for the Common Stock. Accordingly,
the offering price per share of Common Stock was determined in negotiations
between the Company and the Underwriters. Concurrently with this Offering, the
Company intends to apply to have the Common Stock authorized for quotation on
the Nasdaq SmallCap Market. However, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained after this
Offering or that the shares of Common Stock will be able to be resold at or
above the public offering price. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors. In addition, the stock market generally, and
technology-related securities in particular, may experience extreme price and
volume fluctuations that may be unrelated or disproportionate to the operating
performance of companies. Such fluctuations, and general economic and market
conditions, may adversely affect the market price of the Common Stock. See
"Underwriting."
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation and
Bylaws contain provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change of control of the Company.
See "Description of Capital Stock - Certain Provisions of the Articles and
Bylaws" for a description of these provisions. In addition, the Board of
Directors of the Company has the authority to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the preferences, rights and
limitations of any such series without stockholder approval. See "Description of
Capital Stock - Preferred Stock." In addition, the executive officers of the
Company (Messrs. Stein and Briskin) have provisions in their employment
agreements requiring the Company to pay each $750,000 in the event
9
<PAGE>
of a change in control of the Company. See "Management - Employment Agreements."
Furthermore, such payments which exceed a certain level of compensation may not
be deductible by the Company for federal corporate income tax purposes. The
ability to issue preferred stock and the change in control payments could have
the effect of discouraging unsolicited acquisition proposals or making it more
difficult for a third party to gain control of the Company, or otherwise could
adversely affect the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchase price of the Common
Stock substantially exceeds the tangible book value of the Common Stock.
Purchasers of Common Stock will therefore experience an immediate substantial
dilution in the net tangible book value per share of the Common Stock after this
Offering. See "Dilution."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock (at an offering price of $5.00 per share) in the Offering are
estimated to be approximately $3.0 million (after deducting underwriting
discounts and commissions and estimated offering expenses), or approximately
$3.5 million if the Underwriters' over-allotment option is exercised in full.
The Company intends to use the net proceeds (i) to temporarily repay
all or a substantial portion of its $2.5 million revolving line of credit ($1.45
million outstanding as of October 1, 1996), (ii) to make a $200,000 pre-payment
to Messrs. Stein and Briskin on the Principal Shareholders' Notes (see
"Principal Shareholders" and "Certain Transactions" for a description of the
terms of the Principal Shareholders' Note), (iii) to open new sales offices
(approximately $400,000), (iv) to increase research and development
(approximately $200,000), and (v) for working capital and general corporate
purposes. Working capital includes, but is not limited to, costs for increasing
inventory, costs for establishing additional warehouses, costs for implementing
the international manufacturing standard "ISO 9000" (see "Business-Quality
Control"), personnel costs for the expansion of the Company's existing products
and expenses for distribution, salaries for marketing personnel as well as
expenses for advertising and promotional materials, and general and
administrative expenses. Proceeds received upon the exercise of the
Underwriters' over-allotment option will be used for purposes set forth above.
As noted above, upon completion of the Offering, the Company will
temporarily utilize a portion of the proceeds allocated for working capital and
general corporate purposes to repay revolving debt due to a financial
institution. Funds will then be reborrowed as required for the uses set forth
above. At present, the Company has a $2.5 million line of credit from a
financial institution, which is due on July 26, 1997. Amounts borrowed under the
facility accrue interest at the prime rate plus 1/2% per annum ($1.45 million of
which was outstanding at October 1, 1996). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." While the Company is
currently in good standing under its revolving debt credit agreement, and
therefore could reborrow today amounts paid with the proceeds of this Offering,
there can be no assurance that the Company will be in good standing under its
credit agreement at the time it seeks to reborrow such proceeds.
The foregoing represents the Company's best estimate of the allocation
of the net proceeds received from this Offering, based upon the current status
of the Company's business operations, its current plans and current economic
conditions. Future events, including the problems, delays, expenses and
complications frequently encountered by companies of this size as well as
changes in regulatory, political and competitive conditions affecting the
Company's business and the success or lack thereof of the Company's expansion
and marketing efforts, may make shifts in the allocation of funds necessary or
desirable. The Company also reserves the right to allocate a portion of the net
proceeds for acquisitions. No material commitments or binding agreements have
been entered into to date.
Funds not utilized to temporarily repay revolving credit debt will be
invested in short-term interest bearing securities, government securities or
money market funds pending their anticipated use as set forth above.
DIVIDEND POLICY
The Company does not intend to pay any cash dividends with respect to
its Common Stock in the foreseeable future. Rather, the Company intends, after
the consummation of the Offering, to retain its earnings, if any, for use in the
operation of its business. Furthermore, the Company's ability to declare or pay
dividends on its Common Stock is limited by the terms of its credit agreements
with financial institutions and by terms of the underwriting agreement with the
Underwriters. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation - Liquidity and Capital Resources," "Description of
Capital Stock - Dividends" and "Underwriting."
11
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
$2,253,174, or $2.77 per share, after giving effect to the $1,547,670 Principal
Shareholders' Notes to be issued in connection with the dividend payable on
account of the Company's conversion from an S corporation to a C corporation.
Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities, divided by the total shares of Common Stock
outstanding. After giving effect to the sale of 750,000 shares of Common Stock
in this Offering and receipt of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of June 30, 1996 would have been
$5,253,174 or $.3.36 per share, representing an immediate increase in net
tangible book value of $.59 per share to existing shareholders and an immediate
dilution in net tangible book value of $1.64 per share to purchasers of the
Common Stock offered hereby. The following table illustrates the resulting
dilution with respect to the Common Stock offered hereby:
Public offering price per share............................... $5.00
Net tangible book value per share before offering......... $2.77
Increase per share attributable to new investors......... .59
Pro forma net tangible book value per share after offering.... 3.36
----
Dilution of net tangible book value per share to new investors
attributable to purchase of Common Stock by new investors... $1.64
=====
The following table summarizes, as of the Effective Date, the total
number of shares of Common Stock purchased from the Company, and the total
consideration paid and the average price per share paid (at an initial public
offering price of $5.00 per share and without giving effect to the underwriting
discount and the expenses of this Offering), by existing shareholders and by the
new investors who purchase shares of Common Stock pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- ----------------------------- AVERAGE PRICE
AMOUNT PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1)(2)...... 812,500 52% $46,714 1% $.06
New Investors.................... 750,000(3) 48% $3,750,000 99% $5.00
------------ --------- ------------- ---------
Total 1,562,500 100% $3,796,714 100%
============ ========= ============= =========
<FN>
- --------------------
(1) Excludes shares issuable upon (i) the conversion (at $4.00 per share) of the Principal Shareholders' Notes, (ii)
the exercise (at $5.00 and $6.00 per share) of stock options to purchase an aggregate 200,000 shares presently
owned by the Company's principal shareholders (the "Principal Shareholders' Options"), and (iii) the exercise
(at $4.00 and $5.00) of options to purchase an aggregate 63,000 shares held by Timothy E. Mahoney. See
"Management's Discussion and Analysis of Financial Condition and Results of Operation - Financial Condition,
Liquidity and Capital Resources," "Management," "Certain Transactions" and "Principal Shareholders." Also
excludes shares of Common Stock issuable upon the exercise of stock options which may be granted in the
future under the Company's Stock Option Plan. See "Management - Stock Option Plan."
(2) Includes actual proceeds invested by the principal shareholders.
(3) If the Underwriters' over-allotment option is exercised in full, the number of shares of Common Stock held
by new investors will be 862,500.
</FN>
</TABLE>
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1996, pro forma, and as adjusted at that date to give effect to (i) the
issuance of 812,500 shares of Common Stock to Messrs. Briskin and Stein
immediately prior to the Effective Date of the Principal Shareholders' Notes,
and (ii) the sale of 750,000 shares at an offering price of $5.00 per share in
the Offering and the application of the net proceeds therefrom. See "Certain
Transactions" and "Principal Shareholders." This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
PRO AS AD-
ACTUAL FORMA (1) JUSTED (6)
------------ ---------- ----------
(in thousands)
<S> <C> <C> <C>
Debt:
Notes Payable(2)............................................... $1,636,271 $1,636,271 $ 136,271
Principal Shareholders' Notes(3)............................... -- 1,547,670 1,347,670
------------ ---------- ----------
Total debt.................................................. 1,636,271 3,183,941 1,483,941
------------ ---------- ----------
Shareholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares
authorized; none issued....................................... -- --
Common stock, $.001 par value, 20,000,000 shares authorized;
812,500 shares outstanding; 1,562,500 shares outstanding, as
adjusted(4)................................................... 813 813 1,563
Additional paid-in capital..................................... 45,901 2,242,100 5,241,350
Retained earnings.............................................. 3,743,869 - -
Cumulative foreign currency translation adjustment............. 10,261 10,261 10,261
------------ ---------- ----------
Total shareholders' equity(5).................................... 3,800,844 2,253,174 5,253,174
------------ ---------- ----------
Total capitalization........................................... $5,437,115 5,437.115 $6,737,115
============ ========== ==========
<FN>
- --------------------
(1) Reflects that, immediately prior to the Effective Date, the Company will
issue the Principal Shareholders' Notes as a future dividend distribution
($1,547,670 at June 30, 1996) and cumulative undistributed earnings
applicable to the Company's S corporation status are reclassified to
additional paid-in capital ($2,242,100 at June 30, 1996).
(2) For a description of the Company's revolving credit facility, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operation - Financial Condition, Liquidity and Capital Resources."
(3) For a description of the terms of the Principal Shareholders' Notes, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operation," "Certain Transactions" and "Principal Shareholders."
(4) Excludes (i) an aggregate of 63,000 shares of Common Stock issuable to
Timothy E. Mahoney, a consultant to the Company, upon the exercise of
outstanding options, (ii) an aggregate 200,000 shares of Common Stock
issuable to Messrs. Stein and Briskin upon the exercise of outstanding
stock options, (iii) 265,000 shares reserved for issuance under the
Company's Stock Option Plan, and (iv) shares of Common Stock issuable
upon the conversion of the Principal Shareholders' Notes. See "Management
- Stock Option Plan, "Management - Consulting Agreement with Timothy
Mahoney," "Principal Shareholders" and "Certain Transactions." Also
excludes 75,000 shares of Common Stock issuable upon the exercise of the
Underwriters' Warrants. See "Underwriting."
(5) Excludes the effect of (i) an anticipated distribution of $186,000 to the
Principal Shareholders of the Company representing the income taxes due
from them (based upon the current status of the Company as an S
corporation for federal income tax purposes) on the Company's income for
the six-months ended June 30, 1996, and (ii) additional amounts required
to pay taxes attributable to the Company's income between July 1, 1996
and the Effective Date.
(6) Includes 750,000 shares of Common Stock issued in this Offering, net of
proceeds of $1,300,000 (after $1,700,000 repayment of debt).
</FN>
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for, and as of the
end of, each of the years ended December 31, 1994 and 1995, and each of the
six-month periods ended June 30, 1995 and 1996, is derived from the financial
statements of the Company. The consolidated financial statements for each of the
years ended December 31, 1994 and 1995 are financial statements which combine
AESP, AESP Germany and AESP Sweden and have been audited by BDO Seidman LLP,
independent certified public accountants, except for AESP Sweden which has been
audited by another independent public accounting firm. The consolidated
financial statements as of and for the six-month periods ended June 30, 1995 and
1996 have not been audited, but, in the opinion of management, such financial
statements include all material adjustments (which were normal recurring
adjustments) necessary for fair presentation. The following selected financial
information should be read in conjunction with the Company's financial
statements and related notes and with "Management's Discussion" which follows
this Selected Financial Information Section.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
1994 1995 1995 1996
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............................... $8,797,001 $13,721,014 $4,858,520 $6,581,211
Cost of sales........................... 4,905,143 8,507,520 2,860,647 3,977,848
Gross profit............................ 3,891,858 5,213,494 1,997,873 2,603,363
Selling, general and administrative expenses 2,993,700 3,951,931 1,529,238 2,007,292
Income from operations.................. 898,158 1,261,563 468,635 596,071
Other income (expenses), net............ 88,201 73,911 (39,540) (15,775)
Income before income taxes.............. 986,359 1,335,474 429,095 580,296
Provision for income taxes.............. 11,534 44,680 19,512 17,282
--------------- -------------- --------------- ---------------
Net income.............................. $ 974,825 $ 1,290,794 $ 409,583 $ 563,014
=============== ============== =============== ===============
PRO FORMA NET INCOME:
Income before income taxes.............. $ 986,359 $ 1,335,474 $ 429,095 $ 580,296
Provision for income taxes(1)........... 347,534 483,680 159,512 203,282
--------------- -------------- --------------- ---------------
Pro forma net income.................... $ 638,825 $ 851,794 $ 269,583 $ 377,014
=============== ============== =============== ===============
Pro forma net income per share.......... $.53 $.71 $.22 $.31
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................... $ 2,336,135 $ 3,024,704 $ 2,422,887 $ 3,405,667
Accounts receivable, net of allowance for 1,579,693 3,015,018 1,553,227 2,850,322
doubtful accounts.....................
Inventory............................... 1,871,697 3,197,950 2,568,909 3,169,897
Property and equipment (net)............ 78,056 380,667 181,943 395,177
Total assets............................ 3,915,114 6,903,030 4,502,945 6,725,599
Notes payable........................... 403,083 1,117,302 777,470 1,636,271
Total current liabilities............... 1,500,923 3,497,659 1,898,115 2,924,755
Total shareholders' equity.............. 2,408,788 3,405,371 2,604,830 3,800,844
<FN>
- ---------------
(1) Reflects pro forma adjustments as if the Company had been taxed as a C corporation since the beginning of the applicable
periods.
</FN>
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
GENERAL
Operating revenues consist primarily of gross sales, net of allowances for
returns and other adjustments. Costs of sales consist primarily of product costs
(cost of manufacture or acquisition) and freight charges, among other costs.
Operating revenues and gross profits depend in part on the volume, as well
as the mix of components and finished products contained in the Company's
inventory from time to time. A large portion of the Company's operating expenses
are relatively fixed. Since the Company typically does not obtain long-term
purchase orders or commitments from its customers, it must anticipate the future
volume of orders based upon the historic purchasing practices of its customers
and upon discussions with its customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's business,
financial condition and results of operation.
Commencing the first quarter of 1996, sales to one of the Company's largest
customers (due to the customers' own business situation) began to decrease
significantly from sales during previous quarters, in particular the fourth
quarter of 1995. By the end of the second quarter of 1996 sales to this customer
had all but ceased. No single new customer is expected to replace the sales to
that customer during the third and fourth quarter 1996, during which time that
customer accounted for the Company's largest sales for the corresponding periods
in 1995. As of the Effective Date, the Company has begun to ship products to
this customer again and, has also obtained new customers to diversify its
customer base. While sales have continued to grow to other customers, the impact
of the loss in sales to this customer will likely cause sales and gross profits
for the 1996 fiscal year to be lower than they were during the 1995 fiscal year.
The results described herein reflect the consolidated operations of AESP,
AESP Sweden an AESP Germany.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1996 increased by 35.5 percent
to $6,581,211, up $1,722,691 from net sales of $4,858,520 for the six months
ended June 30, 1995. This increase in sales reflects the Company's increased
sales in retail markets. Gross profits as a percentage of gross sales
(i.e., total sales) decreased one percent from period to period to 40 percent in
1996. The Company believes that this level of gross margin is high for the
computer networking and connectivity industry, and that as the Company grows and
increases its sales volume, margins will drop somewhat due to price pressures to
achieve increased sales.
Selling, general and administrative ("SG&A") expenses as a percentage of
net sales remained relatively flat from period to period. SG&A expenses were
$2,007,292 (30.5 percent of net sales) for the six months ended June 30, 1996,
compared with $1,529,238 (31.5 percent of net sales) for the same six months of
1995, as a result of increased costs associated with the development of the
Company's business, primarily costs and expenses associated with hiring more
sales personnel, and expanding advertising and marketing, throughout the Company
and in particular for AESP Sweden.
Income from operations increased by 27 percent to $596,071 for the six
months ended June 30, 1996, up $127,436 from income from operations of $468,635
for the six months ended June 30, 1995. The increase in 1996 resulted from an
increase in net sales and relatively stable gross profit margin due to an
increase in retail sales, which have a higher profit margin than OEM sales.
15
<PAGE>
Income before taxes was $580,296 for the six months ended June 30, 1996,
compared with $429,095 for the six months ended June 30, 1995. The increase of
35.2 percent results primarily from increased sales activity in 1996 and the
other factors discussed above.
Pro forma net income, which reflects the Company's net income had the
Company been taxed as a C corporation, was $377,014 for the six months ended
June 30, 1996, compared with $269,583 for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased by 56.0 percent to $13,721,014, up $4,924,013
from net sales of $8,797,001 in 1994. The increase in net sales during 1995
reflects increased sales in the OEM and retail markets. The Company believes
that the growth of the computer industry will continue to present opportunities
for the Company to grow, particularly by focusing on large catalog houses and
OEM manufacturers. See "Business - Strategy."
Gross profits as a percentage of net sales were 38.0 percent in 1995
compared with 44.2 percent in 1994. The decrease from 1994 to 1995 is the result
of an increase of OEM sales in 1995 compared with 1994. OEM sales represent high
volume sales with comparably lower overhead, but also have a lower gross profit
margin when compared with retail sales.
The Company believes that it must continue to balance OEM sales with retail
sales. OEM sales have a comparably low gross profit margin with a relatively
high volume of sales per customer, while retail sales have a comparably high
gross profit margin with a relatively low volume of sales per customer. Retail
sales consequently require more time and effort as well as high expenses
(including overhead) to achieve a comparably higher gross profit margin. The
overall mix of OEM and retail will determine the gross profit margin of the
Company's sales.
SG&A expenses as percentage of net sales were 28.8 percent in 1995 compared
with 34.0 percent in 1994. The improvement in 1995 reflects the economies of
scale associated with increased sales generally and with increased OEM sales as
a percent of net sales. This improvement in SG&A expenses as a percentage of net
sales was achieved even though salaries and commissions associated with
increased sales increased in 1995 as compared with 1994. Overall, SG&A expenses
in 1995 increased 32.0 percent to $3,951,931 compared with 1994. The increase in
SG&A expenses was due in part to costs associated with the growth of the
Company's business, upgrading computer systems, and an increase in sales and
marketing personnel.
Income from operations increased 40.5 percent to $1,261,563 in 1995 from
income from operations of $898,158 in 1994. This increase resulted from
increased sales and the benefits of economies of scale resulting in a decrease
in SG&A expenses as a percentage of net sales.
Net income for 1995 increased by 32.4 percent to $1,290,794, up $315,969
from net income of $974,825 in 1994. In general, net income increased in 1995 as
a result of larger OEM sales. During 1995, the Company's OEM sales were
approximately $6.1 million or approximately 44 percent of total sales, while
during 1994, the Company's OEM sales were approximately $2.9 million, which
represents approximately 32 percent of total sales.
Pro forma net income, which reflects the Company's net income had it been
taxed as a C corporation, was $851,794 in 1995 compared with $638,825 for 1994.
The increase of the pro forma net income of 33.3 percent in 1995 occurred
despite the increase in income taxes and was, again, a result of the growth in
the Company's sales.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital was $3,405,667 at June 30, 1996, compared to $3,024,704 at
December 31, 1995 and $2,336,135 at December 31, 1994. Accounts receivable were
$2,850,322 at June 30, 1996, down from receivables of $3,015,018 at December 31,
1995 and $1,579,693 at December 31, 1994. The decrease in accounts receivable at
June 30, 1996 as compared to December 31, 1995 reflects decreased sales to a
large customer which had operational and financial
16
<PAGE>
problems during early 1996. The customer has since recovered and has begun to
purchase products from the Company, but at a much lower volume than its previous
purchases. The increase in accounts receivable from 1994 to 1995 reflects
increased sales activity during 1995. Inventory was $3,169,897 at June 30, 1996,
and $3,197,950 at December 31, 1995, up from inventory of $1,871,697 at December
31, 1994. This increase was attributable to purchases made during 1995 and 1996
to expand the Company's inventories to meet anticipated customer demand.
The Company has a $2.5 million dollar revolving line of credit with an
institutional lender. The loan will mature on July 26, 1997. Borrowings under
this line bear interest at the rate of prime plus .5 percent per annum.
Available borrowings under the line are based upon specific percentages of
eligible accounts receivable and inventories. The line of credit is secured by a
lien on the Company's accounts receivable, inventory and all other assets of the
Company. As of October 1, 1996, approximately $1.45 million was outstanding
under this credit facility. The line of credit is guaranteed by the Company's
principal shareholders. Proceeds from this Offering will be used to pre-pay all
or a significant portion of the outstanding debt under this credit facility. See
"Use of Proceeds."
In connection with this credit facility agreement, the Company is required
to comply with certain affirmative and negative covenants, including limitations
on further borrowings and dividend payments. Further, the Company is obligated
to remain in compliance with certain financial ratios. As of October 1, 1996,
the Company was in compliance with all financial ratios under this Agreement and
the Company believes it is in compliance with all other covenants of this
agreement.
Since its inception, the Company has generally foregone the distribution of
profits in an effort to grow the Company. As a result, Messrs. Stein and
Briskin, the co-founders and principal shareholders of the Company have in the
past personally paid taxes on profits that remained with the Company and were
not distributed to them. In addition, Messrs. Stein and Briskin will personally
pay taxes on undistributed profits of the Company for the period from January 1,
1996 to the Effective Date (for which the Company will reimburse such persons).
In order to reimburse Messrs. Stein and Briskin for the loss of tax
benefits associated with the previously taxed profits of the Company, the
Company at the Effective Date will execute two Seven Year Convertible
Subordinated Promissory Notes (the "Principal Shareholders' Notes") each in the
amount of $664,048 (plus additional amounts equal to 39 percent of the Company's
undistributed net pretax income for periods after December 31, 1995) in favor of
Messrs. Stein and Briskin. The principal amount of the Principal Shareholders'
Notes will be adjusted upward based upon the actual earnings of the Company
during the period from January 1, 1996 to the Effective Date. The Principal
Shareholders' Notes will bear interest at a rate of one-percent over the
floating prime rate charged by Citibank, N.A. The holders of the notes have the
right to convert the principal amount of the Notes at any time prior to maturity
into shares of the Company's Common Stock based upon a conversion rate of $4.00
per share. In the event that the holders of the Principal Shareholders' Notes
exercise the conversion rights, the shares of Common Stock issued upon
conversion will be afforded one-time demand registration rights and certain
piggyback registration rights.
On July 15, 1996, the Company executed an Agreement and Plan of Merger
among The Americas Growth Fund, Inc., a Maryland corporation ("AGF"), and its
subsidiary AGF Merger Corporation, a Florida corporation, to effectuate a merger
between the Company and AGF. On November 8, 1996 the parties to the Agreement
and Plan of Merger entered into an agreement terminating the proposed merger.
The Company incurred certain administrative, accounting and legal expenses
aggregating approximately $100,000 in connection with the proposed merger which
will be reflected in the Company's third quarter financial statements.
The Company has entered into a loan agreement with US Advantage (the sole
shareholders of which are Messrs. Stein and Briskin) in the principal amount of
$120,000. The loan is evidenced by a demand promissory note with an interest
rate of 8.5 percent per annum. As of October 1, 1996, $120,000 remained
outstanding under the loan with $12,464 in accrued interest. The Company
anticipates paying off this outstanding amount from available cash flow. See
"Certain Transactions."
The Company expects that its cash flow from operations, along with its
currently available bank line of credit, will be sufficient to meet its
financing requirements over the next twelve months. This is a projection,
however, and no
17
<PAGE>
assurance can be given that the Company's cash flow from operations and from its
available line of credit will be available to meet the Company's cash
requirements over the next twelve months. See "Risk Factors" and "Use of
Proceeds" for a discussion of certain important factors that could materially
impact this projection.
The Company's management does not believe that inflation has had a
significant effect on the Company's operations during the last several years.
The Company's management believes the Company has historically been able to pass
on increased costs of production to the price charged for its products, however
given the labor-intensive nature of its products and the fact that the majority
of its production occurs in the Far East, no assurance can be given that the
Company will continue to be able to pass on such increased costs in the future.
18
<PAGE>
BUSINESS
GENERAL
The Company designs, manufactures, markets and distributes computer
connectivity and networking products nationally and internationally. The Company
currently offers a broad range of products to its customers, including computer
cables, connectors, installation products, data sharing devices, and fiber optic
cables, as well as a complete selection of networking products, such as
networking interface cards, hubs, transceivers, and repeaters for different
networking topologies. The Company contracts with various manufacturers to
manufacture and assemble the Company's products using designs and manufacturing
specifications (including quality control) provided by the Company. The
Company's products are manufactured from its own designs as well as from
standard industry designs. The Company also assembles a very small percentage of
its products at the Company's North Miami Beach facility. The Company's
manufacturers are located primarily in the Far East, allowing the Company to
obtain competitive pricing for its products due to comparatively lower labor
costs in the production of its products. The Company offers its products to a
broad range of both original equipment manufacturers ("OEM") customers and
retailers (such as computer superstores and dealers, and mail order customers)
in North America, Latin America, Eastern and Western Europe, and Japan. The
Company generally does not offer its products to end users.
HISTORY OF THE COMPANY
Advanced Electronic Support Products, Inc. ("AESP") is a Florida
corporation incorporated in 1983. The Company is headquartered in North Miami,
Florida and has warehouse facilities in North Miami and South San Francisco,
California. Through AESP Computerzubehor GmbH, a German company established in
1987 ("AESP Germany"), and Advanced Electronic Supports Products
Computertillbehor i Sweden Aktiebolag, a Swedish company established in 1988
("AESP Sweden"), both wholly owned by the two principals of AESP, AESP
established sales offices and warehouses in Germany and Sweden.
Until 1990, the Company primarily offered connectivity products for use
with Apple computers. In 1991, the Company expanded its product base to include
PC connectivity and general networking products. Since 1993, the Company has
experienced significant sales growth in the United States, and, through AESP
Germany and AESP Sweden, significant sales growth in Europe. In 1995, the
Company began warehousing products in Germany to accommodate its growing product
line and to better service its expanding base of European customers, including
those in Eastern Europe. Immediately prior to the Effective Date, Slav Stein and
Roman Briskin (the two principals of AESP Germany and AESP Sweden) shall
contribute for no additional consideration their interest in AESP Germany and
AESP Sweden to the Company resulting in AESP Germany and AESP Sweden becoming
wholly-owned subsidiaries of the Company. See "Certain Transactions."
THE COMPUTER CONNECTIVITY INDUSTRY AND COMPETITION
The growth of computer sales over the past five years has increased the
need for components and devices which connect computers with computer
peripherals and other computer-related equipment. Companies which currently
service this growing computer connectivity market fall into three categories:
manufacturers and distributors, retailers and catalog houses. Catalog houses
sell directly to end-users by mass mailing catalogs. Retailers sell to end-users
from retail stores. Often retailers of competitive products have multiple
locations. Manufacturers and distributors , such as the Company, service both
the retailers and catalog houses.
Due to the high volume and labor intensive nature of manufacturing computer
connectivity products, most of these products are manufactured outside the
United States in such countries as Taiwan, the Peoples' Republic of China, Hong
Kong, Malaysia and Korea.
Currently, distributors of computer connectivity products range in size,
with the largest companies reporting in the range of $50 million in annual net
sales and the smaller distributors reporting little more than $1-3 million in
annual net sales. These small distributors predominate the computer connectivity
industry. While these distributors are largely fragmented throughout the
different sectors of the computer connectivity industry, some of these
distributors have greater
19
<PAGE>
assets and possess greater financial and personnel resources than those of the
Company. With $13.7 million in gross revenues in 1995, the Company is among the
group of distributors whose annual gross sales are between $50 million and $1-3
million. In general, the Company has competed with its competitors by providing
quality products, competitive prices and a broad range of services. The Company
seeks to adhere to this approach in competing with its competitors in the
future. In particular, the Company plans to improve its competitive position
within the industry by expanding its product lines and developing new products,
entering new markets with competitive prices by enlarging its distribution
networks, and broadening the services it provides to its customers. See
"-Strategy."
PRODUCTS AND SERVICES
The Company's products fall into four product lines: connectivity,
networking, audio/video, and accessories. Connectivity products generally
include cable assembles, adaptors, connectors, installation products, and
data-sharing devices. Connectivity products can be characterized as products
which connect a computer, for example, to other external hardware, such as a
printer. Networking products include, for example, interface cards, hubs,
transceivers, and repeaters for different networking topologies. Networking
products can be described as products which connect a computer, for example, to
another computer or to a network server. Audio/video products include
connectivity-type products for multimedia applications. Accessories include
tools, testers, and surge protectors. Audio/video products connect audio and
video output to homes and businesses. Accessories are used across all three
other product lines.
Part of the Company's success to date has resulted from expanding the
variety of the products it offers through its diversification into, and
management of, these four product lines. By diversifying into these four product
lines, the Company has expanded its product lines as well as the total number of
its products allowing it to enter new markets and increase gross sales. An
important element to the Company's success is product management which includes
overseeing the production and assembly of the Company's products as well as
keeping in touch with the types of products being produced by the industry as a
whole.
The Company is constantly upgrading its product lines in an effort to meet
changing consumer demand. In the first quarter of 1996, the Company produced a
new comprehensive, reference-style catalog, which includes over 1000 of the
Company's products. During the same quarter, the Company also improved the
packaging of its products. The Company is currently working with an outside
advertising agency to improve the Company's brand name recognition. These
improvements are anticipated to be reflected in the Company's product line by
the spring of 1997.
In addition to offering a large variety of products, the Company also
offers numerous services to its customers. These services include, but are not
limited to: stock rotation (where the customer can return unsold products for
credit towards purchases of new products); price protection (where the customer
is entitled to receive a lower price if another customer receives a lower price
on the same product); enhanced packaging; custom packaging; technical support
(where the customer receives advise from the Company on which product or design
specification is appropriate for a particular situation); training (where the
customer receives training from the Company on the different capabilities and
applications of the Company's products); extended warranties;
merchandising/display programs and quality control. These value-added services
assist the Company's customers, providing what the Company believes is a
competitive advantage.
MANUFACTURING AND SUPPLIERS
All of the Company's products are manufactured according to the Company's
design specifications. Specifically, those specifications are derived from the
Company's designs or from standard industry designs, which the Company also
employs. Products which the Company designs are custom designs where often the
customer provides the specifications (usually with the Company's assistance).
OEM products are generally custom designed. The Company also provides products
such as bulk cable products, from standard industry designs where the Company
is, for the most part, not involved in the design process. Retail products are
generally derived from standard industry designs. The Company contracts with
suppliers to manufacture its products using one of two methods. With the first
method, the Company works with a primary manufacturer (a/k/a an assembler) in
directing this manufacturer to various other manufacturers (with whom the
Company also works) in order to obtain the numerous component parts for which
the primary manufacturer uses in assembling a particular product or product
line. With the second method, the Company works solely with a primary
manufacturer of a product or product line and does not assist that manufacturer
in identifying the various other manufacturers (a/k/a suppliers) for its
component parts. Under either method, the primary manufacturer
20
<PAGE>
is responsible for assembling the product which assembly procedure following the
Company's specifications is generally uniform throughout the various primary
manufacturers for each product. For example, the assembly of molded cables
consists of several uniform procedures which can be summarized as follows: (a)
the cable is prepared by cutting, removing the PCV jacket and stripping the
connectors, (b) the connectors on either end of the cable are then soldered to
their respective connector type , (c) the soldered connectors are then molded
using injection molding, (d) a shield is then placed on top of the first mold,
(e) a final mold is then applied along with a shield foil protecting the
connectors, and (f) the cable is packaged and shipped. For a description of the
Company's quality control procedures, see "-Quality Control" below. The above
process can be modified depending upon the Company's final product
specifications and requirements.
The manufacturers used by the Company are located mainly in Taiwan, Korea
and the Peoples Republic of China, although the Company also uses manufacturers
in Europe and the United States.
For the production of each specific type of retail product, the Company
usually maintains an on-going relationship with several suppliers to guard
against the possibility of problems with one supplier adversely impacting the
Company's business. For the production of OEM products, the Company usually uses
a single supplier for each product, with other factories providing competitive
price quotes and being available to supply the same OEM product if a primary
supplier fails to produce for reasons outside the Company's control. In an
effort to produce defect-free products and maintain good working relationships
with its suppliers, the Company keeps in contact with its suppliers, often
inspecting the manufacturing facilities of the suppliers and implementing
quality assurance programs in the supplier's factories. See "-Quality Control."
Over the last five years, the Company has significantly expanded its
supplier base. Presently, the Company works with approximately 35 suppliers both
in and outside the United States. The Company has one supplier which supplied
approximately 10 percent of the Company's products during 1995. No other source
of supply accounted for more than 10 percent of the Company's products.
QUALITY CONTROL
The goal of the Company's quality control program is to provide the
Company's customers with defect-free products. Working with its primary
manufacturers and often with the manufacturers of the component parts, the
Company has instituted quality control measures at five stages throughout the
manufacturing process. At the first stage, the Company works with its primary
manufacturers to institute a general quality control check upon the entry of the
various component parts into the primary manufacturers' factory. At the second
stage, the primary manufacturer checks to ensure that the contacts which are
being fitted with connectors check out. The third and fourth stages of quality
control occur after each molding process, with the final product being subject
to quality control upon shipment to the Company. The fifth and final stage of
quality control occurs at one of the Company's distribution warehouses (North
Miami, San Francisco, Germany and Sweden). At this final stage of quality
control, the Company tests a certain percentage of each shipment of the products
it receives to ensure the products meet the Company's quality standards. The
Company is currently working with its suppliers and aims to have approximately
80% of its suppliers with the "ISO 9000" approval by the end of calendar year
1997. The ISO 9000 is an international manufacturing standard which is becoming
more prevalent across numerous industries. Almost all of the Company's current
suppliers are in the process of implementing ISO 9000 procedures.
DISTRIBUTION
OEM sales are generally handled by salespersons located in the Company's
headquarters in North Miami, Florida, with an additional warehouse in the San
Francisco area to improve delivery times from the Pacific rim. OEM customers
located in the Western half of the United States receive their product directly
from the Company's South San Francisco warehouse, while customers located in the
Eastern half of the United States receive their shipments from the North Miami
warehouse. Retail sales are generally handled from the Company's headquarters in
North Miami, Florida and from the German and Swedish offices and warehouses.
Quality assurance points are located at all warehouse locations. The Company
also maintains a limited production facility in North Miami for small OEM and
custom cable orders.
21
<PAGE>
CUSTOMER BASE
The Company's customer base is divided into two areas: OEM and retail. OEM
customers are manufacturers of computer-related equipment which use the
Company's products as part of their finished products. Retail customers are
local and regional resellers, value-added resellers and distributors,
educational institutions and catalog houses. Catalog houses constitute a large
share of the Company's domestic retail sales and also represent the most
potential in the Company's efforts to expand its retail customer base. The
retail mass merchandising market also represent a significant growth area for
the Company. The Company does not sell directly to end-users. The Company's
customers accounted for approximately 16.5 percent and 12 percent of the
Company's net sales for the year ended 1995 and three of the Company's customers
accounted for approximately 16 percent, 12 percent, and 11 percent of the
Company's net sales for the six months ended June 30, 1996. No other customer of
the Company accounted for more than 10 percent of the Company's net sales for
those same periods. The Company's top 10 customers accounted for approximately
90 percent of the Company's net sales for the year ended 1995 and approximately
50 percent of the Company's net sales for the six months ended June 30, 1996.
MARKETING AND SALES
The Company's marketing and sales efforts are directed by the Sales and
Marketing Department. See "-Corporate Organization and Distribution." The
marketing group is responsible for, among other things, publishing the Company's
catalogs for each product line as well as the general Company catalog, assisting
the sales group (described below) in preparing for sales shows, advertising the
Company's products in industry publications, working with mail-order catalogs to
prepare advertising space in such catalogs, and providing designs for packaging
the Company's products. The sales group is responsible for, among other things,
contacting potential customers with information and prices for the Company's
products, following leads from trade shows, providing customer support and
visiting customers on a regular basis. As discussed in the "Products" section
above, the Sales and Marketing Department is currently working with an outside
advertising agency to improve the Company's name brand recognition. For a
discussion of potential new markets for the Company and how the Company
anticipates entering such markets, see "-Strategy" below.
STRATEGY
The Company's goals are to continue the steady growth rate which it has
experienced since January 1990, and to become a brand recognized leader in the
computer connectivity and networking industry. In order to achieve these two
goals, the Company's strategy is to increase its retail and OEM customer base
through internal growth and through growth by acquisition.
The Company plans to increase its operating revenues and income by
increasing its retail and OEM customer base in existing markets and expanding
into new markets. In order to increase its national and international retail
customer base, the Company intends to continue to increase its marketing with
large catalog companies and to increase its product line and the size of its
inventory as well as continue to expand its sales and marketing efforts by
opening additional sales offices in Eastern and Western Europe and in Latin
America. In an effort to expand its OEM customer base, the Company intends to
seek to offer its products not only to OEM computer product manufacturers, but
also to the manufacturers' in the medical, appliance, telecommunications, and
cable TV industries.
Another element of the Company's strategy to achieve its goals, is to grow
by the acquisition of other companies, assets, and/or product lines that would
compliment or expand the Company's existing business. The Company believes that
there are many small distributors which would be interested in consolidating
with the Company, allowing the Company to grow significantly. In general, the
Company would look for companies and/or product lines with new designs, new
technology, and advanced products, preferably in the high technology industries.
In particular, the Company would be interested in companies and/or product lines
in the telecommunications, cable audio/video, and computer markets. The Company
believes that acquisitions will enable it to leverage its current level of
operations and accelerate growth. The Company has no present understanding,
agreement or arrangement with respect to any such material acquisition.
As part of the Company's strategy to increase its retail and OEM customer
base, the Company shall seek to continue to maintain the quality of its products
as the volume of products manufactured by the Company increases. To this end
22
<PAGE>
the Company will continue to implement the international manufacturing standard
ISO 9000 throughout the manufacturing and assembly process of its products. See
"-Quality Control."
CORPORATE ORGANIZATION
The Company is divided into five departments: (1) The Sales and Marketing
Department, (2) the International Sales Department (including affiliated offices
in Sweden and Germany), (3) the Purchasing Department, (4) the Operations
Department (including the MIS, shipping, warehouse and quality control and
production group), and (5) the Accounting Department. The Sales and Marketing
Department covers sales in Latin America, the United States and Canada. Account
Managers and Customer Service Representatives service this department from the
North Miami headquarters. The International Sales Department covers sales in
Eastern and Western Europe, with offices in Sweden and Germany servicing the
European sector, and exclusive distributors in the Ukraine and Russia handling
East European customers.
The Sales and Marketing Department also includes product management,
graphic arts and technical support services. The International Sales Department
also receives support from the Sales and Marketing Department.
EMPLOYEES
As of October 1, 1996, the Company employed 62 people at the following
locations: Miami Office - 45; Sweden Office - seven ; and Germany Office - ten.
Company wide - 11 employees work in administration/accounting, three employees
work in purchasing, 27 employees work in sales and marketing, and 21 work in the
Operations Department. None of the Company employees are covered by collective
bargaining agreements. The Company believes that its relationship with its
employees is good.
PROPERTIES
The Company's executive offices are located in North Miami, Florida. All of
the Company's properties are maintained on a regular basis and are adequate for
the Company's present requirements. The Company may, in the future, consolidate
its inventory into a single warehouse facility, if it is cost effective to do so
and if required to support the Company's growth.
The following table identifies the principal properties utilized by the
Company. All properties are leased. RSB Holdings, Inc., a related party, owns
the corporate headquarters, product assembly and central warehouse, and leases
such properties to the Company. See "Certain Transactions."
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY DESCRIPTION LOCATION SQUARE FOOTAGE
- -------------------- -------- --------------
<S> <C> <C>
Corporate Headquarters, Product Assembly and Central Warehouse North Miami, FL 10,000
Warehouse North Miami, FL 10,000
Warehouse San Francisco, CA 5,000
Sales Office and Warehouse Tierp, Sweden 5,000
Sales Office and Warehouse Sulzemoos, Germany 5,000
Bonded Warehouse Sulzemoos, Germany 6,000
</TABLE>
LEGAL PROCEEDINGS
As of the Effective Date, there are no material legal proceedings to which
the Company is a party.
23
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages are as
follows:
NAME AGE POSITION
- ---- --- --------
Slav Stein............. 52 President and a Director
Roman Briskin.......... 47 Vice President, Secretary, Treasurer and a
Director
- ----------
The principal occupations for the past five years of each of the directors
and executive officers of the Company are as follows:
Mr. Stein has served as President and Director of the Company since January
1992. Prior to January 1992, Mr. Stein had served as Executive Vice President,
General Manager and Director of the Company. Mr. Stein was a co- founder of the
Company and has been employed by the Company since its formation. Mr. Stein is
also a director and executive officer of RSB Holdings, Inc., a Florida
corporation, since September 1994, Planet Corporation, a Florida corporation,
since September 1991, and US Advantage Corporation, a Florida corporation, since
October 1994. See "Certain Transactions."
Mr. Briskin has served as Vice President, Secretary, Treasurer and Director
of the Company since January 1992. Prior to January 1992, Mr. Briskin had served
as Secretary and Treasurer of the Company. Mr. Briskin joined the Company in
1984. Mr. Briskin is also a director and executive officer of RSB Holdings,
Inc., a Florida corporation, since September 1994, Planet Corporation, a Florida
corporation, since September 1991, and US Advantage Corporation, a Florida
corporation, since October 1994. See "Certain Transactions."
ADDITIONAL DIRECTORS
The Company intends to add several additional members to its Board of
Directors at least two of whom are expected to be independent of the Management.
The Company intends to seek as members of the Board of Directors persons
knowledgeable in the computer connectivity and networking industry or in the
distribution business generally, and persons with experience with companies
exercising significant growth.
COMMITTEES OF THE BOARD
The Company has established an Audit Committee and a Nominating and
Compensation Committee. The Audit Committee recommends the independent
accountants appointed by the Board of Directors to audit the financial
statements of the Company, which includes an inspection of the books and
accounts of the Company, and reviews with such accountants the scope of their
audit and their report thereon, including any questions and recommendations that
may arise relating to such audit and report of the Company's internal accounting
and auditing procedures.
The Nominating and Compensation Committee reviews and approves the
compensation of executive officers, evaluates possible director nominees and
makes recommendations concerning such nominees to the Board of Directors and
recommends to the Chairman and the Board the composition of the Board committees
and nominees for officers of the Company.
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<PAGE>
DIRECTOR COMPENSATION
The current members of the Board of Directors receive salaries from the
Company in their capacities as executive officers of the Company and will
receive no additional compensation for serving as directors of the Company. The
Company anticipates that non-employee directors will be paid fees for attending
Board meetings and may receive grants of stock options.
SUMMARY COMPENSATION TABLE
The following table shows remuneration paid or accrued by the Company
during the year ended December 31, 1995 and for each of the two preceding years,
to the President and Vice President, the most highly compensated executive
officers of the Company, for services in all capacities while they were
employees of the Company:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
---------------------
RESTRICTED ALL OTHER
NAME AND SALARY BONUS STOCK OPTION/ COMPEN-
PRINCIPAL POSITION YEAR ($) ($) AWARDS SARS(#) PAYMENTS SATION (1)
- ----------------------- ----- ------- ----- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Slav Stein 1995 $90,000 - - - - -
1994 $75,000 - - - - -
1993 $60,000 - - - - -
Roman Briskin 1995 $90,000 - - - - -
1994 $75,000 - - - - -
1993 $60,000 - - - - -
<FN>
- ------------------------------------
(1) Does not include compensation paid to the executive to cover withholding
taxes incurred as a result of the Company's status as an S corporation.
</FN>
</TABLE>
No long-term compensation awards were made to management during the three
years ended December 31, 1995. During 1996, Messrs. Stein and Briskin each
received the following option grants: (i) seven-year options to purchase 50,000
shares at $5.00 per share; and (ii) seven-year options to purchase 50,000 shares
at $6.00 per share.
EMPLOYMENT AGREEMENTS
At the Effective Date, Messrs. Stein and Briskin will each enter into an
employment agreement with the Company. The term of such employment agreements
will (subject to earlier termination for cause) be for an initial period of five
years and will thereafter continue for successive one year terms unless canceled
by either party. During the term of such employment agreements, Messrs. Stein
and Briskin will each receive a salary of $125,000 per year, which salary will
increase annually by 10 percent of the prior year's salary plus the increase in
the consumer price index, which annual increase may not, in any event, exceed 20
percent of the prior year's salary. In addition, Messrs. Stein and Briskin will
each be entitled to receive an annual bonus equal to five percent of the
Company's pre-tax net income in each fiscal year, provided that the annual bonus
may not exceed 300 percent of the prior year's salary. The Company will provide
each of Messrs. Stein and Briskin with an automobile allowance of $500 per month
and a term life insurance policy in the amount of $1,000,000.
For purposes of the employment agreements, a change in control is defined
as an event that: (i) would be required to be reported in response to Item 6(e)
of Schedule 14(a) of Regulation 14A under the Exchange Act; or (ii) causes a
person other than Messrs. Stein and Briskin to beneficially own more than 30
percent of the Company's outstanding
25
<PAGE>
securities. In the event that during the term of such employment agreements
there is a change of control of the Company which has not been approved by the
Company's Board of Directors, Messrs. Stein and Briskin will have the option to
terminate their employment with the Company within three months of the change of
control and receive a lump sum payment of $750,000 each. In such event, all
previously granted stock options would become automatically vested. If the Board
of Directors approves a change of control, Messrs. Stein and Briskin may
terminate their employment, but would only be entitled to receive a payment
equal to the prior year's annual salary and to become automatically vested in a
portion of their stock option equal to their percentage completion of the term
of their employment agreement. As part of such employment agreements, each of
Messrs. Stein and Briskin will agree not to compete against the Company for a
12-month period following the termination of his employment with the Company for
any reason other than a change in control without the approval of the Board of
Directors.
STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option Plan (the "1996 Plan").
Pursuant to the 1996 Plan options to acquire a maximum of 265,000 shares of
Common Stock may be granted to executive officers, employees (including
employees who are directors), independent contractors and consultants of the
Company. No options have been granted to date under the 1996 Plan.
The 1996 Plan is administered by the Nominating and Compensation
Committee of the Board of Directors. The Nominating and Compensation Committee
determines which persons will receive options and the number of options to be
granted to such persons. The Nominating and Compensation Committee also
interprets the provisions of the 1996 Plan and makes all other determinations
that it may deem necessary or advisable for the administration of the 1996 Plan.
Pursuant to the 1996 Plan, the Company may grant ISOs (Incentive Stock
Options) and NQSOs (Non-Qualified Stock Options). The price at which the
Company's Common Stock may be purchased upon the exercise of options granted
under the 1996 Plan are required to be at least equal to the per share fair
market value of the Common Stock on the date particular options are granted.
Options granted under the 1996 Plan may have maximum terms of not more than 10
years and are not transferable, except by will or the laws of descent and
distribution. None of the ISOs under the 1996 Plan may be granted to an
individual owning more than 10 percent of the total combined voting power of all
classes of stock issued by the Company unless the purchase price of the Common
Stock under such option is at least 110 percent of the fair market value of the
shares issuable on exercise of the option determined as of the date the option
is granted, and such option is not exercisable more than five years after the
grant date.
Generally, options granted under the 1996 Plan may remain outstanding
and may be exercised at any time up to three months after the person to whom
such options were granted is no longer employed or retained by the Company or
serving on the Company's Board of Directors.
Pursuant to the 1996 Plan, unless otherwise determined by the
Nominating and Compensation Committee, one-third of the options granted to an
individual are exercisable upon grant, one-third are exercisable on the first
anniversary of such grant and the final one-third are exercisable on the second
anniversary of such grant. However, options granted under the 1996 Plan shall
become immediately exercisable if the holder of such options is terminated by
the Company or is no longer a director of the Company, as the case may be,
subsequent to certain events which are deemed to be a "change in control" of the
Company. A "change in control" of the Company generally is deemed to occur when:
(i) any person becomes the beneficial owner of or acquires voting control with
respect to more than 20 percent of the Common Stock (or 35 percent if such
person is a holder of Common Stock on the Effective Date); (ii) a change occurs
in the composition of a majority of the Company's Board of Directors during a
two-year period, provided that a change with respect to a member of the
Company's Board of Directors shall be deemed not to have occurred if the
appointment of a member of the Company's Board of Directors is approved by a
vote of at least 75 percent of the individuals who constitute the then existing
Board of Directors; or (iii) the Company's stockholders approve the sale of all
of the Company's assets.
ISOs granted under the 1996 Plan are subject to the restriction that
the aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.
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<PAGE>
The 1996 Plan provides for appropriate adjustments in the number and
type of shares covered by the 1996 Plan and options granted thereunder in the
event of any reorganization, merger, recapitalization or certain other
transactions involving the Company.
CONSULTING AGREEMENT WITH TIMOTHY MAHONEY
Timothy E. Mahoney has served as a consultant to the Company since
January 1996. The Company has entered into a Consulting Agreement with Mr.
Mahoney whereby the Company has agreed to compensate Mr. Mahoney for his
services to the Company. The term of such Consulting Agreement has recently been
amended to provide for a period of two years, effective January 1, 1997, which
term is noncancelable during the first year but may be terminated during the
second year by either party upon 90 days prior written notice. Mr. Mahoney will
be responsible for performing such consulting and advisory services pertaining
to the Company's business as the Company shall from time to time request
including, without limitation, the development of the Company's OEM and retail
business, development of a strategy to increase revenue and brand awareness
among customers, personnel recruitment, identification of potential acquisition
targets, and introductions to potential customers. As consideration for the
performance of such services, Mr. Mahoney will be paid an aggregate of $125,000
during the term of his Consulting Agreement. He has also been granted seven-year
options to purchase 23,000 shares of Common Stock exercisable at $4.00 per share
and 40,000 shares of Common Stock exercisable at $5.00 per share (collectively,
the "Mahoney Options"). The Mahoney Options are presently exercisable.
INDEMNIFICATION
Pursuant to the Company's Articles of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Florida law for claims brought against them in
their capacities as officers and directors. Indemnification is allowed if the
officer or director acts in good faith and, in the case of conduct in his
official capacity, in a manner reasonably believed to be in the best interests
of the Company, or in all other cases, with a reasonable belief that his conduct
was at least not opposed to the Company's best interests. In the case of
criminal proceedings, an officer or director should have no reasonable cause to
believe his conduct was unlawful. Accordingly, it is possible that
indemnification may occur for liabilities arising under the Securities Act. The
Underwriting Agreement also contains provisions under which the Company and the
Underwriters have agreed to indemnify each other (including officers and
directors) against certain liabilities under the Securities Act. See
"Underwriting." Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
27
<PAGE>
CERTAIN TRANSACTIONS
As of July 15, 1996, the Company entered into a five year lease with
RSB Holdings, Inc., a Florida corporation ("RSB Holdings"), pursuant to which
the Company leases its corporate headquarters and warehouse in North Miami,
Florida. The Company makes annual payments under such lease in the amount of
approximately $43,200. Messrs. Stein and Briskin each own 50 percent of the
issued and outstanding common stock of RSB Holdings, and are its sole officers
and directors. See "Business - Properties."
Immediately prior to the Effective Date, Messrs. Stein and Briskin, who
currently own all of the outstanding stock of AESP Germany and AESP Sweden will
contribute their interests in said corporations immediately prior to the
Effective Date, to the Company for no additional consideration. See "Business -
History of the Company."
The Company will issue the Principal Shareholders' Notes, each in the
amount of $664,048 (plus additional amounts equal to 39 percent of the Company's
net pretax income for periods after December 31, 1995). The Principal
Shareholders' Notes will bear interest at a rate of one (1) percent over the
prime rate payable monthly. Principal and accrued but unpaid interest will be
due seven (7) years from the Effective Date. The Principal Shareholders' Notes
will be convertible into Common Stock of the Company at a conversion price of
$4.00 per share. The Principal Shareholders' Notes will be also subordinate to
all institutional senior debt of the Company.
The Company sells certain of its computer connectivity products to
Planet Corporation, a Florida corporation ("Planet Corporation"), of which
Messrs. Stein and Briskin each own 25 percent of the issued and outstanding
capital stock. Planet Corporation sells the products it purchases from the
Company outside the United States to unaffiliated third parties in Russia and
the Ukraine, on terms which in general were no more or less favorable than those
terms offered to third parties. The Company sold approximately $170,000 of
products to Planet Corporation in 1995, and for the six months ended June 30,
1996, have not sold any of its products to Planet Corporation.
US Advantage Corporation, a Florida corporation ("US Advantage") loaned
to the Company pursuant to a Demand Promissory Note $120,000 in July 1995 at an
interest rate of 8.5 percent. The loan amount may be prepaid at any time prior
to maturity without penalty. As of October 1, 1996, $12,464 in interest had
accrued under the note. Messrs. Stein and Briskin each own 50 percent of the
issued and outstanding capital stock of US Advantage.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock (excluding shares subject to
options) as of the date of this Prospectus, and as adjusted to reflect the sale
of the shares of Common Stock offered by this Prospectus, by (a) each of the
Company's directors, (b) all executive officers and directors of the Company as
a group, and (c) all persons known by the Company to beneficially own 5% or more
of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING(1)
------------------------- -------------------------
NAME OF BENEFICIAL OWNER(2) SHARES PERCENT SHARES PERCENT
- --------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Slav Stein(3) 406,250 50% 406,250 26.0%
Roman Briskin(4) 406,250 50% 406,250 26.0%
All directors and executive officers as
a group (2 persons) 812,500 100% 812,500 52.0%
<FN>
- -------------------
(1) Excludes shares of Common Stock issuable (i) upon the exercise of the
Principal Shareholders' Notes and (ii) upon the exercise of outstanding
options to purchase 263,000 shares of common stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Financial Condition, Liquidity and Capital Resources" and
"Certain Transactions."
(2) Each person named in the table has the sole voting and investment power
with respect to the shares beneficially owned. The address for each
named person is care of the Company.
(3) Excludes (i) 141,012 shares (based on the principal amount of the note
at December 31, 1995 and after payment of a portion of the notes from
the proceeds of this Offering) issuable upon the conversion of Mr.
Stein's Principal Shareholders' Note, (ii) seven-year options to
purchase 50,000 shares of Common Stock at $5.00 per share, and (iii)
seven-year options to purchase 50,000 shares of Common Stock at $6.00
per share.
(4) Excludes (i) 141,012 shares (based on the principal amount of the note
at December 31, 1995 and after payment of a portion of the notes from
the proceeds of this Offering) issuable upon the conversion of Mr.
Briskin's Principal Shareholders' Note, (ii) seven-year options to
purchase 50,000 shares of Common Stock at $5.00 per share, and (iii)
seven-year options to purchase 50,000 shares of Common Stock at $6.00
per share.
</FN>
</TABLE>
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital consists of 20,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). None of the Preferred
Stock is outstanding.
COMMON STOCK
The Company has 20,000,000 shares of authorized Common Stock, par value
$.001 per share, of which 812,500 shares are issued and outstanding (1,562,500
shares after completion of this Offering). Each outstanding share of Common
Stock is entitled to one vote, either in person or by proxy, on all matters that
may be voted upon by the owners thereof at meetings of the shareholders.
The holders of Common Stock (i) have equal ratable rights to dividends
from funds legally available therefor, when, as and if declared by the Board of
Directors of the Company, (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company, (iii) do
not have preemptive, subscription or conversion rights, or redemption or sinking
fund provisions applicable thereto, and (iv) are entitled to one non-cumulative
vote per share on all matters on which shareholders may vote at all meetings of
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock that may be issued in the future, including voting, dividend,
and liquidation rights.
The holders of shares of Common Stock of the Company do not have
cumulative voting rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all of the
directors of the Company if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
OPTIONS AND CONVERTIBLE SECURITIES PRESENTLY OUTSTANDING
Upon the Effective Date, the following options and convertible
securities will be outstanding: (i) options to purchase an aggregate 63,000
shares of Common Stock held by a consultant to the Company; (ii) options to
purchase an aggregate of 200,000 shares of Common Stock held by the Company's
principal shareholders; and (iii) an aggregate of 336,918 shares of Common Stock
(based upon the principal amount of the note after payment of a part thereof
from the proceeds of the Offering as of June 30, 1996) issuable upon the
conversion of the Principal Shareholders' Notes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Financial
Condition, Liquidity and Capital Resources," "Management," "Certain
Transactions" and "Principal Shareholders."
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<PAGE>
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock, $.001 par value, none of which is issued and
outstanding, in one or more series and to fix, by resolution, conditional, full,
limited or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, if any, and the qualifications,
limitations or restrictions thereof, if any, including the number of shares in
such series (which the Board may increase or decrease as permitted by Florida
law), liquidation preferences, dividend rates, conversion or exchange rights,
redemption provisions of the shares constituting any series, and such other
special rights and protective provisions with respect to any class or series as
the Board may deem advisable without any further vote or action by the
shareholders. Any shares of Preferred Stock so issued would have priority over
the Common Stock with respect to dividend or liquidation rights or both and
could have voting and other rights of shareholders. The Company has no present
plans to issue shares of Preferred Stock.
CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
GENERAL. A number of provisions of the Articles of Incorporation ("Articles")
and Bylaws ("Bylaws") of the Company concern matters of corporate governance and
the rights of shareholders. Certain of these provisions, as well as the ability
of the Board of Directors to issue shares of Preferred Stock and to set the
voting rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Board of Directors (including takeovers which certain shareholders may deem
to be in their best interests). To the extent takeover attempts are discouraged,
temporary fluctuations in the market price of the Common Stock, which may result
from actual or rumored takeover attempts, may be inhibited. These provisions,
together with the ability of the Board to issue Preferred Stock without further
shareholder action, also could delay or frustrate the removal of incumbent
Directors or the assumption of control by shareholders, even if such removal or
assumption would be beneficial to shareholders of the Company. These provisions
also could discourage or make more difficult a merger, tender offer or proxy
contest, even if they could be favorable to the interests of shareholders, and
could potentially depress the market price of the Common Stock. The Board of
Directors believes that these provisions are appropriate to protect the
interests of the Company and all of its shareholders.
MEETINGS OF SHAREHOLDERS. The Bylaws provide that a special meeting of
shareholders may be called only by the Board of Directors unless otherwise
required by law. The Company's Bylaws provide that only those matters set forth
in the notice of the special meeting may be considered or acted upon at that
special meeting, unless otherwise provided by law. In addition, the Bylaws set
forth certain advance notice and informational requirements and time limitations
on any director nomination or any new business which a shareholder wishes to
propose for consideration at an annual meeting of shareholders.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT. The Articles provide that any action
required or permitted to be taken by the shareholders of the Company at an
annual or special meeting of shareholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of shareholders in
lieu thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Bylaws provide that directors
and officers of the Company shall be, and in the discretion of the Board of
Directors non-officer employees may be, indemnified by the Company to the
fullest extent authorized by Florida law, as it now exists or may in the future
be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Bylaws also provide
that the right of directors and officers to indemnification shall be a contract
right and shall not be exclusive of any other right possessed or hereafter
acquired under any bylaw, agreement, vote of shareholders or otherwise. The
Articles contain a provision permitted by Florida law that generally eliminates
the personal liability of directors for monetary damages unless the director has
breached his or her fiduciary duty and such breach constitutes or includes
certain violations of criminal law, a transaction from which the director
derived an improper personal benefit, certain unlawful distributions or certain
other reckless, wanton or wilful acts or misconduct. This provision does not
alter a director's liability under the federal securities laws. In addition,
this provision does not affect the availability of equitable remedies, such as
an injunction or rescission, for breach of fiduciary duty.
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<PAGE>
AMENDMENT OF THE ARTICLES. The Articles provide that an amendment thereof must
first be approved by a majority of the Board of Directors and (with certain
exceptions) thereafter approved by the holders of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal; provided however, that the affirmative vote of 80% of the total votes
eligible to be cast by holders of voting stock, voting together as a single
class, is required to amend provisions relating to the establishment of the
Board of Directors and amendments to the Articles.
AMENDMENT OF BYLAWS. The Articles provide that the Bylaws may be amended or
repealed by the Board of Directors or by the shareholders. Such action by the
Board of Directors requires the affirmative vote of a majority of the directors
then in office. Such action by the shareholders requires the affirmative vote of
the holders of at least two-thirds of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal at an annual
meeting of shareholders or a special meeting called for such purposes, unless
the Board of Directors recommends that the shareholders approve such amendment
or repeal at such meeting, in which case such amendment or repeal shall only
require the affirmative vote of a majority of the total votes eligible to be
cast by holders of voting stock with respect to such amendment or repeal.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Shares Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires supermajority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and the Company's Articles and Bylaws also authorize
the Company to indemnify the Company's directors, officers, employees and
agents. In addition, the Company's Articles and Florida law presently limit the
personal liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of this Offering, the Company will have 1,562,500
shares of Common Stock outstanding (1,675,000 if the Underwriters'
over-allotment option is exercised in full). All of these shares of Common Stock
offered hereby, will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144, described below.
In general, under Rule 144 under the Securities Act as currently in
effect, any affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with the Rule) who has beneficially owned Restricted
Securities for at least two years would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the outstanding shares of Common Stock or the reported average weekly trading
volume in the over-the-counter market for the four weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale restrictions and
notice requirements and to the availability of current public information
concerning the Company. Persons who have not been affiliates of the Company for
at least three months and who have held their shares for more than three years
are entitled to sell Restricted Securities without regard to the volume, manner
of sale, notice and public information requirements of Rule 144.
The Company, its executive officers, directors and Principal
Shareholders have agreed that for a period of two (2) years from the date of
this Prospectus, they will not, without the prior written consent of JW Charles
Financial Securities, Inc., offer, sell, contract to sell, or otherwise dispose
of, any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock. See "Underwriting." The
above-referenced shares of Common Stock outstanding do not include an aggregate
263,000 shares of Common Stock issuable upon the exercise of outstanding
options, nor the 336,918 shares of Common Stock (based upon the principal amount
of the notes at June 30, 1996) issuable upon the conversion of the Principal
Shareholders' Notes. There are also 265,000
32
<PAGE>
shares of Common Stock reserved to be granted pursuant to the Company's Stock
Option Plan. See " Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition, Liquidity and Capital
Resources," "Management," "Certain Transactions" and "Principal Shareholders."
Finally, in connection with the Offering, the Company will issue a
warrant to the Representative to purchase 75,000 shares. The Company has agreed
to register these shares of Common Stock in the Registration Statement of this
Prospectus forms a part. See "Underwriting."
Prior to this Offering, there has been no market for the shares of
Common Stock and no prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices prevailing from time to time. The possibility that
substantial amounts of shares of Common Stock may be sold in the public market
may adversely affect prevailing market prices for the shares of Common Stock
and/or may impair the Company's ability to raise equity capital in the future.
TRANSFER AGENT
The transfer agent for the Common Stock is Continental Stock Transfer &
Trust Co., New York, New York.
33
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters") for whom JW Charles
Securities, Inc. and Corporate Securities Group, Inc. are acting as
representatives (collectively, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement between the
Company and the Representatives (the "Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the
aggregate number of Shares of Common Stock set forth opposite their names below:
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
JW Charles Securities, Inc. ......................
Corporate Securities Group, Inc. .................
----------
Total 750,000
=======
The Underwriters are committed to purchase and pay for all of the
shares of Common Stock offered hereby if any shares of Common Stock are
purchased. The shares of Common Stock subject to this Offering 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
counsel and to various other conditions.
The Underwriters have advised the Company that the Underwriters propose
to offer the shares of Common Stock subject to this Offering to the public at
the public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow to certain dealers who are members of the NASD a
concession not in excess of $_____ per share of Common Stock and such dealers
may reallow a concession not in excess of $______ per share of Common Stock to
certain other dealers who are members of the NASD.
The Company has granted to the Representatives an option, exercisable
for 45 days from the date of this Prospectus, to purchase up to 112,500
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. The
Representatives may exercise this option on one occasion, in whole or in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock offered hereby.
The Representatives have informed the Company that the Underwriters do
not intend to confirm sales of shares of Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
Prior to this Offering, there has been no public trading market for any
securities of the Company. As a result, the public offering price of the Common
Stock offered hereby has been determined by negotiations among the Company and
the Representatives. Among the factors considered in determining the public
offering price of the Common Stock offered hereby were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the general
condition of the securities market. These prices do not necessarily bear any
relationship to the Company's assets, book value, earnings or other established
criterion of value.
The use of "JWCharles/CSG" on the cover page of this Prospectus is a
stylized reference to both JW Charles Securities, Inc. and Corporate Securities
Group, Inc. in their respective individual capacities and not as a joint entity.
JW Charles Securities, Inc. and Corporate Securities Group, Inc. are affiliated
corporations which have separate operations, but who share a common parent
company.
34
<PAGE>
The Company has agreed to pay to the Representatives a non-accountable
expense allowance of three percent of the gross proceeds of this Offering, of
which $50,000 has been paid to date. The Company also has agreed to pay all
expenses in connection with registering or qualifying the shares of Common Stock
offered hereby for sale under the laws of the states in which such shares of
Common Stock are sold by the Underwriters (including expenses of counsel
retained for such purpose by the Underwriters, expenses associated with
informational meetings, and the expense of all pre- and post-closing
advertisements relating to this Offering.
The Company has agreed to sell to the Representatives for an aggregate
price of $75 ($.001 per warrant), non-callable warrants (the "Representatives'
Warrants") entitling the Representatives to purchase from the Company 75,000 (10
percent of the shares sold) shares of Common Stock at an exercise price of 120%
of the public offering price ($6.00 per share). The Representatives' Warrants
may not be transferred or exercised for one year from the date of this
Prospectus, except to officers and partners of the Underwriters or members of
the underwriting or selling group, if any, and are exercisable during the
four-year period commencing one year from the date of this Prospectus (the
"Warrant Exercise Term").
During the Warrant Exercise Term, the holders of the Representatives'
Warrants are given, at nominal cost, the opportunity to profit from a rise in
the market price of the Company's Common Stock. To the extent that the
Representatives' Warrants are exercised, dilution to the percentage ownership of
the Company's shareholders will occur. Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected since
the holders of the Representatives' Warrants may be expected to exercise them at
a time when the Company would, in all likelihood, be able to obtain additional
equity capital on terms more favorable to the Company than those provided in the
Representatives' Warrants. Any profit realized by the Representatives on sale of
the Representatives' Warrants or the underlying securities may be deemed
additional underwriting compensation. The Company has further agreed to place an
indeterminable number of shares of Common Stock, underlying the exercise of the
Representatives' Warrants, including additional shares of Common Stock issuable
in the event any of the anti-dilution provisions set forth in the instruments
evidencing such Representatives' Warrants are triggered. Subject to certain
limitations and exclusions, the Company has agreed, at the request of the
holders of a majority of the Representatives' Warrants, to register the
Representatives' Warrants, and the underlying shares of Common Stock, under the
Securities Act on two occasions during the Warrant Exercise Term; one such
occasion shall be at the Company's expense. The Company has also agreed to
include such Representatives' Warrants and underlying shares of Common Stock in
any appropriate registration statement filed by the Company for five years from
the date of this Prospectus. See "Description of Capital Stock Future Sales of
Common Stock."
Messrs. Stein and Briskin have each agreed not to sell or otherwise
dispose of any shares of Common Stock that they beneficially own for a period of
24 months from the date of this Prospectus without the prior written consent of
the Representatives. See "Principal Shareholders" and "Description of Capital
Stock - Future Sales of Common Stock."
The Company has agreed to enter into a financial advisory agreement
with the Representatives for them to offer financial consulting services to the
Company for a period of two years commencing on the closing date of the Offering
for a fee of $2,000 per month, which amount shall be prepaid in full at the
closing of the Offering. Such consulting services are to include evaluating the
Company's capital requirements for future growth and expansion, advising the
Company as to alternative methods and sources of financing and advising
management of the Company regarding potential business opportunities. If the
Representatives originate a financing or a merger, acquisition, joint venture,
or other transaction to which the Company is a party, the Representatives will
be entitled to receive a finder's fee in consideration for origination of such
transaction. For a period of two years commencing on the closing date of the
Offering, the Representatives will have the right of first refusal to act as
underwriter or agent for any and all public or private offerings of the
securities of the Company, including any secondary offerings of the Company's
securities by the Company or its affiliates.
The Representatives have the right, for a period of five years
following the completion of this Offering or until the Representatives' Warrants
have been exercised in full, whichever comes first, to designate a nominee for
election to the Board or, in lieu thereof, to have a representative attend all
Board meetings of the Company. Any such nominee
35
<PAGE>
may be a director, officer, partner, employee or affiliate of the
Representatives. The Company (and its current directors, officers, and existing
shareholders) have agreed to support any such nominee designated by the
Representatives. The Representatives have advised the Company that they have not
presently identified a designee to nominate for election to the Board.
The Company has agreed that, for a period of two years from the closing
of the Offering, without the consent of the Representatives, it shall not redeem
any of its securities or pay any dividends, or make any other cash distributions
in respect of its securities, in excess of the amount of the Company's current
or retained earnings recognized from and after the closing date. See "Dividend
Policy."
For a period of four years following the completion of this Offering,
the officers and directors of the Company have agreed to effect any permitted
sales of their shares of Common Stock through the Representatives provided that
the price and terms of execution offered by the Representatives are at least as
favorable as those that may be obtained from other brokerage firms.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the form of Underwriting Agreement filed as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby
will be passed upon for the Company by Akerman, Senterfitt & Eidson, P.A.,
Miami, Florida. Lucio, Mandler, Croland, Bronstein & Garbett, P.A., Miami,
Florida is acting as counsel for the Underwriters in this Offering.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, and by KPMG Bohlins AB, independent accountants,
to the extent and for the periods set forth in the respective reports of such
firms contained herein and in the Registration Statement. All such financial
statements have been included in reliance upon such reports given upon the
authority of such firms as experts in auditing and accounting.
36
<PAGE>
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Commission under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits and schedules for
further information with respect to the Company and the Common Stock offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each such instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules forming a part thereof
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington,
20549, and should also be available for inspection and copying at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10007; and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, NW,
Washington, 20549, at prescribed rates.
37
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Certified Public Accountants.........................F-2
Consolidated Balance Sheets at June 30, 1996 and December 31, 1995..........F-4
Consolidated Statements of Income for the six months ended June 30,
1996 and 1995 and for Two Years Ended December 31, 1995 and 1994...F-5
Consolidated Statements of Shareholders' Equity at June 30, 1996, at
December 31, 1995 and 1994, and at January 1, 1994 ................F-6
Consolidated Statements of Cash Flows for the six months ended June 30,
1996 and 1995 and for the Two Years Ended December 31, 1995
and 1994 ..........................................................F-7
Summary of Significant Accounting Policies..................................F-8
Notes to Consolidated Financial Statements..................................F-11
F-1
<PAGE>
The following is the form of opinion we will be in a position to issue upon the
completion of the transaction described in Note 1.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Advanced Electronic Support Products, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheet of Advanced
Electronic Support Products, Inc., and subsidiaries as of December 31, 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of a foreign subsidiary, which statements reflect total
assets of $420,532 as of December 31, 1995, and total revenues of $845,094 and
$649,968 for each of the two years then ended. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for such subsidiary, is based solely on
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Electronic Support
Products, Inc., and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the two years then ended in
conformity with generally accepted accounting principles.
Miami, Florida
June 28, 1996, except for BDO Seidman, LLP
Note 1 which is as
of _______ ____, 199_
F-2
<PAGE>
KPMG Bohlins
ADVANCED ELECTRONIC SUPPORT PRODUCTS
COMPUTERTILLBEHOR I SWEDEN AB
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Advanced Electronic Support Products Computertillbehor i Sweden AB
We have audited the accompanying balance sheets of Advanced Electronic Support
Products Computertillbehor i Sweden AB as of December 31, 1995 and 1994 and the
related statements of income, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. 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 Advanced Electronic Support
Products Computertillbehor i Sweden AB at December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States.
July 12, 1996, except for
Note 11 which is as
of November 11, 1996
Thomas Parck
Godkand revisor (Approved Public Accountant in Sweden)
KPMG Bohlins AB
F-3
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1995 1996
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 3)
CURRENT
Cash $ 203,804 $ 161,943
Accounts receivable, net of allowance for doubtful accounts
of $ 66,000 and $57,911 in 1995 and 1996, respectively (Note 5) 3,015,018 2,850,322
Inventories 3,197,950 3,169,897
Prepaid expenses and other current assets 105,591 148,260
- -------------------------------------------------------------------------------------------------------------------
Total current assets 6,522,363 6,330,422
Property and equipment, net (Note 2) 380,667 395,177
- -------------------------------------------------------------------------------------------------------------------
$ 6,903,030 $ 6,725,599
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank overdraft $ 74,889 $ -
Notes payable (Note 3) 1,117,302 1,636,271
Accounts payable 2,258,865 1,283,827
Income taxes payable 46,603 4,657
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,497,659 2,924,755
- -------------------------------------------------------------------------------------------------------------------
Commitments (Notes 8, 9 and 11)
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity(Note 1):
Preferred stock, $.001 par value; 1,000,000 shares authorized;
none issued - -
Common stock, $ .001 par value; 20,000,000 shares authorized;
812,500 shares issued 813 813
Paid-in capital 45,901 45,901
Retained earnings 3,345,549 3,743,869
Cumulative foreign
currency translation adjustment 13,108 10,261
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,405,371 3,800,844
- -------------------------------------------------------------------------------------------------------------------
$ 6,903,030 $ 6,725,599
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------------------
1994 1995 1995 1996
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES (Notes 4, 5 and 6) $ 8,797,001 $13,721,014 $ 4,858,520 $ 6,581,211
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of sales 4,905,143 8,507,520 2,860,647 3,977,848
Selling, general and administrative expenses 2,993,700 3,951,931 1,529,238 2,007,292
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,898,843 12,459,451 4,389,885 5,985,140
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 898,158 1,261,563 468,635 596,071
Other income (expenses), net 88,201 73,911 (39,540) (15,775)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 986,359 1,335,474 429,095 580,296
Provision for income taxes (Note 10) 11,534 44,680 19,512 17,282
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 974,825 $ 1,290,794 $ 409,583 $ 563,014
- --------------------------------------------------------------------------------------------------------------------------------
PRO FORMA AMOUNTS (NOTE 1):
Income before income taxes 986,359 1,335,474 429,095 580,296
Provision for income taxes (Note 10) 347,534 483,680 159,512 203,282
- --------------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME $ 638,825 $ 851,794 $ 269,583 $ 377,014
- --------------------------------------------------------------------------------------------------------------------------------
Pro forma net income per share $ .53 $ .71 $ .22 $ .31
Weighted average number of shares
of common stock outstanding 1,204,018 1,204,018 1,204,018 1,204,018
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental pro forma net income per share $ .64 $ .27
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
CUMULATIVE
FOREIGN TOTAL
ADDITIONAL CURRENCY STOCK-
COMMON PAID-IN RETAINED TRANSLATION HOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 813 $ 45,901 $ 1,582,107 $ - $ 1,628,821
Distributions - - (193,495) - (193,495)
Net Income - - 974,825 - 974,825
Cumulative foreign currency translation
adjustment - - - (1,363) (1,363)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 813 45,901 2,363,437 (1,363) 2,408,788
Distributions - - (308,682) - (308,682)
Net Income - - 1,290,794 - 1,290,794
Cumulative foreign currency translation
adjustment - - - 14,471 14,471
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 813 45,901 3,345,549 13,108 3,405,371
Period Ended June 30, 1996 (Unaudited):
Distributions - - (164,694) - (164,694)
Net Income - - 563,014 - 563,014
Cumulative foreign currency translation
adjustment - - - (2,847) (2,847)
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 (Unaudited) $ 813 $ 45,901 $ 3,743,869 $ 10,261 $ 3,800,844
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ -------------------------
1994 1995 1995 1996
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 974,825 $ 1,290,794 $ 409,583 $563,014
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on disposition of property and equipment 5,290 - - -
Provision for losses on accounts receivable 2,298 5,812 13,598 (8,089)
Depreciation and amortization 38,177 62,548 11,936 32,160
Deferred income taxes (2,224) (5,679) - -
(Increase) decrease in:
Accounts receivable (894,555) (1,414,312) 12,868 172,785
Inventories (183,553) (1,277,611) (697,212) 28,053
Prepaid expenses and other current assets (62,858) 51,659 21,991 (42,669)
Increase (decrease) in:
Bank overdraft - 74,889 - (74,889)
Accounts payable and accrued expenses 418,773 1,090,830 (58,763) (975,038)
Income taxes payable 8,702 33,787 22,323 (41,946)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 304,875 (87,283) (263,676) (346,619)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to property equipment (39,303) (362,102) (115,823) (46,670)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds (payments) on borrowings (154,286) 647,049 428,229 518,969
Loan from affiliate 73,740 46,260 - -
Dividend distributions (193,495) (308,682) (248,684) (164,694)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (274,041) 384,627 179,545 354,275
- -------------------------------------------------------------------------------------------------------------------
NET (DECREASE) IN CASH (8,469) (64,758) (199,954) (39,014)
Effect of exchange rate changes in cash (113,087) 31,284 35,143 (2,847)
CASH, AT BEGINNING OF YEAR 358,834 237,278 237,278 203,804
- -------------------------------------------------------------------------------------------------------------------
CASH, AT END OF PERIOD $ 237,278 $ 203,804 $ 72,467 $ 161,943
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest $ 24,976 $ 65,416 $ 21,585 $ 47,670
Taxes 2,832 13,468 - 59,228
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
DESCRIPTION OF Advanced Electronic Support Products, Inc., (AESP) is
BUSINESS primarily a wholesaler of computer cables and
accessories whose customers are computer dealers and
retailers located in the U.S. and foreign markets.
The Company grants credit to customers without
collateral.
SUBSIDIARIES As the Subsidiaries are based and operating in
AND BASIS OF Germany and Sweden, the functional and reporting
PRESENTATION currency for statutory purposes is the German Mark
and Swedish Krona, respectively. These financial
statements have been translated to United States
Dollars (U.S. $) using a methodology consistent with
Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation. Assets and liabilities
are translated to U.S. $ at the rate prevailing on
the balance sheet dates and the income statements
have been translated from the functional currency to
U.S. $ using an average exchange rate for the
applicable period. Exchange gains (losses)
(approximately $64,000 and $18,000 for the years
ended December 31, 1995 and 1994, respectively and
$(18,000) and $(63,000), for the six months ended
June 30, 1996 and 1995, respectively) are included in
other income in the accompanying consolidated
statements of income.
PRINCIPLES OF The accompanying consolidated financial statements
CONSOLIDATION include the accounts of AESP and the Subsidiaries
(collectively, the Company). Intercompany
transactions and balances have been eliminated in
combination.
INVENTORIES Year ended inventories are stated at the lower of
cost or market using the last in, first-out method
for AESP and the first-in, first-out method for the
Affiliates. Inventory of AESP would be approximately
the same had they used the first-in, first-out
method.
PROPERTY AND Property and equipment is recorded at cost.
EQUIPMENT Depreciation and amortization is computed by the
straight line and accelerated methods based on the
estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter
of the life of the asset or the lease.
REVENUE Revenues are recognized at the time of shipment of
RECOGNITION the respective merchandise.
F-8
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
INCOME TAXES AESP, with the consent of its shareholders, elected
to be taxed as an S Corporation. Shareholders of an S
Corporation are taxed on their proportionate share of
the Company's taxable income. Accordingly, no
provision for federal or state income tax is
required.
The pro forma provisions for income taxes and net
income assume that the Company was subject to income
tax.
The Subsidiaries are subject to taxation in Germany
and Sweden and accordingly, calculate and report the
tax charges in accordance with applicable statutory
regulations.
For the purpose of these financial statements the
Company has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) 109, Accounting
for Income taxes for all periods presented. Under the
asset and liability method of SFAS 109, deferred
taxes are recognized for differences between
financial statement and income tax bases of assets
and liabilities.
Upon the Company becoming subject to income taxes, a
deferred tax liability will be recorded, through a
charge to operations, for the tax effect of
cumulative temporary differences between financial
statement and tax purposes. Such deferred tax
liability results principally from temporary
differences relating to allowance for doubtful
accounts and the repatriation of the income of the
foreign Subsidiaries and would have amounted to
approximately $10,000 at June 30, 1996 had the
Company been subject to federal and state taxes at
such date.
USE OF ESTIMATES The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that effect the reported amounts of
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from estimated amounts.
EARNINGS PER Pro forma net income per share is based on the
SHARE weighted average number of shares of common stock
outstanding during each period, after giving effect
to
F-9
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
the stock split (described in Note 1) and the assumed
conversion of the notes to be issued to the existing
shareholders at $4.00 a share, as described in Note
11.
Supplemental pro forma net income per share for the
year ended December 31, 1995 and for the six months
ended June 30, 1996 is based on the weighted average
number of outstanding shares of common stock used in
the computation of pro forma net income per share
plus the 235,000 and 340,000 shares, calculated at an
offering price of $5.00 per share, being sold by the
Company in the offering to repay borrowings,
including the $200,000 payment to be made to
shareholders with respect to the convertible,
subordinated notes, of $1,175,000 at December 31,
1995 and $1,700,000 at June 30, 1996, respectively.
The computation gives effect to elimination of
interest costs associated with the borrowings, net of
pro forma income taxes.
FUTURE ACCOUNTING In October 1995, FASB issued SFAS No. 123,
PRONOUNCEMENT "Accounting for Stock Based Compensation. "SFAS No.
123 establishes a fair value method for accounting
for stock-based compensation plans either through
recognition or disclosure. The Company does not
presently intend to adopt the fair value based method
but instead will disclose the effects of the
calculation required by the statement.
INTERIM FINANCIAL The financial statements for the six months ended
STATEMENTS June 30, 1996 and 1995 are unaudited. In the opinion
of management, such financial statements include all
adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of
financial position and the results of operations. The
results of operations for the six months ended June
30, 1996 are not necessarily indicative of the
results to be expected for the full year.
F-10
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
1. REORGANIZATION The accompanying financial statements give effect to
the recapitalization, effected on __________, 199__,
of the Company in connection with the contemplated
public offering of its common stock, the termination
of AESP's federal income status as an S-Corporation
and the contribution, to AESP, of the shares of stock
in the Sweden and German entities ("Subsidiaries"),
whose shares of common stock are owned by the
shareholders of AESP.
In connection with the public offering, immediately
prior to the effectiveness of the registration
statement, AESP will issue a stock dividend in the
form of a stock split, whereby the 66 2/3 shares of
stock presently outstanding (after cancellation of
the shares held in treasury), will be converted into
812,500 shares of common stock. AESP increased its
authorized capital from 100 shares, $1 par value to
20,000,000 shares of common stock, $.001 par value
and 1,000,000 shares of preferred stock, $.001 par
value.
The components of shareholders' equity, all shares
and per share amounts have been retroactively
adjusted to reflect the stock split.
2. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
-----------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 222,529 $ 257,592
Office equipment 82,488 93,320
Machinery and equipment 45,766 45,766
Furniture and fixtures 48,843 49,963
Vehicles 79,639 79,294
-----------------------------------------------------------------------------
479,265 525,935
Less: accumulated depreciation
and amortization 98,598 130,758
-----------------------------------------------------------------------------
$ 380,667 $ 395,177
-----------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
3. NOTES PAYABLE Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
-----------------------------------------------------------------------------
<S> <C> <C>
Prime + .75% (9.25% at June 30, 1996
and December 31, 1995) line of credit
with a financial institution in the
amount of $1,850,000, payable monthly,
due July 25, 1996. $ 975,000 $1,500,000
8.5% note payable to an entity owned
by the Shareholders of the Company,
payable upon demand. 120,000 120,000
Other 22,302 16,271
-----------------------------------------------------------------------------
$1,117,302 $1,636,271
-----------------------------------------------------------------------------
</TABLE>
During July 1996, the line of credit was replaced
with a revolving line with another financial
institution at similar terms. This line matures on
July 25, 1997 and is collateralized by AESP's assets
and is personally guaranteed by the Shareholders.
F-12
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
4. FOREIGN Information about the Company's operations in
OPERATIONS different geographic areas for the years ended
December 31, 1995 and 1994 and the six months ended
June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
SWEDEN
UNITED STATES AND GERMANY ELIMINATION CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Sales to unaffiliated customers $ 7,152,103 $ 1,644,898 $ - $ 8,797,001
Transfers between geographic areas 641,789 - (641,789) -
- -------------------------------------------------------------------------------------------------------------------
Total $ 7,793,892 $ 1,644,898 $ (641,789) $ 8,797,001
- -------------------------------------------------------------------------------------------------------------------
Operating Income $ 841,836 $ 52,041 $ 4,281 $ 898,158
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 2,853,798 $ 1,057,035 $ 4,281 $ 3,915,114
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995:
Sales to unaffiliated customers $ 11,376,399 $ 2,344,615 $ - $ 13,721,014
Transfers between geographic areas 888,433 - (888,433) -
- -------------------------------------------------------------------------------------------------------------------
Total $ 12,264,832 $ 2,344,615 $ (888,433) $ 13,721,014
- -------------------------------------------------------------------------------------------------------------------
Operating Income $ 1,139,541 $ 132,325 $ (10,303) $ 1,261,563
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 5,797,358 $ 1,111,694 $ (6,022) $ 6,903,030
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SWEDEN
UNITED STATES AND GERMANY ELIMINATION CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended June 30, 1995:
Sales to unaffiliated customers $ 3,928,448 $ 930,072 $ - $ 4,858,520
Transfers between geographic areas 541,897 - (541,897) -
- -------------------------------------------------------------------------------------------------------------------
Total $ 4,407,345 $ 930,072 $ (541,897) $ 4,858,520
- -------------------------------------------------------------------------------------------------------------------
Operating Income $ 330,197 $ 144,457 $ (6,019) $ 468,635
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 4,000,118 $ 504,566 $ (1,738) $ 4,502,946
- -------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1996:
Sales to unaffiliated customers $ 5,224,262 $ 1,356,949 $ - $ 6,581,211
Transfers between geographic areas 505,869 - (505,869)
- -------------------------------------------------------------------------------------------------------------------
Total $ 5,730,131 $ 1,356,949 $ (505,869) $ 6,581,211
- -------------------------------------------------------------------------------------------------------------------
Operating Income $ 509,929 $ 62,180 $ 23,962 $ 596,071
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets 6,049,386 658,274 17,939 6,725,599
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Transfers between geographic areas are made at prices
which approximate prices charged to unaffiliated
customers and have been eliminated from combined
revenues.
Identifiable assets are those assets, that are
identified with the operations in each geographic
area. Foreign sales, including those of AESP, for the
years ended December 31, 1995 and 1994 approximated
22% and 23% of combined revenues, respectfully and
for the six months ended June 30, 1996 and 1995
approximated 24% and 27% of combine revenues,
respectively.
F-14
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
5. RELATED PARTY The Company had sales of approximately $170,000 and
TRANSACTIONS The Company had sales of approximately $170,000 and
$59,000 during the years ended December 31, 1995 and
1994, respectfully, and sales of approximately
$118,000 for the six months ended June 30, 1995 to an
entity owned by the Shareholders of the Company.
There were no sales to such entity for the six months
ended June 30, 1996. Accounts receivable at June 30,
1996 and December 31, 1995 include approximately
$11,000, and $73,000, respectively, from such entity.
6. SIGNIFICANT For 1995, two customers accounted for 16.5% and 12.0%
CUSTOMERS of consolidated revenues. For 1994, no customer
accounted for 10% or more of consolidated revenues.
For the six months ended June 30, 1996, three
customers accounted for 16% 12% and 11% of
consolidated revenues. For the six months ended June
30, 1995, one customer accounted for 20% of
consolidated revenues.
7. FINANCIAL The carrying amounts of financial instruments
INSTRUMENTS including accounts receivable, accounts payable and
short-term debt approximated fair value due to the
relatively short maturity.
8. COMMITMENTS The Company rents office space under non-cancelable
leases expiring in 1998. The minimum future rental
commitment in effect at June 30, 1996, approximates
the following:
YEARS ENDING DECEMBER 31,
-----------------------------------------------------
1996 $ 31,000
1997 $ 44,000
1998 $ 2,000
-----------------------------------------------------
$ 77,000
-----------------------------------------------------
In addition, the Company rents office and warehouse
space on a month-to-month basis from an entity owned
by the Shareholders of the Company at $3,600 per
month. The mortgage on the property has been
guaranteed by the Company. The balance outstanding at
June 30, 1996 and December 31, 1995 approximated
$250,000 and $260,000, respectively.
F-15
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
Rent expense in 1995 and 1994 aggregated
approximately $112,000 and $102,000, respectively,
including $43,200 and $46,800 to related parties.
Rent expense for the six months ended June 30, 1996
and 1995, aggregated approximately $82,000 and
$25,000, respectively, including $21,600 in each
period to related parties.
The Company is liable under a patent license
agreement, expiring in 2000, whereby it is required
to pay a fee (as defined) for each product sold
subject to the agreement. During 1995 and 1994,
approximately $18,000 and $17,000, respectively, of
royalties were paid. For the six months ended June
30, 1996 and 1995, approximately $6,000 and $15,000,
respectively, of royalties were paid.
9. DEFERRED In 1995, the Company adopted a defined contribution
COMPENSATION plan established pursuant to Section 401(k) of the
PLAN Internal Revenue Code. Employees contribute to the
plan a percentage of their salaries, subject to
certain dollar limitations and the Company matches a
portion of the employees' contributions. The
Company's contributions to the plan for the 1995
amounted to $4,300. The Company's contributions to
the plan for the six months ended June 30, 1996
amounted to $8,165. No contributions were made during
the six months ended June 30, 1995.
F-16
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
10. INCOME TAXES The following are the components of pro forma income
tax expense:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current
Federal $ 287,940 $ 357,568 $ 117,616 $ 157,069
State 49,055 62,985 19,861 26,887
Foreign 13,758 50,359 19,512 17,282
- ------------------------------------------------------------------------------------------------------
350,753 470,912 156,989 201,238
- ------------------------------------------------------------------------------------------------------
Deferred
Federal (940) 17,432 2,384 1,932
State (55) 1,015 139 112
Foreign (2,224) (5,679) - -
- ------------------------------------------------------------------------------------------------------
(3,219) 12,768 2,523 2,044
- ------------------------------------------------------------------------------------------------------
Total $ 347,534 $ 483,680 $ 159,512 $ 203,282
- ------------------------------------------------------------------------------------------------------
</TABLE>
The proforma provision for income taxes represents
the estimated income taxes that would have been
reported had AESP not been an S Corporation and had
been subject to Federal and state income.
F-17
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
The reconciliation of proforma and foreign income tax
attributed to the continuing operations Computed at
the United States federal statutory tax rate of 34%
to income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at the United States
statutory rate $ 335,362 $ 454,062 $ 145,892 $ 197,301
States income taxes, net
of federal benefit 32,675 42,466 13,459 18,593
Differences in effective income
tax of other countries (20,503) (12,848) 161 (12,612)
- ------------------------------------------------------------------------------------------------------
Total $ 347,534 $ 483,680 $ 159,512 $ 203,282
- ------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes reflect the net tax effect of
temporary differences between carrying amounts of
assets and liabilities for financial reporting
purposes and the amounts used for income tax
purposes. Significant components of the Company's
deferred assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax liability:
Untaxed foreign reserves $ 5,679 $ - $ 5,679 $ -
Proforma Items:
Deferred tax assets
Allowance for doubtful
account 24,560 24,836 27,766 21,792
Deferred tax liabilities
Repatriation of income of
foreign subsidiaries 14,278 33,000 20,007 32,000
- ------------------------------------------------------------------------------------------------------
Net deferred tax asset/
(liability) $ 4,603 $ (8,164) $ 2,080 $ (10,208)
- ------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
The majority of the provision for income taxes
relates to the Swedish operations. The statutory tax
rate in Sweden for 1996, 1995 and 1994 is 28%.
11. SUBSEQUENT In October, 1996, the Company signed a letter with an
EVENTS underwriter to raise capital through an initial
public offering of 750,000 shares of $.001 par value
per share common stock of the Company. The Company
has also granted the underwriter an over-allotment
option to sell an additional 112,500 shares in the
public offering.
Upon completion of the offering, the Company will
enter into a financial advisory agreement with the
underwriter for a period of two years, for an
aggregate fee of $48,000.
In connection with the offering, the Company intends
to (i) make a distribution to its current
Shareholders of $1,328,095, plus an adjustment for
1996 earnings (as defined), in the form of a seven
year, prime + 1%, convertible (at $4.00 per share),
subordinated promissory note payable, (ii) enter into
five year employment agreements with its current
Shareholders which includes a minimum annual
compensation of $125,000 plus performance bonuses,
(iii) issue options, to each of its two shareholders,
to purchase 100,000 shares of common stock, 50,000
shares at $5 a share and 50,000 shares at $6 a share
and (iv) establish a stock option plan for its
employees, initially providing for 265,000 options.
At June 30, 1996, the foregoing notes to Shareholders
would result in a charge of $1,547,670 to retained
earnings.
The aforementioned employment agreements will provide
for annual increases, as defined. In the event of a
change in control of the Company (as defined) the
shareholders may terminate their employment with the
Company for a lump sum payment of $750,000 each. In
addition, the Company will provide the shareholders
with a $1,000,000 term life issued policy and an
automobile allowance.
F-19
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
The Company entered into a consulting agreement for a
period of two years in which the consultant will be
paid $125,000. In addition , the Company has granted
the consultant an option to purchase 63,000 shares of
its common stock, at $4.00 a share with respect to
23,000 shares and $5.00 a share with respect to
40,000 shares.
The Company, in July 1996, entered into a five year
lease with an entity owned by the shareholders of the
Company at terms similar to those currently in place
(see Note 8).
F-20
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN
SUCH STATE. THE DELIVERY OF THIS PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY........................................3
RISK FACTORS..............................................6
USE OF PROCEEDS..........................................11
DIVIDEND POLICY..........................................11
DILUTION.................................................12
CAPITALIZATION...........................................13
SELECTED FINANCIAL INFORMATION...........................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION...........15
BUSINESS.................................................19
MANAGEMENT...............................................24
CERTAIN TRANSACTIONS.....................................28
PRINCIPAL SHAREHOLDERS...................................29
DESCRIPTION OF CAPITAL STOCK.............................30
UNDERWRITING.............................................34
LEGAL MATTERS............................................36
EXPERTS..................................................36
ADDITIONAL INFORMATION...................................37
INDEX TO FINANCIAL STATEMENTS...........................F-1
------------
UNTIL ____________, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS 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.
750,000 SHARES
[LOGO]
ADVANCED
ELECTRONIC
SUPPORT
PRODUCTS, INC.
COMMON STOCK
PROSPECTUS
JWCHARLES/CSG
_______________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Pursuant to the provisions of Section 607.0850(1) of the Florida
Business Corporation Act, the Company has the power to indemnify any person who
is or was a party to any proceeding (other than an action by, or in the right
of, the Company), because such person is or was a director, officer, employee,
or agent of the Company (or is or was serving at the request of the Company
under specified capacities) against liability incurred in connection with such
proceeding provided such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interest of the
Company (and with respect to any criminal action or proceeding, such person had
no reasonable cause to believe such person's conduct was unlawful).
With respect to a proceeding by or in the right of the Company to
procure a judgment in its favor, Section 607.0850(2) of the Florida Business
Corporation Act provides that the Company shall have the power to indemnify any
person who is or was a director, officer, employee, or agent of the Company (or
is or was serving at the request of the Company under specified capacities)
against expenses and amounts paid in settlement not exceeding, in the judgment
of the Board of Directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding provided such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interest of the Company, except that no indemnification shall be made in a case
in which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the court in which the proceeding was brought, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses.
Indemnification as described above shall only be granted in a specific
case upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of a
quorum of directors who were not parties to such proceeding, (b) if such a
quorum is not attainable or by majority vote of a committee designated by the
Board of Directors consisting of two or more directors not parties to the
proceeding, (c) by independent legal counsel selected by the Board of Directors
described in the foregoing parts (a) and (b), or if a quorum cannot be obtained,
then selected by a majority vote of the full Board of Directors, or (d) by the
shareholders by a majority vote of a quorum consisting of shareholders who are
not parties to such proceeding.
Section 607.0850(12) of the Florida Business Corporation Act permits
the Company to purchase and maintain insurance on behalf of any director,
officer, employee or agent of the Company (or is or was serving at the request
of the Company in specified capacities) against any liability asserted against
such person or incurred by such person in any such capacity whether or not the
Company has the power to indemnify such person against such liability.
ARTICLES OF INCORPORATION
The Articles of Incorporation of the Company (the "Articles") provide
for the indemnification of directors and officers of the Company to the fullest
extent permitted by Section 607.0850 of the Florida Business Corporation Act.
The Articles of Incorporation further provide that the indemnification provided
for therein shall not be exclusive of any rights to which those indemnified may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.
The Articles also contain a provision that eliminates the personal
liability of the Company's directors to the Company for monetary damages unless
the director has breached his or her fiduciary duty and such breach constitutes
or includes certain violations of criminal law, a transaction from which the
director derived an improper personal benefit, certain unlawful distributions or
certain other reckless, wanton or wilful acts or misconduct. This provision does
not alter
II-1
<PAGE>
a director's liability under the federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
SECURITIES AND EXCHANGE COMMISSION POLICY
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses* in connection with the issuance of the
securities being registered are as follows:
SEC Registration Fee................................... $1,443.18
-------------
NASD Filing Fee........................................
-------------
NASDAQ Listing Fee.....................................
-------------
3% Non-Accountable Expenses............................
-------------
Printing Expenses......................................
-------------
Accounting Fees and Expenses...........................
-------------
Legal Fees and Expenses................................
-------------
Blue Sky Fees and Expenses.............................
-------------
Transfer Agent and Registrar Fees and Expenses.........
-------------
Miscellaneous..........................................
-------------
Total........................................ $
=============
- -------------------
*All amounts, except the SEC registration fee and the NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company did not sell any shares of Common Stock during the past
three years.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
(A) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1 Form of Underwriting Agreement between the Company and the Underwriters
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Bylaws of the Company
4.1 Form of Common Stock Certificate*
4.2 Form of Warrant Agreement between the Company and the Underwriter (including form of
Underwriters' Warrants)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
5 Opinion of Akerman, Senterfitt & Eidson, P.A.*
10.1 Loan Agreement between the Company and SunTrust Bank Miami, N.A., dated July 26, 1996
10.2 Lease Agreement between the Company and RSB Holdings, Inc., dated July 15, 1996
10.3 Promissory Note between the Company and U.S. Advantage, dated July 15, 1995
10.4 Form of 1996 Stock Option Plan
10.5 Form of Employment Agreement between the Company and Slav Stein
10.6 Form of Employment Agreement between the Company and Roman Briskin**
10.7 Form of Convertible Subordinated Promissory Note from the Company To Messrs. Stein and
Briskin
10.8 Form of Stock Option Agreement between the Company and Messrs. Stein and Briskin*
10.9 Form of Mahoney Consulting Agreement*
10.10 Form of Financial Advisory Agreement
21 List of Subsidiaries
23.1 Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5)
23.2 Consent of BDO Seidman LLP
23.3 Consent of KPMG Bohlins AB
27 Financial Data Schedule (for the Securities and Exchange Commission purposes only)
<FN>
*To be filed by amendment.
**Identical to exhibit 10.5
</FN>
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned small business issuer 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.
(b) 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 foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the 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
II-3
<PAGE>
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, 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 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under 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.
(d) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(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.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Miami,
State of Florida, on the 12th day of November, 1996.
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
By: /s/ Slav Stein
-----------------------------------
Slav Stein, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Slav Stein President and Director November 12, 1996
- ---------------------------------- (and for execution purposes in the
Slav Stein capacity as Chief Executive Officer)
/s/ Roman Briskin Vice President and Director November 12, 1996
- ---------------------------------- (and for execution purposes in the
Roman Briskin capacity as Chief Financial Officer)
</TABLE>
S-1
EXHIBIT 1
ADVANCED ELECTRONIC SUPPORT PRODUCTS,INC.
750,000 Shares of Common Stock
UNDERWRITING AGREEMENT
As of _______________, 199_
JW CHARLES SECURITIES, INC.
CORPORATE SECURITIES GROUP, INC.
980 North Federal Highway, Suite 210
Boca Raton, Florida 33432
Gentlemen:
Advanced Electronic Support Products, Inc., a Florida corporation (the
"Company") confirms its agreement with JW Charles Securities, Inc., an Iowa
corporation and Corporate Securities Group, Inc., a Florida corporation,
(collectively, the "Representatives") as representatives and members of the
group of several underwriters, if any, named in Schedule I attached hereto (the
"Underwriters" or "you", and if there is no Schedule I attached, all references
in this Agreement to the "Underwriters" or "you" shall be deemed to refer only
to the Representatives) as follows:
1. THE SHARES. Subject to the terms and conditions set forth herein,
the Company proposes to sell to you on a "firm commitment" basis, an aggregate
of 750,000 shares ("Firm Shares") of the Company's authorized but unissued
common stock, par value $.001 per share (the "Common Stock"). The Company also
proposes to grant to you an option to purchase up to an additional 75,000 shares
of Common Stock for the sole purpose of covering over-allotments, if any (the
"Option Shares"). The Firm Shares and the Option Shares are more fully described
in the Registration Statement and the Prospectus referred to herein and are
hereinafter sometimes collectively referred to as the "Shares."
2. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement on
Form SB-2 (File No. 333-________) together with exhibits and including a
preliminary form of prospectus for the registration of the Shares, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended, and all applicable instructions, rules and regulations
(collectively, the "Securities Act") of the Securities and Exchange Commission
(the "Commission"), and has been filed with the Commission. There have been
delivered to you, copies of each Preliminary Prospectus and the Final
Prospectus. Such registration statement, including the Prospectus, Part II, any
documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time when it shall become effective, is
herein referred to as the "Registration Statement," and the prospectus included
as part of the Registration Statement on file with the Commission when it shall
become effective or, if the procedure in Rule 430A of the Rules and Regulations
(as defined below) is followed, the prospectus that discloses all the
information that was omitted from the prospectus on the
<PAGE>
effective date of the Registration Statement pursuant to such rule, and in
either case, together with any changes contained in any prospectus filed with
the Commission by the Company with your consent after the effective date of the
Registration Statement, is herein referred to as the "Final Prospectus." If the
procedure in Rule 430A is followed, the prospectus included as part of the
Registration Statement on the date when the Registration Statement became
effective is referred to herein as the "Effective Prospectus." Any prospectus
included in the Registration Statement of the Company and in any amendments
thereto prior to the effective date of the Registration Statement is referred to
herein as a "Pre-Effective Prospectus." For purposes of this Agreement, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Securities Act or the Securities Exchange Act of 1934 (the "Exchange
Act"), as applicable.
3. AGREEMENTS TO SELL AND PURCHASE.
(a) SHARES. The Company agrees to sell to you, and upon the
basis of the representations, warranties and agreements of the Company herein
contained and subject to the terms and conditions hereof, you shall purchase
from the Company, the Firm Shares at a purchase price of $4.50 per Share. This
purchase price represents the public offering price of $5.00 per Share, less a
discount, equaling ten percent (10%), in the amount of $.50 per Share that the
Company has agreed to allow the Underwriter. All or any portion of such discount
may be reallowed by you for sales through licensed securities dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD").
The Company also grants you an option to purchase, upon
your written notice to the Company, the Option Shares for the sole purpose of
covering over-allotments, if any, at the per Firm Share purchase price and on
the same terms as set forth above for the Firm Shares. The Option Shares may be
purchased, in whole or in part, at any time for a period of forty-five (45) days
following the effective date of the Registration Statement. The notice from you
to the Company shall specify the number of Option Shares to be purchased and the
date and time of payment and delivery thereof (the "Option Closing Date"). You,
as the Underwriters, in your sole discretion, shall determine the number of
Option Shares, if any, to be purchased as provided herein. Such over-allotment
option shall not be exercised more than on one occasion.
(b) UNDERWRITER'S WARRANTS. On the Closing Date (as defined
herein), the Company shall further issue and sell to you or, at your direction,
to your bona fide officers and directors, warrants entitling the holders thereof
to purchase 75,000 shares of Common Stock (the "Underwriter's Warrants") for a
purchase price of $.001 per Underwriter's Warrant. The Underwriter's Warrants
are exercisable at any time during the five year period commencing on the
effective date of the Registration Statement (the "Term"), at a price of $6.00
per share (i.e., 120% of the public offering price). For a period of one (1)
year after the effective date of the Registration Statement, the Underwriter's
Warrants and underlying securities may not be sold, assigned, transferred,
pledged or hypothecated except to officers of the Underwriter or members of the
selling group. Such transfers will only be made if they do not violate the
registration
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provisions of the Securities Act. The total number of Underwriter's Warrants
which may be purchased will be ten percent (10%) of the number of Firm Shares
sold in the offering. The Underwriter's Warrants shall contain terms and
provisions as set forth more particularly in the Underwriter's Warrant Agreement
including, but not limited to, provisions protecting the holders against
dilution by reason of the issuance of securities below the exercise price, stock
dividends, stock splits, combinations, recapitalizations, mergers and
consolidations or otherwise and such other terms as are agreed upon by the
Company and you. As provided in the Underwriter's Warrant Agreement, you may
designate that the Underwriter's Warrants be issued in varying amounts directly
to your officers and not the Underwriters, and to other underwriters, if any,
and their designees. Such designation will be made by you only if you determine
that such issuances would not violate the interpretation of the Board of
Governors of the NASD relating to the review of corporate financing
arrangements.
At any time during the Term, other than at a time when the Warrant
Securities (as defined below) are already covered for sale or resale by an
effective and current registration statement that permits the method of
distribution desired by the holders thereof, the Underwriters or the then
holders of a majority of the then outstanding Underwriters' Warrants and shares
of Common Stock issued upon the exercise of the Underwriters' Warrants
(collectively, the "Warrant Securities"), shall have the right to require the
Company (i) to prepare and file with the Commission up to two new registration
statements under the Securities Act (or, in lieu of either, a post-effective
amendment or amendments to the Registration Statement, if then permitted under
the Securities Act), covering all or any portion of the Warrant Securities and
to use its best efforts to obtain promptly and maintain the effectiveness
thereof for at least one hundred twenty (120) days and (ii) to register or
qualify the subject Warrant Securities for sale in up to ten (10) states
identified by the Underwriters or such holders. The Company shall bear all
expenses, other than expenses of the Underwriter counsel, incurred in the
preparation and filing of the first such registration statement or
post-effective amendment (and related state registrations, to the extent
permitted by applicable law) and the furnishing of copies of the preliminary and
final prospectus thereof to the Underwriters or such holders of Warrant
Securities. The expenses of any second such registration statement or
post-effective amendment (and matters attendant thereto) shall be borne by the
Underwriters or the holders requiring the same.
In addition, if at any time during the five years after the effective
date of the Registration Statement, the Company shall prepare and file one or
more post-effective amendments to the Registration Statement, or new
registration statements under the Securities Act, with respect to a public
offering of equity or debt securities of the Company, or of any such securities
of the Company held by its shareholders, the Company will include in any such
post-effective amendment such information as may be required to permit a public
offering of the Warrant Securities held by the Underwrites and their designees
or transferees or will include in any such new registration statement such
information as is required, and such number of Warrant Securities held by the
Underwriters and its designees or transferees as may be requested, to permit a
public offering of the Warrant Securities so requested; provided, however, that
if, in the written opinion of the Company's managing underwriter, if any, for
such offering, the
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inclusion of the Warrant Securities requested to be registered, when added to
the securities being registered by the Company, will exceed the maximum amount
of the Company's securities which can be marketed without otherwise materially
and adversely affecting the entire offering, then the Company may exclude from
such offering all or any portion of the Warrant Securities requested to be so
registered, but only if no securities are included in such post-effective
amendment or registration statement other than securities being sold for the
account of the Company. Each holder of Warrant Securities for the account of
which any such securities are included in such registration statement shall
agree, if requested by the Company with respect to an offering by the Company of
its own securities, not to sell any other shares of Common Stock or securities
through which Common Stock may be acquired, for a period of 90 days after the
effective date of such post-effective amendment or new registration statement;
provided that in no event shall the restriction imposed on such holders be
greater than those required of other selling shareholders. The Company shall
bear all fees and expenses incurred by it in connection with the preparation and
filing of such post-effective amendment or new registration statement. In the
event of any such proposed registration, the Company shall furnish the then
holders of outstanding Warrant Securities with not less than thirty (30) days'
written notice prior to the proposed date of filing of such post-effective
amendment or new registration statement. Such notice shall continue to be given
by the Company to such holders of outstanding Warrant Securities until such time
as all of the Warrant Securities have been registered. The holders of the
Warrant Securities shall exercise the "piggy-back" rights provided for herein by
giving written notice, within twenty (20) days of receipt of the Company's
notice of its intention to file a post-effective amendment or new registration
statement.
The Underwriters' Warrants shall be transferable after one year from
the effective date of the Registration Statement pursuant to available
exemptions from registration (if not otherwise covered by an effective
registration statement) under the Securities Act, provided, however, that the
Underwriters' Warrant may not be transferred to a direct competitor of the
Company without the Company's prior written consent. Further, the Underwriters
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or otherwise necessary to make any
such statement therein not misleading.
4. DELIVERY AND PAYMENT. Delivery of and payment for the Firm Shares
shall be made at 10:00 A.M., Miami Time, on ____________, 199 (such time and
date are referred to herein as the "Closing Date") at your office, 980 North
Federal Highway, Suite 210, Boca Raton, Florida 33432. The Closing Date and the
time and the place of delivery of and payment for the Firm Shares may be varied
by agreement between you and the Company.
If you elect to purchase and take delivery of any Option Shares,
delivery of and payment for such Option Shares shall be made at said office or
at such place as may be agreed upon in writing by you and the Company, on the
Option Closing Date, which may be the same as the Closing Date but shall in no
event be earlier than the Closing Date or earlier than one or later than ten
business days after the giving of the written notice referenced in Section 3
hereof from you to the Company of the determination to purchase a number,
specified in said notice, of Option Shares. Such notice may be given by you to
the Company at any time within forty-
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five (45) days after the date of the Final Prospectus. The Option Closing Date
may be varied by agreement between you and the Company. On the Option Closing
Date, if any, there shall be delivered to you supplemental opinions and
certificates, dated such Option Closing Date, to the same effect as those
required to be delivered on the Closing Date pursuant to Section 8 hereof. The
Closing Date and the Option Closing Date are hereinafter collectively referred
to as the "Closing Date."
Delivery of certificates for the shares of Common Stock which
comprise the Firm Shares (in definitive form and registered in such names and in
such denominations as you shall request prior to the Closing Date) shall be made
to you against payment of the purchase price therefor by certified or official
bank check or checks payable to the order of the Company in the amount of
$_____, which shall be in New York Clearing House funds. For the purpose of
expediting the checking and packaging of certificates for the shares of Common
Stock, the Company and agrees to make such certificates available for inspection
at least 24 hours prior to the Closing Date. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company further
covenants and agrees with you as follows:
(a) FILING OF REGISTRATION STATEMENT. The Company shall use
its best efforts to cause the Registration Statement to become effective or, if
the procedure in Rule 430A of the Rules and Regulations is followed, comply with
the provisions of and make all requisite filings with the Commission pursuant to
such Rules and Regulations. The Company will give you advance notice of its
intention to file or make any amendment or post-effective amendment to the
Registration Statement or any amendment or supplement to the Prospectus and will
submit all such amendments or supplements to you and to your counsel as soon as
possible, but not later than five (5) business days before the Company proposes
to file such amendments or supplements with the Commission. The Company will not
file any such amendment or supplement to which you shall object in writing
within a reasonable time after being furnished copies thereof. The Company will
not allow the Registration to be declared effective by the Commission without
your approval.
(b) NOTICE TO UNDERWRITERS. The Company will advise you
immediately and confirm that advice in writing (i) when any post-effective
amendment to the Registration Statement, shall have become effective, (ii) of
the mailing or the delivery to the Commission for filing of any amendment or
post-effective amendment to the Registration Statement or any amendment or
supplement to the Prospectus, (iii) of any request by the Commission for
amendment or supplement to the Registration Statement or the Prospectus, or for
additional information, immediately supplying you with copies of all comment
letters and all other correspondence with the Commission, (iv) of the issuance
by the Commission of any stop order suspending effectiveness of the Registration
Statement or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the initiation or threat of any proceeding
for any such purpose, (v) of the issuance by any state securities commission or
other
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regulatory authority of any order suspending the qualification or the exemption
from qualification of the Shares under state securities or Blue Sky laws or the
initiation or threat of any proceedings for that purpose and (vi) of the
happening of any event during the period mentioned in Section 5(d) hereof that
makes any statement made in the Registration Statement or the Prospectus untrue
in any material respect or which requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading in any material respect. The Company will use its best efforts to
prevent the issuance of any stop order or suspension order and to obtain the
withdrawal of any such stop order or suspension order at the earliest possible
moment.
(c) NASDAQ LISTING. On the effective date of the Registration
Statement, the Common Stock shall be listed for quotation on the NASDAQ SmallCap
Market, and the Company shall use its best efforts to maintain such listing for
not less than five (5) years, provided, however, that the Company may withdraw
the listing of its securities on the NASDAQ if the Company lists Common Stock on
the NASDAQ National Market System or on the New York or American Stock Exchange.
In addition to the foregoing, the Company shall, pursuant to Schedule D of the
NASD By-Laws, prepare and file with NASD any required notification along with
applicable fees to list the Shares on the NASDAQ system. The Company shall
prepare and file as promptly as practicable a Report by Issuer of Securities
Quoted on NASDAQ Interdealer Quotation System on Form 10-C with respect to the
shares of Common Stock.
(d) POST-EFFECTIVE AMENDMENT. Within the time during which a
Final Prospectus relating to the Shares is required to be delivered under the
Securities Act, the Company shall comply with all requirements imposed upon it
by the Securities Act and by the Rules and Regulations, as from time to time in
force, so far as is necessary to permit the continuance of sales of or dealings
in the Shares as contemplated by the provisions hereof and the Final Prospectus.
If at any time when a prospectus relating to the Shares is required to be
delivered under the Securities Act, any event occurs as a result of which, in
the judgment of the Company and its counsel, the Prospectus as then amended or
supplemented would include any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which made, not misleading in any material respect, or if it
is necessary at any time to amend or supplement the Prospectus to comply with
the Securities Act or any other applicable law, the Company will promptly notify
you, and the Company shall promptly prepare and file with the Commission an
amendment or supplement to the Registration Statement which will correct such
statement or omission, or an amendment or supplement which will effect such
compliance, and deliver to you in connection therewith such prospectus or
prospectuses in such quantity as may be necessary to permit compliance with the
requirements of the Securities Act.
(e) BLUE SKY QUALIFICATION. Prior to any public offering of
the Shares by you, the Company will endeavor in good faith, using your counsel,
and in cooperation with you and your counsel in taking such action as may be
necessary to register or qualify the Shares for offer and sale under the
applicable securities or Blue Sky laws of any states or jurisdictions of the
United States as you may reasonably designate and will maintain such
qualifications in effect for
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so long as may be required for the distribution of the Shares. The foregoing
shall be subject to the reasonable consent of the Company as to any state or
jurisdiction that seeks to impose an escrow requirement with respect to
insiders' shares or some other restrictive condition upon the Company that
exceeds the insiders lock-up provision of Section 5(h) (other than because no
escrow is required herein) or a comparable condition contained herein. Copies of
all applications and related documents for the registration or qualification of
securities (except for the Registration Statement and Prospectus) filed with the
various states shall be sent to the Company's counsel not later than the next
business day following their transmission to the various states, and copies of
all comments and orders received from the various states shall be made available
to the Company's counsel. As information is received from various states and
immediately prior to the effective date of the Registration Statement, counsel
for the Underwriters shall advise counsel for the Company in writing of all
states where the offering has been registered or qualified for sale or has been
canceled, withdrawn or denied, the date(s) of such event(s), and the number of
Shares (and amount of other securities, if any) registered or qualified for sale
in each state. The Company shall be responsible for the cost of state
registration filing fees and legal fees and expenses of Underwriters' counsel in
connection with such filings, which filing fees shall be paid to Underwriters'
counsel in advance of such filings. The Underwriters' counsel's legal fees with
respect to blue sky filing shall be $1,000 for each state in which application
for registration or qualification is made, up to an aggregate of $35,000 for all
states combined.
The Company shall, as soon as practicable after the Closing
Date, apply for listing in Standard and Poor's Stock Guide and use its best
efforts to effect and maintain such listing for at least five (5) years. The
Company further agrees, at any time during the two (2) year period following the
Closing Date, to engage, within sixty (60) days of written request by the
Underwriter, the services of an investor relations firm reasonably acceptable to
the Underwriters and to maintain such services from the date of engagement until
up to two (2) years following the Closing Date.
(f) INFORMATION TO THE UNDERWRITERS. The Company will deliver
to you, for a period of at least five (5) years from the Closing Date: (i) as
soon as practicable, but in any event within ninety-five (95) days after the
close of each fiscal year of the Company, or as soon thereafter as practicable,
a financial report of the Company and its subsidiaries, if any, on a
consolidated basis, and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as of the end
of the preceding fiscal year, a statement of operations, a statement of changes
in financial condition and a statement of stockholders' equity covering such
fiscal year, and all to be in reasonable detail and certified by independent
public accountants who may, however, be the regularly employed independent
public accountants of the Company; (ii) within one hundred and five (105) days
after the end of each quarterly fiscal period of the Company, other than the
last quarterly fiscal period in any fiscal year, or as soon thereafter as
practicable, copies of the consolidated statement of operations, the statement
of stockholders' equity and statement of changes in financial condition for that
period, and the balance sheet as of the end of that period of the Company and
its subsidiaries, if any, the statement of operations, the statement of
stockholders' equity and statement of changes in
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financial condition and the balance sheet of each unconsolidated subsidiary, if
any, of the Company for that period, all subject to year-end adjustment,
certified by the principal financial or accounting officer of the Company; (iii)
copies of all other statements, documents, or other information which the
Company shall mail or otherwise make available to any class of its security
holders, to the financial press or to the public, or shall file with the
Commission, including, but not limited to periodic reports required to be filed
under Sections 13 and 15 of the Exchange Act, in particular Forms 10-K, 10-Q and
8-K (which shall be provided within the same period such reports are required to
be filed with the Commission); and (iv) upon request in writing, such other
information as may reasonably be requested with reference to the property,
business, stockholders and affairs of the Company and its subsidiaries, if any.
(g) SECTION 11(A) EARNINGS STATEMENT. The Company will, as
promptly as possible after the close of each fiscal year of the Company, prepare
and distribute reports to its stockholders which will include audited statements
of its operations and changes of financial position during such period and its
balance sheet as of the end of such period. The Company will make generally
available to its stockholders and will deliver to you, as soon as practicable,
but in no event later than the first day of the 15th full calendar month
following the effective date of the Registration Statement, an earnings
statement (which need not be audited but which will satisfy the provisions of
Section 11(a) of the Securities Act) covering a period of at least twelve (12)
months beginning after the effective date of the Registration Statement.
(h) LOCK-UP AGREEMENTS. The Company will cause each of its
officers, directors, holders of the Company's Common Stock, and any other
persons deemed to be "affiliates" as defined in Rule 144 under the Securities
Act immediately prior to the effective date of the Registration Statement, to
agree in writing (the "Lock-Up Agreement") that: (i) such person shall not sell,
including a short sale or sale against the box, or otherwise dispose of any
shares of the Common Stock owned directly, indirectly, or beneficially (as
defined by the Exchange Act and the Rules and Regulations promulgated
thereunder) by him, her or it for a period of twenty-four (24) months from the
effective date of the Registration Statement ("Lock-Up Period") without the
Underwriters' prior written consent); and (ii) such person will permit all
certificates evidencing his, her or its shares of Common Stock to be affixed
with an appropriate restrictive legend, and will cause the transfer agent for
the Company to note such restrictions on the transfer books and records of the
Company. Additionally, for a period of forty-eight (48) months following the
effective date of the Registration Statement, the Company's officers, directors,
shareholders and affiliates will agree to sell any shares of Common Stock it so
desires to sell through the Representatives if the price and terms of execution
offered by the Representatives are at least as favorable as may be obtained from
other brokerage firms. On or before the effective date, the Company shall have
furnished to the Representatives the Lock-Up Agreements, which shall be in a
form reasonably acceptable to the Representatives and which shall be duly
executed, and shall be valid and binding obligations of such persons enforceable
against such persons in accordance with their respective terms.
(i) PRESS RELEASES. For a period commencing on the date hereof
and ending two years after the date of the Prospectus, neither the Company nor
any of its officers or
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directors will issue news releases or permit other such publicity about the
Company regarding the financial condition or any significant event of the
Company without the approval of the Company's legal counsel named in the
Prospectus under the heading "Legal Opinions," or such other counsel as may be
approved by you. During such period, the Company will deliver to you copies of
such news releases or other publicity about the Company promptly after
distribution thereof.
(j) UNDERWRITERS' COPIES. The Company will promptly deliver to
you, without charge: (i) two complete copies (one of which is manually signed)
of the Registration Statement, as originally filed, and of each amendment
thereto, and of each post-effective amendment thereto filed at any time when a
prospectus relating to the Shares is required to be delivered under the
Securities Act, in each such case manually executed by the proper officers and a
majority of the directors of the Company (or, in case of amendments, by their
duly constituted attorneys-in-fact) and including signed copies of each consent
of experts named in the Registration Statement and all financial statements,
schedules and exhibits filed therewith (including those incorporated by
reference to the extent not previously furnished to you), and (ii) such number
of conformed copies of the Registration Statement, as originally filed, and of
each amendment and post-effective amendment thereto (in each such case excluding
exhibits), as you may reasonably require. The Company will promptly deliver,
without charge, to you or such others whose names and addresses are designated
by you as soon as possible after the effective date of the Registration
Statement, and thereafter from time to time during the period when delivery of a
prospectus relating to the Shares is required by the Securities Act, as many
printed copies as you may reasonably request of the Final Prospectus and of any
amended or supplemented prospectus. The Company will promptly deliver, without
charge, as soon as practicable following the public offering or sale of the
Shares, and thereafter from time to time for such period as delivery of a
prospectus or any amendment or supplement thereto may be required, to you or any
dealers to whom Shares may be issued, as many copies as you reasonably request
of the Prospectus and any amendment or supplement thereto.
(k) NASD MATTERS. The Company shall supply your counsel with
the following as appropriate to satisfy the NASD filing requirements: (i) such
copies of any amendment or supplement to the Registration Statement and the
preliminary prospectus or Final Prospectus; and (ii) the statutory filing fee in
the form of a certified or cashier's check. The Company shall further supply to
your counsel, no later than one (1) week before the effective date of the
Registration Statement, a written representation as to (i) the existence or
nonexistence of any NASD affiliation or association of any officer, director, or
five percent (5%) or greater shareholder of the Company, and, if a shareholder
of the Company is a corporation, the existence or nonexistence of any direct or
indirect NASD affiliation or association of any officer, director, or five
percent (5%) or greater shareholder of such corporation, (ii) whether or not any
unregistered securities of the Company have been acquired by any NASD affiliated
persons during the twelve (12) month period prior to filing the Registration
Statement, and (iii) whether or not key-man life insurance has been or will be
provided for any officer or director of the Company by any NASD affiliate.
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(l) EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement becomes effective or is
terminated, the Company shall bear all costs and expenses incident to the
issuance, offer, sale, and delivery of the Shares, including, but not limited
to, stock transfer taxes, all expenses and fees incident to the filing of the
Registration Statement and the registration statements with the Commission
pursuant to the Securities Act and the Exchange Act, the costs, filing fees and
reasonable counsel fees related to qualification under state securities laws,
fees and disbursements of counsel and accountants for the Company, NASD filing
fees, NASDAQ system fees, costs of preparing and printing the Registration
Statement and as many copies of the preliminary prospectus and Prospectus as you
may reasonably deem necessary, including all amendments and supplements to the
Registration Statement, and the printing, delivery, and shipping of this
Agreement and other underwriting documents, including underwriters'
questionnaires, underwriters' powers of attorney, Blue Sky memoranda, and
selected dealers' agreements, the cost of printing certificates representing the
Shares, the costs and charges of the Transfer Agent, and all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise provided for in this Agreement. The Company shall also bear all costs
of holding informational meetings and "road shows" to acquaint securities
dealers with the affairs of the Company. The Company, at its sole expense, shall
make a representative of its management available at the offices of the
Underwriters, at mutually convenient times, prior to the effective date of the
Registration Statement and shall likewise make representatives available at the
Company for due diligence or other informational meetings. The Company will also
pay the out-of-pocket travel expenses of the Underwriters and their counsel or
the professionals designated by the Underwriters to visit the Company's
facilities (as well as those of any significant supplier to, or customer of, the
Company) for purposes of discharging their due diligence responsibilities. The
Prospectus (preliminary and definitive) shall be printed by a financial printer
selected by the Company and approved by the Underwriters. The Company agrees to
supply the Underwriters (within six weeks of the Closing Date) at the Company's
sole cost and expense six (6) bound volumes of all the documents, papers and
exhibits, correspondence and records forming the materials included in the
public offering, and twelve (12) Lucite cubes containing a miniature definitive
Prospectus. In addition, the Company agrees to pay for all pre- and post-closing
advertisements relating to the public offering.
In addition to the foregoing, the Company shall reimburse you
for your expenses on the basis of a nonaccountable expense allowance in the
amount of 3% of the gross offering proceeds; all of your costs in excess of the
nonaccountable expense allowance shall be paid by you. Expenses to which the
allowance shall be applied include fees of your counsel, but shall not include
the following: fees of the Company's counsel; Commission or state filing fees;
reasonable Blue Sky counsel fees and expenses; NASD filing fees; NASDAQ listing
fees; printing; tombstone advertisements; and any and all other expenses
customarily paid by the issuer in a public offering. The Company represents that
such payment will be made in full.
Notwithstanding any other provisions of this Agreement, if (i)
(a) there is a material adverse change in the business or financial condition of
the Company, (b) there exists any material misrepresentation of the Company
contained herein or otherwise, (c) you discover
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in the course of your due diligence examination of the Company facts which you
determine, in your sole discretion, could adversely affect the sale of the
Shares, or (d) market conditions, in your sole judgment, do not justify an
offering on the terms set forth in the Registration Statement, and in any such
event you elect to terminate the underwriting or (ii) there is any judicial,
administrative or other regulatory or governmental judgment, decree, order,
injunction or similar action or proceeding enjoining, suspending, prohibiting,
limiting or otherwise restricting you from engaging in underwriting activities
or sales of securities, and in any such event you elect to terminate the
underwriting, the Company, agrees that in addition to paying the Company's own
expense, you will be entitled to be reimbursed by us, on an accountable basis,
for all of its accountable out-of-pocket costs incurred in connection with the
offering of securities contemplated by the Registration Statement. Furthermore,
if the Company should fail to pay the agreed upon amounts set forth above to
you, your successors or assigns, the Company, shall, furthermore, be liable to
you for reasonable attorney's fees and costs incurred in the collection of said
amounts.
(m) TRANSFER SHEETS. The Company shall furnish to you a list
of the names and addresses of all stockholders subsequent to the Closing Date
and shall cause the Transfer Agent to furnish to you a copy of all transfer
sheets for a period of three years from the later of the Closing Date or the
Option Closing Date.
(n) UNDERTAKINGS AND USE OF PROCEEDS. The Company will comply
with all of the undertakings contained in the Registration Statement and shall
apply the net proceeds of the sale of the Firm Shares substantially in
accordance with the description set forth in the Prospectus.
(o) FINANCIAL ADVISORY AGREEMENT. On the Closing Date, the
Company shall execute a Financial Advisory Agreement with you for services,
which shall include without limitation (i) advising the Company in connection
with possible acquisitions (ii) facilitating shareholder communications and
relations, including the preparation of the Company's annual report and (iii)
advising and assisting the Company with long-term financial planning, corporate
reorganization, expansion and capital structure and other financial matters.
Such agreement shall have a term of two years and provide for compensation of
$2,000 per month which amount shall be prepaid in full on the Closing Date. The
Financial Advisory Agreement shall further provide that during the term of such
agreement, in the event that you (i) introduce, negotiate or arrange on the
Company's behalf a non-public equity financing or (ii) arrange on the Company's
behalf a non-public debt financing or (iii) arrange for the purchase or sale of
assets, or for a merger acquisition or joint venture for the Company,then the
Company will compensate you (based on the Transaction Value, as defined below)
for such services in an amount equal to:
6% on the first $5,000,000 of the Transaction Value;
5% on the amount from $5,000,001 to $6,000,000;
4% on the amount from $6,000,001 to $7,000,000;
3% on the amount from $7,000,001 to $8,000,000;
2% on the amount from $8,000,001 to $9,000,000;
1% on the amount in excess of $9,000,000.
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"Transaction Value" shall mean the aggregate value of all
cash, securities and other property (i) paid to the Company, its affiliates or
their shareholders in connection with any transaction referred to above
involving any investment in or acquisition of the Company or any affiliates (or
the assets of either), (ii) paid by the Company or any affiliate in any such
transaction involving an investment in or acquisition of another party or its
equity holdings by the Company or any affiliate, or (iii) paid or contributed by
the Company or any affiliate and by the other party or parties in the event of
any such transaction involving a merger, consolidation, joint venture or similar
joint enterprise or undertaking. The value of any such securities (whether debt
or equity) or other property shall be the fair market value thereof as
determined by mutual agreement of the Company and the Underwriters or by an
independent appraiser jointly selected by the Company and the Underwriters.
(p) RIGHT OF FIRST REFUSAL. The Company agrees that the
Underwriter shall, for a period of twenty-four (24) months after the Closing
Date, have a right of first refusal with respect to managing any public offering
or private placement of securities by the Company, any future subsidiary of the
Company or any successor to the Company; provided, however, that the
Underwriters, within twenty (20) days after receiving written notice of such
offering or placement containing the terms proposed by any third party, offer
terms at least as favorable to any proposed financing offered by the Company by
any third party.
(q) EXCHANGE ACT REGISTRATION. The Company shall prepare and
file a registration statement with the Commission pursuant to Section 12(g) of
the Exchange Act. Such registration statement under the Exchange Act shall be
declared effective contemporaneously with the effectiveness of the registration
statement. The Company shall comply with the Securities Act, the Exchange Act
and the Rules and Regulations promulgated thereunder, the applicable rules and
regulations of the NASD and applicable states securities laws so as to permit
the continuance of sales of and dealings in the Shares in compliance with
applicable provisions of such laws, rules, and regulations, including the filing
with the Commission and the NASD of all reports required to be so filed by each,
and the Company will deliver to the holders of the shares all reports required
to be provided to such holders pursuant to such laws, rules, or regulations.
(r) REDEMPTION AND DIVIDENDS. For a period of two years from
the Closing Date, the Company shall not, either directly or through a
subsidiary, (i) redeem or purchase any of its securities outstanding as of the
Closing Date, other than redemptions that may be required in connection with
possible termination of employment with the Company under the terms of
employment agreements in effect on the Closing Date, or redemptions as otherwise
provided for herein, or (ii) pay any dividends, or make any other cash
distribution in respect of its securities, in excess of the amount of the
Company's current or retained earnings derived after the Closing Date, without
the prior written consent of the Underwriters, which consent may be withheld for
any reason. The Underwriter shall either approve or disapprove, in writing of
such contemplated stock redemption or dividend or distribution within five (5)
business days after the date the Underwriters receive written notice of the
proposed action.
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6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you that:
(a) ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. To its
knowledge, the Commission has not issued any order preventing or suspending the
use of any preliminary prospectus or Prospectus, no proceedings for that purpose
have been instituted and each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto
or filed pursuant to Rule 424 under the Securities Act in all material respects,
at the time of the filing thereof, complied with the Securities Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; when the Registration Statement becomes effective, and when the
Prospectus is filed with the Commission, and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, or for such
longer period as the Prospectus is required under the Securities Act to be
delivered in connection with sales by you or a dealer selected by you, the
Registration Statement and the Prospectus and any amendments or supplements
thereto will comply with the Securities Act; when the Registration Statement
becomes effective, the Registration Statement will contain all statements
required to be stated therein in accordance with the Securities Act and will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and when the Prospectus is filed with the Commission, it will
contain all statements required to be stated therein in accordance with the
Securities Act and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to information contained in or omitted from any
preliminary prospectus or the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information (or oral information to the extent such information relates to the
private ongoing investigation of you by the Commission) furnished to the Company
with respect to you by or on behalf of you expressly for use with reference to
you (or any person who may be deemed to be affiliated with you or an associated
person of yours) in connection with the preparation thereof.
(b) FINANCIAL STATEMENTS. The financial statements and the
related schedules and notes included in the Registration Statement and in the
Prospectus present fairly the financial position, results of operations and
changes in financial position of the Company and its subsidiaries, at the dates
and for the periods specified therein. The accountants who have audited the
financial statements filed with the Commission as a part of the Registration
Statement and the Prospectus are independent accountants with respect to the
Company as required by the Securities Act. The pro forma financial statements
included in the Registration Statement and the Prospectus present fairly the
financial position and results of operation of the Company at the dates and for
the periods specified therein.
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(c) NO ADVERSE CHANGE. Except as reflected in the Registration
Statement and in the Prospectus or any amendment or supplement thereto, since
the respective dates as of which information is given in the Registration
Statement and in the Prospectus or any amendment or supplement thereto and prior
to the Closing Date, or Option Closing Date, as the case may be, the Company has
conducted its business in substantially the same manner as of November 8, 1996,
and neither the Company nor any of its subsidiaries have incurred, or will have
incurred, any liabilities or obligations, direct or contingent (other than in
the normal course of business except as disclosed in the Registration
Statement), and there has not been any change in the capital stock, short-term
debt (other than in the normal course of business) or long-term debt of the
Company or its subsidiaries or any adverse change, or any development involving
a change in the condition (financial or otherwise), net worth, results of
operations, the affairs or business prospects of the Company or its
subsidiaries, which might be adverse to the Company or its subsidiaries and no
event has occurred concerning the Company or its subsidiaries and which might
result in an adverse change or effect in or on the general affairs, management,
financial position, stockholders' equity or results of operations of the Company
or its subsidiaries except as disclosed in the Registration Statement.
(d) AUTHORITY. This Agreement and the Underwriter's Warrant
Agreement have been duly authorized and validly executed and delivered by the
Company, and are legal, valid and binding agreements of the Company enforceable
against the Company, in accordance with their respective terms.
(e) INCORPORATION AND STANDING. Each of the Company and its
subsidiaries, is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation and is duly
registered or qualified to do business and is in good standing as a foreign
corporation in each jurisdiction that requires such qualification and in which
the failure to qualify could have a material adverse effect on the Company and
its subsidiaries, taken as a whole. Each of the Company and its subsidiaries has
full power and authority (corporate, governmental, regulatory and other) to own
and lease its properties and to conduct its business as described in the
Registration Statement and in the Prospectus and has corporate power and
authority (corporate, governmental, regulatory and other) to enter into this
Agreement and to issue the Underwriter's Warrants. The Company has no
subsidiaries other than its subsidiaries disclosed in the Registration Statement
and in the Prospectus. A complete and correct copy of the Articles of
Incorporation of the Company and the Articles of Incorporation or Memorandum of
Association of each subsidiary, as the case may be, each as certified by the
Secretary of the State of Florida or such other jurisdiction of incorporation,
and the bylaws of the Company, and the bylaws, of each subsidiary, as currently
in effect, and as certified by the Secretary of the Company and each subsidiary,
respectively, has been delivered to you, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or the Optional
Closing Date.
(f) NO DEFAULTS. Neither the Company nor any of its
subsidiaries is in material violation of its corporate charter or bylaws,
respectively, and, except as disclosed in the Registration Statement and the
Prospectus, in material default in any respect in the
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performance of any material obligation, agreement, covenant or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any indenture, mortgage, deed of trust or other agreement or instrument of
any of them or by which any of their respective property is bound, and there
exists, and through the Closing Date and the Optional Closing Date, if any,
there shall exist no condition which, with the passage of time or otherwise,
would constitute a default under any such agreement or instrument or result in
the imposition of any penalty or acceleration of any indebtedness. No other
party under any agreement or instrument referred to in the immediately preceding
sentence to which the Company or its subsidiaries is a party or by which their
respective property is bound is in default in any material respect thereunder.
The execution and delivery of this Agreement and the Underwriter's Warrant
Agreement, the issue and sale of the Shares, the Underwriter's Warrants and the
Warrant Securities and the compliance by the Company with all of the provisions
of this Agreement and the Underwriter's Warrant Agreement, will not conflict
with or result in a material breach or violation of any of the terms and
provisions of, or constitute a material default (or an event which with notice
or lapse of time, or both, would constitute a default) under, or result in the
creation or imposition of any material lien, charge or encumbrance upon any of
the property or assets of the Company or any of its subsidiaries pursuant to the
terms of, any material indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its subsidiaries
are subject (and no consent under any thereof which has not been obtained is
required for any such action), nor will such action result in a material
violation of the provisions of the certificate of incorporation or bylaws of the
Company or any of its subsidiaries, or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their respective property; and
no consent, approval, authorization, order, registration or qualification of or
with any court or any regulatory authority or other governmental body is
required for the issue and sale of the Shares, the Underwriter's Warrants or the
Warrant Securities or in connection with the consummation of the other
transactions contemplated by this Agreement and the Underwriter's Warrant
Agreement, except such consents, approvals, authorizations, registrations or
qualifications as may be required under applicable Federal and state securities
or Blue Sky laws in connection with the purchase and distribution of the Shares
by you and the purchase of the Underwriter's Warrants and the Warrant
Securities.
(g) CAPITAL STOCK. The authorized, issued and outstanding
capital stock of the Company and its subsidiaries conforms to the descriptions
thereof in the Registration Statement and in the Prospectus. The issued and
outstanding capital stock has been duly and validly authorized and issued, is
fully paid and nonassessable and is free of preemptive or redemption rights.
There are no outstanding options, warrants, or other rights calling for the
issuance of, and no commitment, plan or arrangement to issue or to register, any
share of capital stock of the Company or any security convertible into or
exchangeable for capital stock of the Company other than as disclosed in the
Registration Statement and the Prospectus. No holder of any securities of the
Company has the right to require registration of shares of the Common Stock or
other securities of the Company by reason of the filing of the Registration
Statement or
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otherwise, except as set forth in the Registration Statement. The Company
covenants and agrees that it will not amend any of its stock option plans to
increase the number of shares of Common Stock granted under any of such option
plans for a period two (2) years from the effective date of the Registration
Statement without the prior written consent of the Underwriters.
(h) LEGALITY OF SHARES. The Shares have been duly authorized
by the Company and conform to the descriptions thereof in the Registration
Statement and in the Prospectus. The Shares when sold and paid for in accordance
with the terms of this Agreement, will be duly and validly issued, fully paid
and nonassessable and free of preemptive and redemption rights.
(i) UNDERWRITER'S WARRANT AGREEMENT. The Underwriter's Warrant
Agreement conforms to the description thereof in the Registration Statement and
in the Prospectus and, when sold to and paid for by you, will be duly
authorized, will be validly issued and will be the valid and binding obligation
of the Company. The Warrant Securities have been duly and validly authorized and
reserved for issuance upon exercise of the Underwriter's Warrants and, when
issued upon such exercise in accordance with the terms of the Underwriter's
Warrant Agreement at the price therein provided, will be validly issued, fully
paid and nonassessable and free of preemptive and redemption rights.
(j) PROPERTY. The Company and each of its subsidiaries has
good and marketable title to all properties and assets described in the Final
Prospectus as being owned by it (including securities) that are material to
their respective businesses free and clear of all material liens, charges,
encumbrances or restrictions of every kind and nature, except such as are
disclosed in the Registration Statement and in the Prospectus and except for
taxes not yet due, materialmen's, workmen's and other similar liens incurred in
the ordinary course of business which, individually or in the aggregate, do not
have a materially adverse effect on the value or use of such properties or
assets in the hands of the Company or any of its subsidiaries taken as a whole
and any other liens which, individually or in the aggregate, are not material to
the Company and its subsidiaries taken as a whole. The Company and each of its
subsidiaries owns or leases all such properties, real, personal and mixed,
tangible and intangible, as are necessary to carry on its operations as
heretofore conducted and, except as otherwise stated in the Registration
Statement and in the Prospectus, as proposed to be conducted, as set forth in
the Registration Statement and in the Prospectus.
(k) LITIGATION. Except as set forth in the Registration
Statement and in the Prospectus, there is not now pending or, to the knowledge
of the Company, threatened (i) any action, suit or proceeding to which the
Company or any of its subsidiaries or any of their respective officers or
directors is or will be a party or of which the business or property of the
Company or any of its subsidiaries is or will be the subject before or by any
court or governmental agency or body which might adversely affect the condition
(financial or other), business or prospects of the Company or any of its
subsidiaries, or might materially adversely affect the properties or assets of
the Company or any of its subsidiaries taken as a whole, (ii) any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion, race or national origin except as disclosed in
the Registration
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Statement and the Prospectus, (iii) any existing or threatened labor disturbance
by the employees of the Company or any of its subsidiaries which might be
expected to materially adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company or any of its
subsidiaries, or (iv) any material contingent liability.
(l) TAX RETURN. Except as set forth in the Registration
Statement and in the Prospectus, the Company and each of its subsidiaries, has
filed, or has obtained currently effective extensions for, all necessary
federal, state, municipal and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and, except as set forth in the
Registration Statement and in the Prospectus, neither the Company nor any of its
subsidiaries has knowledge of any tax deficiency which has been or might be
asserted against the Company or any of its subsidiaries which would materially
adversely affect the business or operations of the Company and any of its
subsidiaries taken as a whole.
(m) PRIOR SALES. No securities of the Company have been sold
by the Company or by, or on behalf of, or for the benefit of the Company within
three years prior to the date hereof, except as set forth in the Registration
Statement or Prospectus.
(n) AUTHORIZATIONS. Except as disclosed in the Registration
Statement and the Prospectus, the Company and each of its subsidiaries have such
franchises, licenses, permits, approvals and other governmental authorizations
required for the present conduct of its business, such franchises, licenses,
permits, approvals and other governmental authorizations are in full force and
effect and the Company and its subsidiaries are in material compliance therewith
and the Company and its subsidiaries have not received notice of conflict with
the asserted rights of others in respect thereof. Except as set forth in the
Registration Statement and in the Prospectus, (i) the expiration of any material
contract, agreement, franchise, license, permit, approval or other governmental
authorization would not materially adversely affect the operation of the Company
or its subsidiaries, and (ii) none of the activities, businesses or properties
of the Company or its subsidiaries is in material violation of, or could cause
the Company or its subsidiaries to violate, any law, rule, regulation, or order
of the United States, any state, county or other jurisdiction, or of any agency
thereof.
(o) EXHIBITS. There are no material contracts, agreements or
other documents required to be described in the Registration Statement or in the
Prospectus or to be filed as exhibits to the Registration Statement by the
Securities Act which have not been described or filed as required, and neither
the Company nor its subsidiaries is in material violation of, and no material
default exists in the performance, observance or fulfillment of, any material
obligation, agreement, covenant or condition contained in any of such contracts,
agreements or documents except as disclosed in the Registration Statement and
the Prospectus.
(p) FINDER OR BROKER. The Company has not retained o dealt
with any broker or finder with respect to the transactions contemplated hereby,
and the Company knows of no outstanding claims for services in the nature of a
finder's fee or origination fee with respect to the sale of the Shares. The
Company will indemnify and hold harmless the Underwriters with
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respect to any claim for a finder's fee by any party claiming to be owed such
fee based on contacts, conversations or arrangements with the Company.
Furthermore, as set forth in the Registration Statement and in the Prospectus,
the Company has no management or financial consulting agreement with anyone.
Except as set forth in the Registration Statement and in the Prospectus or
otherwise disclosed to you in writing prior to the date hereof, no promoter,
officer, director or five percent or greater stockholder of the Company is,
directly or indirectly, associated with an NASD member broker/dealer.
(q) INTERNAL ACCOUNTING CONTROLS. The books, records and
accounts of the Company and its subsidiaries, if any, accurately and fairly
reflect, in reasonable detail, the transactions and dispositions of the assets
of the Company and its subsidiaries, as the case may be. The system of internal
accounting controls maintained by the Company and its subsidiaries is sufficient
to provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary (a) to permit preparation of financial
statements in conformity with generally accepted accounting principles and (b)
to maintain accountability for assets, (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
(r) PATENTS. The Company and each of its subsidiaries have
such proprietary know-how, and such patents and governmental or other
authorizations as currently are required for their respective businesses and the
Company and each of its subsidiaries are, except as set forth in the
Registration Statement, in all respects in compliance with such patents and
governmental or other authorizations. Except as set forth in the Prospectus, the
services performed or products sold by the Company or its subsidiaries do not
violate or infringe any patent or governmental or other authorizations held or
owned by any third party. Neither the Company nor its subsidiaries has received
from or on behalf of any third party, any notice of violation or infringement of
or conflict with the rights of such third party with respect to any such patents
or governmental or other authorizations owned or used by the Company or its
subsidiaries.
(s) 1940 ACT MATTERS. Neither the Company nor any of its
subsidiaries will be operated so as to become an "investment company" or a
person "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(t) STABILIZATION. Neither the Company, its subsidiaries, nor
any of their respective officers, directors or affiliates (as defined under the
Securities Act) have taken, directly or indirectly, any action to cause or
result in, or which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of the Common Stock
to facilitate the sale or the resale thereof, within the meaning of the
Securities Act or the Exchange Act.
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(u) REASON FOR SALE. The sale of the Shares by the Company
pursuant to this Agreement is not prompted by any information concerning the
Company which is not set forth in the Registration Statement.
(v) EMPLOYMENT AGREEMENTS. The employment agreements between
the Company and its officers described in the Registration Statement are binding
and enforceable obligations upon the respective parties thereto in accordance
with their respective terms.
(w) LIQUIDATION. The Company's articles of incorporation
provide that (A) any liquidation of the Company, or (B) any business combination
in which the Company is not the surviving corporation or any sale of all or
substantially all of its assets (which combination or sale occurs during the
five-year period immediately following the Closing Date), must be approved by a
vote of the holders of a majority of the outstanding shares of the capital stock
entitled to vote; and (ii) all "affiliates," as such term is defined in Rule 144
promulgated under the Securities Act, of the Company on the Closing Date shall
agree to vote, during the two-year period immediately following the closing date
of the Public Offering, all shares of voting capital stock of the Company owned
by them (or over which they have the power to direct the vote) in the same
proportion as the votes cast by non-affiliates voting shares of the same class
or series, with respect to the above-referenced matters on which a vote of
stockholders is taken.
(x) ADDITIONAL REPRESENTATIONS. (i) no director, officer, or
key employee of the Company has been convicted of any felony, experienced a
personal bankruptcy, or been an officer, director, or key employee of any
company that during their tenure with such company experienced any bankruptcy
other than as disclosed to the Managing Underwriters in writing and disclosed in
the Registration Statement as required, or had any trustee, receiver, or
conservator appointed with respect to its business or assets; (ii) prior to the
Closing Date, the Company has not repay (or agree to repay), other than in the
ordinary course of business, any indebtedness to any of its shareholders (or
incur any indebtedness with any other lender, any part of the proceeds of which
is to be used to repay indebtedness to any of its shareholders) unless the terms
thereof have been approved in advance by the Underwriters, nor has the Company
make any other extraordinary distributions or payments to its shareholders
(other than distributions to Messrs. Stein and Briskin in the amount of the
income tax withholding payments for the Company's income payable by them due to
the Company's status as an S corporation as set forth in the Registration
Statement); and (iii) no more than an aggregate of $200,000 may be paid from the
proceeds of the offering to Messrs. Stein and Briskin in satisfaction of the
Principal Stockholder's Notes described in the Registration Statement, provided,
however, that if the Underwriters exercise, in full, the over-allotment option,
the Company may prepay an additional $100,000 in the aggregate, toward such
notes.
7. INDEMNIFICATION.
(a) BY COMPANY. The Company agrees to indemnify and hold
harmless you and each person, if any, who controls you within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, from and
against any and all losses, liabilities, claims,
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damages and expenses (including but not limited to reasonable attorneys' fees
and any and all reasonable expenses incurred in investigating, preparing or
defending against any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which you or they
or any of them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or in any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Shares under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application") or arise out of or are based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in any material respect.
Notwithstanding the preceding sentence, the Company will not be liable in any
such case to the extent, but only to the extent that, any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of you expressly for use therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have, including under this Agreement. The Company agrees to pay any reasonable
legal or other expenses for which it is liable under this subsection from time
to time (but not more frequently than monthly) within 30 days after its receipt
of a bill therefor; and further provided, however, that the foregoing provisions
are subject to the condition that, insofar as they relate to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
Preliminary Prospectus but eliminated or remedied in the Prospectus, such
indemnity provision shall not inure to you or any person who controls you within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act if a copy of the Prospectus was not sent or given to such person with or
prior to the written confirmation of sale of such Shares to such person. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) BY UNDERWRITERS. You agree to indemnify and hold harmless
the Company, each of the officers of the Company who shall have signed the
Registration Statement and each other person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, from and against any and all losses, liabilities, claims, damages
and reasonable expenses whatsoever (including but not limited to attorneys' fees
and any and all reasonable expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, as originally filed or
any
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amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or in any Blue Sky Application,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by you expressly for use therein; PROVIDED,
HOWEVER, that in no case shall you be liable or responsible for any amount in
excess of the underwriting discounts and commissions received by you, as set
forth on the cover page of the Prospectus. You agree to pay any legal or other
expenses for which you are liable under this subsection (b) from time to time
(but not more frequently than monthly) within 30 days after receipt of a bill
therefor. This indemnity agreement will be in addition to any liability which
you may otherwise have.
(c) PROCEDURES IN CASE OF INDEMNIFICATION. Promptly after
receipt by an indemnified party under subsection (a) or (b) above of notice of
the commencement of any action or proceeding (including any governmental
investigation), such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all expenses. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by one of the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
the indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
(d) CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7(a) and (b)
hereof is for any reason held to be unavailable from the Company, or you, or is
insufficient to hold harmless a party indemnified
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thereunder, in lieu of indemnifying such indemnified party, the Company, and you
shall contribute to the aggregate losses, claims, damages, liabilities and
reasonable expenses of the nature contemplated by such indemnification
provisions (including any investigation, legal and other reasonable expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting in the case of
losses, claims, damages, liabilities and reasonable expenses suffered by the
Company or you any contribution received by the Company or you from persons who
may also be liable for contribution, including persons who control the Company
or you within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, officers of the Company who signed the Registration
Statement and directors of the Company) to which the Company or you may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and by you from the offering of the Shares or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7(d) hereof in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and you in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and by you shall be deemed to be in the same proportion as (a) the
total proceeds from the offering (before deducting expenses) received by the
Company bear to (b) the total underwriting discounts and commissions received by
you in each case as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company and of you shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by you or any agent expressly
authorized by you to supply such information and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and you agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7(d), (i) in no case shall you be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased hereunder and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(e), each person, if
any, who controls an underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as you, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 7(e). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 7(e), notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom
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contribution may be sought from any obligation it or they may have under Section
7(e) or otherwise. No party shall be liable for contribution with respect to any
action or claim settled without its consent; PROVIDED, HOWEVER, that such
consent was not unreasonably withheld. The indemnity and contribution agreements
contained in this Agreement shall remain operative and in full force and effect
regardless of (A) any investigation made by or on behalf of you or any person
controlling you or by or on behalf of the Company, (B) acceptance of any of the
Shares and payment therefore or (C) any termination of this Agreement. A
successor to the Company, its directors or officers or any person controlling
the Company or to the Underwriter, shall be entitled to the benefits of the
indemnity, contribution, and reimbursement agreements contained in this Section
7.
8. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. Your obligation to
purchase and pay for the Firm Shares on the Closing Date shall be subject to the
accuracy of and compliance with the representations and the warranties of the
Company herein contained and in each certificate and document contemplated to be
delivered to you hereunder as of the date hereof and the Closing Date, to the
performance by the Company of its obligations herein contained and to the
following additional terms and conditions:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:00 P.M., Miami time, on
the date of this Agreement, or at such later time or on such later date as you
may agree to in writing and any and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made. At or prior to the
Closing, no stop order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the Blue Sky
laws of any jurisdiction (whether or not a jurisdiction which you shall have
specified) shall have been issued and no proceeding for that purpose shall have
been initiated or shall be threatened by the Commission or the authorities of
any such jurisdiction. Any request for additional information on the part of the
Commission or any such authorities shall have been complied with to the
satisfaction of the Commission or such authorities and counsel for you. The
NASD, upon review of the terms of the public offering of the Shares, shall not
have objected to such offering, such terms, or your participation in the same.
After the date hereof no amendment or supplement shall have been filed to the
Registration Statement or the Prospectus without your prior written consent.
(b) ACCURACY OF REGISTRATION STATEMENT. No person shall have
discovered and advised the Company prior to the Closing Date that the
Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of material fact which, in your opinion, is
material, or that the Registration Statement or any amendment or supplement
thereto omits to state a fact which, in your opinion after consultation with
legal counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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(c) LITIGATION. Between the time of the execution and delivery
of this Agreement and the Closing, there shall be no material litigation
instituted against the Company, any of its subsidiaries or any of their
respective officers or directors, and between such dates there shall be no
proceeding instituted or threatened against the Company, any of its subsidiaries
or any of their respective officers or directors before or by any Federal,
state, county or local commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding could materially adversely affect the
Company, any of its subsidiaries or their respective businesses, business
prospects, properties, financial conditions or results of operations.
(d) REVIEW BY UNDERWRITER'S COUNSEL. The authorization and
issuance of the Shares, the sale and delivery thereof, the Registration
Statement, the Prospectus and all other documents and corporate proceedings
incident thereto shall be satisfactory in all respects to you and your counsel,
and your counsel shall be furnished on the Closing Date with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the matters referred to in this Section 8(d).
(e) OPINION OF LEGAL COUNSEL. You shall have received an
opinion dated the effective date of the Registration Statement, and an updated
version of such opinion dated the Closing Date, satisfactory in form and
substance to you and your counsel, Lucio, Mandler, Croland, Bronstein & Garbett,
P.A., from Akerman, Senterfitt & Eidson, P.A., counsel for the Company, to the
effect that:
(i) Each of the Company and its subsidiaries is a
corporation duly organized, validly existing, in good standing under
the laws of the jurisdiction of its respective incorporation and is
registered or qualified in good standing to do business as a foreign
corporation in each jurisdiction wherein the Company and its
subsidiaries own or lease any properties or conduct any business and in
which the failure to so qualify, could, in the aggregate, have a
material adverse effect on the business, properties or results of
operations of the Company and its subsidiaries taken as a whole. To
such counsel's knowledge after having conducted a due diligence
investigation, each of the Company and its subsidiaries has corporate
power and authority (corporate, governmental and regulatory to own and
lease its properties and to conduct its business as described in the
Registration Statement and the Prospectus and the Company has corporate
power and authority (corporate, governmental and regulatory) to enter
into this Agreement. The Company has no subsidiaries to the knowledge
of such counsel after having conducted a due diligence investigation
other than those disclosed in the Registration Statement and the
Prospectus.
(ii) The Registration Statement has become effective
under the Securities Act, and, (a) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are, to the
knowledge of counsel after reasonable inquiry, threatened, pending or
contemplated under the Securities Act, except as may be disclosed in
the Prospectus; the
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Registration Statement and the Prospectus and each amendment or
supplement thereto (except for the financial statements, schedules and
other financial and statistical data included therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Securities Act; and (b) such
counsel has participated in the preparation of the Registration
Statement and the Prospectus and such counsel has no reason to believe
that either the Registration Statement, or any such amendment thereto,
at the time such Registration Statement or amendment became effective,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus, as of
its date, or any supplement thereto as of its date, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iii) The Company has all requisite corporate power and
authority to enter into this Agreement and this Agreement has been
authorized, executed, and delivered by the Company and is a legal,
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except (a) that this Agreement
may be subject to bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights, (b) that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor
may be brought, and (c) as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or the
public policy underlying such laws.
(iv) The authorized, issued and outstanding capital
stock of the Company and all other outstanding securities of the
Company and its subsidiaries (collectively, the "Securities") conform
to the descriptions thereof in the Registration Statement and in the
Prospectus under the section entitled "Description of Securities." The
issued and outstanding capital stock, prior to the issuance of the
Shares sold by the Company hereunder, has been authorized and validly
issued, is fully paid and nonassessable and is free of preemptive
rights except as described in the Prospectus. To the best knowledge of
such counsel after having conducted a due diligence investigation,
there are no outstanding options, warrants, or other rights calling for
the issuance of, and no commitment, plan or arrangement to issue or
register, any share of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the Company other
than as disclosed in the Registration Statement and the Prospectus.
(v) The Shares to be issued and sold to the Underwriter
by the Company have been authorized by the Company and will conform to
the description thereof in the Registration Statement and in the
Prospectus. The Firm Shares, when sold and fully paid for in accordance
with the terms of this Agreement, will be validly issued, fully paid
and nonassessable and free of preemptive rights. Such opinion delivered
at the
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Closing Date shall state that each of the Firm Shares is validly
issued, fully paid and non-assessable and not subject to preemptive
rights.
(vi) The Underwriter's Warrant Agreement will conform
to the description thereof in the Registration Statement and in the
Prospectus and has been authorized, and when issued will be validly
issued and will be a valid and binding obligation of the Company. The
Warrant Securities have been validly authorized and reserved for
issuance upon exercise of the Underwriter's Warrant Agreement and, when
issued upon such exercise in accordance with the terms of the
Underwriter's Warrant Agreement at the price therein provided, will be
validly issued, fully paid and non-assessable and not subject to
preemptive rights.
(vii) The certificates used to evidence the Shares and
the Warrant Shares are each in due and proper form as required by the
laws of the State of Florida.
(viii) Neither the Company nor any of its subsidiaries
is in material violation of its corporate charter or bylaws,
respectively, or, to the knowledge of counsel after having conducted a
due diligence investigation, any franchise, license, permit, judgment,
decree, order, statute, regulation, rule or ordinance of any court or
administrative agency, arbitration panel or authority applicable to the
Company or any of its subsidiaries except as described in the
Prospectus, where the consequences of any such violation would be
material to the Company or any of its subsidiaries. To the knowledge of
such counsel after due diligence investigation, except as described in
the Prospectus neither the Company nor any of its subsidiaries is in
default in any material respect in the performance of any material
obligation, agreement, lease, covenant or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
indenture, mortgage, deed of trust or other material agreement or
instrument (collectively, the "Material Agreements") of which counsel
after having conducted a due diligence investigation, is aware to which
the Company or any of its subsidiaries, or by which the Company's or
any of its subsidiaries' properties are bound where the consequences of
any such default would be material to the Company or any of its
subsidiaries. To the best of such counsel's knowledge after having
conducted a due diligence investigation, there exists no condition
which, with the passage of time or otherwise, would constitute a
material default under any Material Agreement or instrument or result
in the imposition of any material penalty or acceleration of any
material indebtedness.
(ix) The execution and delivery of this Agreement and
the Underwriter's Warrant Agreement, the Financial Advisory Agreement,
the issuance and sale of the Shares, the Underwriter's Warrants, and
the Warrant Securities and the compliance by the Company with all of
the provisions of this Agreement and the Underwriter's Warrants will
not conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default (or an event which
with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or
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imposition of any lien, charge or encumbrance upon any of the property
or assets of the Company or its subsidiaries pursuant to the terms of
any Material Agreement of the Company or any of its subsidiaries or by
which any of the Company's or its subsidiaries' properties is bound,
known to such counsel after having conducted a due diligence
investigation. To the best of such counsel's knowledge after having
conducted a due diligence investigation, there exists no condition
which, with the passage of time or otherwise, would constitute a
default under any such agreement or instrument or result in the
imposition of any penalty or acceleration of any such indebtedness,
where the consequences of any such default would be material to the
Company or any of its subsidiaries, nor will such action result in a
violation of the provisions of the corporate charter or bylaws of the
Company or any of its subsidiaries, or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of its
or their properties, where the consequences of any such violation would
be material to the Company and its subsidiaries. No consent, approval,
authorization, order, registration or qualification of or with any
court or any regulatory authority or other governmental body is
required for the issue and sale of the Shares, the Underwriter's
Warrant Agreement or the Warrant Securities or the consummation of the
other transactions contemplated by this Agreement and the Underwriter's
Warrant Agreement, except the registration of the Shares, the
Underwriter's Warrant Agreement and the Warrant Securities under the
Securities Act, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by you and the purchase of the Underwriter's
Warrant Agreement by you.
(x) To the best knowledge of such counsel after having
conducted a due diligence investigation, the Company and each of its
subsidiaries has such licenses, registrations, permits, approvals,
qualifications and certificates of authority from the appropriate
regulatory authorities as are necessary to transact its business as
described in the Registration Statement and in the Prospectus in the
jurisdictions in which the Company and each of its subsidiaries
transacts its business or owns or leases property, and in which the
failure to have such licenses, registrations, permits, approvals,
qualifications and certificates could have a material adverse effect on
the business, properties or results of operation of the Company and its
subsidiaries taken as a whole.
(xi) To the best knowledge of such counsel after having
conducted a due diligence investigation, except as disclosed in the
Registration Statement and in the Prospectus, there is no pending or
threatened material action, suit or proceeding before or by any court
or governmental agency or body or arbitration panel, to which the
Company or any of its subsidiaries or any of their respective officers
or directors is a party, or which any property of the Company or any of
its subsidiaries is subject, which might result in a material adverse
change in the business, financial condition or results of operations or
materially affect the properties or assets of the Company or any of its
subsidiaries taken as a whole.
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(xii) Such counsel has reviewed all contracts referred
to in the Registration Statement and the Prospectus and such contracts
conform in all material respects to their descriptions therein. To the
best knowledge of such counsel after having conducted a due diligence
investigation, no contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement have not been so
described or filed. Such counsel does not know of any statutes or
regulations or pending or threatened legal or governmental proceedings
required to be described in the Prospectus which are not described as
required.
(xiii) To the best knowledge of such counsel after
having conducted a due diligence investigation, there are no holders of
securities of the Company having rights to the registration of shares
of Common Stock or other securities because of the filing of the
Registration Statement by the Company, except as disclosed in the
Registration Statement and the Prospectus.
(xiv) The sale of securities by the Company and/or its
subsidiaries described in Item 26, Part II of the Registration
Statement did not require registration under the Securities Act or any
state securities laws.
In giving such opinion, such counsel may rely as to
matters of fact upon statements and certifications of officers of the Company or
public officials as to matters of fact of which the maker of such certificate
has knowledge, and as to matters of law of jurisdictions other than Delaware and
Florida, such counsel may rely on opinions of local counsel acceptable to you,
copies of which opinions shall be attached to the said opinion, provided that
such counsel state in their opinion that they believe that they and you are
justified in relying upon such opinions of local counsel.
(f) PRESIDENT'S CERTIFICATE. The Company shall have furnished
to you on the Closing Date a certificate of its President, or other principal
executive officer of the Company dated as of the Closing Date, to the effect
that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of each signer of
such certificate, threatened or contemplated by the Commission; no stop
order suspending the qualification or registration of any of the Shares
under the Blue Sky laws of any jurisdiction (whether or not a
jurisdiction you shall have specified) has been issued, and no material
proceedings for such purpose have been commenced or are, to the
knowledge of each signer of such certificate after reasonable inquiry,
threatened or contemplated by any jurisdiction; and the conditions,
separately set forth in such certificate, contained in Section 8 hereof
have been complied with in all material respects.
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(ii) The respective signers and each other member of
the Company's Board of Directors have each read the Registration
Statement and Prospectus and any amendments and supplements thereto,
and the Registration Statement and the Prospectus and any amendments
and supplements thereto and all statements contained therein are true
and correct in all material respects, and neither the Registration
Statement nor Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and, since the effective date of the
Registration Statement, they are not aware of any event required to be
set forth in an amendment to the Registration Statement or a supplement
to the Prospectus which has not been so set forth.
(iii) Except as reflected in the Registration Statement
and Prospectus or any amendment or supplement thereto, since the
respective dates as of which information is given in the Registration
Statement and Prospectus or any amendment or supplement thereto and
prior to the date of such certificate, (a) there has not been any
material adverse change, financial or otherwise, in the affairs or
condition of the Company and of its subsidiaries taken as a whole, and
(b) the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business.
(iv) There are no legal proceedings pending or, to the
knowledge of the Company after reasonable inquiry, threatened against
the Company or any of its subsidiaries, of a character affecting the
validity of this Agreement or required to be disclosed in the
Prospectus which are not disclosed therein; there are no material
transactions or contracts which are required to be summarized therein
which are not so summarized; and there are no material contracts or
documents required to be filed as exhibits to the Registration
Statement which are not so filed.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
no dividends or distribution whatever have been declared and/or paid on
or with respect to any securities of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or damage to its
property, whether or not insured.
(vii) At and as of the Closing Date, the
representations and warranties contained in Section 6 of this Agreement
are true and correct in all material respects; the Company has complied
with all the agreements and has satisfied all the conditions on its
29
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part to be performed or satisfied at or prior to the Closing Date, and
the matters set forth in Section 8 of this Agreement are true and
correct as therein set forth.
(g) CHIEF FINANCIAL OFFICER'S CERTIFICATE. The Company shall
have furnished to you on the Closing Date a certificate of its Chief
Financial Officer, or other principal executive financial officer or
accounting officer of the Company, dated as of the Closing Date, to the
effect that:
(i) To the knowledge of such officer after reasonable
inquiry no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have
been commenced or are, to the knowledge of each signer of such
certificate, threatened or contemplated by the Commission; no stop
order suspending the qualification or registration of any of the Shares
under the Blue Sky laws of any jurisdiction (whether or not a
jurisdiction you shall have specified) has been issued, and no
proceedings for such purpose have been commenced or are, to the
knowledge of each signer of such certificate, threatened or
contemplated by any jurisdiction; and the conditions, separately set
forth in such certificate, contained in subsection 8 hereof have been
complied with.
(ii) The Prospectus and any amendments and supplements
thereto and all statements contained therein are true and correct, and
to his knowledge, after reasonable inquiry, neither the Registration
Statement nor Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and, since the effective date of the
Registration Statement, he is not aware of any event required to be set
forth in an amendment to the Registration Statement or a supplement to
the Prospectus which has not been so set forth.
(iii) Except as reflected in the Registration Statement
and Prospectus or any amendment or supplement thereto, since the
respective dates as of which information is given in the Registration
Statement and Prospectus or any amendment or supplement thereto and
prior to the date of such certificate, (a) there has not been any
material adverse change, financial or otherwise, in the affairs or
condition of the Company or any of its subsidiaries taken as a whole,
and (b) the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business.
(iv) There are no material legal proceedings pending or
to his knowledge after reasonable inquiry, threatened against the
Company or any of its subsidiaries, of a character affecting the
validity of this Agreement or required to be disclosed in the
Prospectus which are not disclosed therein; there are no transactions
or contracts which are required to be summarized therein which are not
so summarized; and there are no material contracts or documents
required to be filed as exhibits to the Registration Statement which
are not so filed.
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(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
no dividends or distribution whatever have been declared and/or paid on
or with respect to any securities of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company has not sustained any material loss or damage to its
property, whether or not insured.
(vii) At and as of the Closing Date, to his knowledge
after reasonable inquiry, the representations and warranties contained
in Section 6 of this Agreement are true and correct; the Company has
complied with all the agreements and has satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing
Date, and the matters set forth in Section 8 of this Agreement are true
and correct as therein set forth.
(h) ACCOUNTANT'S LETTER. You shall have received from the
independent certified public accountants that audited the financial statements
of the Company included in the Registration Statement, at least two letters each
addressed to you, substantially in the form heretofore approved by you, one
dated the effective date of the Registration Statement and the second, the
Closing Date.
(i) UNDERWRITER'S WARRANT AGREEMENT. The Company shall have
executed the Underwriter's Warrant Agreement and shall have delivered such
properly executed Warrant Agreement to you simultaneously with the closing of
the sale of the Firm Shares.
(j) LOCK-UP AGREEMENTS. You shall have received the executed
"lock-up" letters described in Section 5(h) of this Agreement.
(k) EMPLOYMENT AGREEMENTS. Prior to the effective date of the
Registration Statement, the Company will enter into and deliver to the
Underwriters employment agreements with President, Vice President and other
significant employees, which employment agreements will be subject to the
Underwriter's approval.
(l) NASDAQ LISTING. The Shares must be qualified for listing
on the Nasdaq SmallCap Market on the effective date of the Registration
Statement.
(m) BLUE SKY QUALIFICATION. The Shares shall be qualified in
such states as determined under Section 5(e) above and each qualification shall
be in effect and not subject to an estop order or other proceeding on the
Closing Date.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will be in compliance with the provisions of this
Section 8 only if they are satisfactory to you and your counsel. The Company
shall furnish to you such conformed copies
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of such opinions, certificates, letters and documents in such quantities as you
shall reasonably request.
If any of the conditions hereunder to be satisfied at or prior to the
Closing Date are not so satisfied, or subsequently waived, you may terminate
this Agreement without liability on your part or on the part of the Company,
except for the expenses to be paid or reimbursed by the Company pursuant to
Section 5(l) of this Agreement and except for any liability under Section 8 of
this Agreement.
Your obligation to purchase and pay for all or any portion of the
Option Shares on the Option Closing Date upon the exercise of the option
contained in Section 3 hereof shall be subject to the accuracy of and compliance
with the representations and the warranties of the Company herein contained as
of the date hereof and the Closing Date and Option Closing Date, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(A) You shall have purchased the Firm Shares from the
Company (which purchase may occur simultaneously with the purchase of the Option
Shares from the Company).
(B) The condition set forth in paragraphs (a), (b)
and (c) of this Section 8 shall be satisfied as of the Option Closing Date.
(C) There shall have been tendered for delivery in
accordance with the terms and provisions of this Agreement the Option Shares
being purchased on the Option Closing Date from the Company.
(D) You shall have received an opinion of counsel for
the Company, dated the Option Closing Date, confirming their opinion delivered
pursuant to Section 8(e) hereof as of the Option Closing Date. In each instance
in which the opinion referred to in Section 8(e) refers to the Firm Shares, the
opinion delivered pursuant hereto shall also refer to the Option Shares.
(E) You shall have received from the independent
certified public accountants that audited the financial statements of the
Company included in the Registration Statement, a letter addressed to you,
substantially in the form heretofore approved by you, dated the Option Closing
Date.
(F) You shall have received a certificate, dated the
Option Closing Date, of the Company, confirming the matters stated in the
certificate delivered pursuant to Section 8(f) hereof as of the Option Closing
Date and stating further that the Company has performed or a waiver has been
given for all or a part of the agreements herein contained to be performed on
its part at or prior to such Option Closing Date.
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(G) You shall have received a certificate, dated the
Option Closing Date, of the Company, confirming the matters stated in the
certificate delivered pursuant to Section 8(g) hereof as of the Option Closing
Date and stating further that the Company has performed or a waiver has been
given for all or a part of the agreements herein contained to be performed on
its part at or prior to such option Closing Date.
9. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective when you and the
Company shall have received notification of the effectiveness of the
Registration Statement.
(b) This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Company if in your judgment it is
impracticable to offer for sale or to enforce contracts made by you for the
resale of the Shares agreed to be purchased hereunder by reason of (i) the
Company or its subsidiaries having sustained a loss by reason of fire, flood,
accident or other calamity, which, in your opinion, substantially affects the
value of the properties of the Company or its subsidiaries or which materially
interferes with the operation of the business of the Company or any of its
subsidiaries regardless of whether such loss shall have been insured, (ii) the
existing financial, political or economic conditions in the United States or
elsewhere having undergone such material change as in your opinion would make it
inadvisable to proceed with the offering, sale and delivery of the Shares on the
terms contemplated by the Prospectus, (iii) a banking moratorium shall have been
declared by either federal or New York authorities, (iv) a war involving the
United States or other national calamity shall have occurred, (v) any material
adverse change in the condition or obligations of the Company and any of its
subsidiaries taken as a whole or in the earnings, operations, management or
business prospects of the Company and any of its subsidiaries taken as a whole,
(vi) any action, suit or proceeding shall be threatened or pending, at law or in
equity, against the Company and any of its subsidiaries taken as a whole, by any
Federal, state or other commission, board or agency, which is not disclosed in
the Prospectus and in which an unfavorable result or decision could materially
adversely affect the business, prospects, property, financial condition or
income or earnings of the Company and any of its subsidiaries taken as a whole,
(vii) an action, suit or proceeding that is threatened or pending, which has
been previously disclosed in the Prospectus, shall have worsened in any way such
that an unfavorable result or decision could materially adversely affect the
business, prospects, property, financial condition or income or earnings of the
Company and/or any of its subsidiaries, or (viii) during the course of your due
diligence investigation of the Company, facts arise which vary materially in an
adverse manner from representations which have been previously made concerning
the Company's business and financial condition. In addition, this Agreement may
be terminated by you by prompt written notice to the Company (i) at any time
before it becomes effective or (ii) in the event that the Company shall have
failed to comply with any of the provisions of this Agreement to be performed by
it at or prior to any Closing Date which have not been waived by you, or if any
of the representations, warranties, covenants, agreements or conditions of, or
applicable to, the Company herein contained shall not have been complied with or
satisfied within the time specified unless waived by you.
33
<PAGE>
(c) At any time after the Closing Date, if you should (i)
cease to be a broker-dealer registered with the Commission, (ii) be suspended
from such registration for any period of time in excess of 30 days, (iii) cease
to be a member of the NASD or other self-regulatory organization or (iv) become
subject to a proceeding, action or notification under Section 6 of the
Securities Investor Protection Act of 1970, the obligations of the Company under
this Agreement shall cease without any liability on the part of the Company.
10. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES AND COVENANTS.
The respective indemnities of the Company and the Underwriter and the respective
representations, warranties and covenants of the Company and the Underwriter set
forth in this Agreement will remain in full force and effect, regardless of any
investigations made by or on behalf of the Company or the Underwriter or any of
their respective officers, directors, partners or any controlling person, and
will survive delivery of and payment for the Shares or termination of this
Agreement pursuant to Section 11 hereof as the case may be.
11. MISCELLANEOUS.
(a) This Agreement shall inure to the benefit of the Company
and the Underwriter, the officers and directors of such parties, each
controlling person referred to in Section 8 hereof and their respective
successors. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
The term "successor" as used in this Agreement shall not include any purchaser
of any Shares from the Underwriter.
(b) This Agreement constitutes the entire agreement among the
parties concerning the subject matter hereof and supersedes all prior agreements
and understandings.
(c) All notices and other communications hereunder (unless
otherwise expressly provided for herein) shall be in writing and shall be deemed
given when delivered in person on the business (before 5:00 P.M.) sent by
facsimile transmission, or on the date indicated on the return receipt if sent
registered or certified mail return receipt requested) to the party to receive
the same at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to the Company: Advanced Electronic Support Products, Inc.
1810 Northeast 144th Street
North Miami, Florida 33181
Attn: Messrs. Slav Stein and Roman Briskin
Facsimile: (305) 652-8489
With a Copy to: Akerman, Senterfit & Eidson, P.A.
SunTrust International Center, 28th Floor
One Southeast Third Avenue
34
<PAGE>
Miami, Florida 33131-1704
Attn: Philip Schwartz, Esq.
Facsimile: (305) 374-5095
If to the Underwriters: JW Charles Securities, Inc.
1117 Perimeter Center West
Suite 500-E
Atlanta, Georgia 30338
Attn: Mr. Joel E. Marks, Vice President
Facsimile: (404) 353-5873
Corporate Securities Group, Inc.
980 North Federal Highway
Suite 310
Boca Raton, Florida 33432
Attn: Mr. Marshall T. Leeds, President
Facsimile: (407) 338-2827
With a Copy to: Lucio, Mandler, Croland, Bronstein &
Garbett, P.A.
Barnett Bank Tower
701 Brickell Avenue, 20th Floor
Miami, Florida 33131
Attn: Leslie J. Croland, Esq.
Facsimile: (305) 579-0012
(d) This Agreement was executed and delivered in, and its
validity, interpretation and construction shall be governed by the internal laws
of, the State of Florida applicable to agreements made and to be performed
wholly within such State. This Agreement may be executed in any number of
counterparts. Each counterpart, when executed and delivered, shall be an
original contract, but all counterparts, when taken together, shall constitute
one and the same Agreement.
(e) The Company hereby acknowledges that the breach of
material terms contained in this Agreement (whether or not specifically
designated as such) would cause irreparable damage and substantial prejudice to
your rights. Accordingly, the Company agrees that in the event of any such
breach or threatened breach, you shall have, in addition to its and your legal
remedies, the right to injunctive or other equitable relief, as permitted by
law, to prevent the Company's violation of their obligations hereunder.
(f) Titles and headings to sections herein are inserted for
the convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
35
<PAGE>
(g) Any consent or approval of the Underwriters required
hereunder to any action of the Company shall not be unreasonably withheld, and
notwithstanding any other provisions hereof, such consent or approval shall not
be required if the Company obtains an opinion from counsel acceptable to the
Underwriters that the requirement of such consent or approval constitutes an
abrogation of the Board of Directors' duties under the corporate law of such
jurisdiction.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and us in accordance with its terms.
Very truly yours,
Advanced Electronics Support Products, Inc.
By: _______________________________________
___________________________________________
Accepted and agreed to as of
the date first above written:
JW CHARLES SECURITIES, INC. CORPORATE SECURITIES GROUP, INC.
By: _________________________ By: _______________________________________
36
EXHIBIT 3.2
BY-LAWS
OF
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. MEETINGS OF SHAREHOLDERS...........................................1
Section 1. Annual Meeting...............................................1
Section 2. Special Meetings.............................................1
Section 3. Place........................................................1
Section 4. Notice.......................................................1
Section 5. Notice of Adjourned Meetings.................................2
Section 6. Fixing Record Date...........................................2
Section 7. Voting Record................................................3
Section 9. Voting of Shares.............................................4
Section 10. Proxies.....................................................6
.
Section 11. Voting Trusts...............................................7
Section 12. Shareholders' Agreements....................................7
Section 13. Action by Shareholders Without a Meeting....................8
ARTICLE II. DIRECTORS..........................................................9
Section 1. Functions....................................................9
Section 2. Qualification................................................9
Section 3. Compensation.................................................9
Section 4. Duties of Directors..........................................9
Section 5. Presumption of Assent.......................................10
Section 6. Number......................................................10
<PAGE>
Section 7. Election and Term...........................................10
Section 8. Vacancies...................................................11
Section 9. Removal of Directors........................................11
Section 10. Quorum and Voting..........................................11
Section 11. Director Conflicts of Interest.............................12
Section 12. Executive and Other Committees.............................12
Section 13. Place of Meetings..........................................14
Section 14. Time, Notice and Call of Meetings..........................14
Section 15. Action Without a Meeting...................................15
ARTICLE III. OFFICERS.........................................................15
Section 1. Officers....................................................15
Section 2 Duties......................................................16
Section 3. Removal of Officers.........................................17
ARTICLE IV. INDEMNIFICATION...................................................17
ARTICLE V. STOCK CERTIFICATES.................................................18
Section 1. Issuance....................................................18
Section 2. Form........................................................18
Section 3. Transfer of Stock...........................................20
Section 4. Lost, Stolen, or Destroyed Certificates.....................20
<PAGE>
ARTICLE VI. BOOKS AND RECORDS.................................................20
Section 1. Books and Records...........................................20
Section 2. Shareholders' Inspection Rights.............................21
Section 3. Financial Information.......................................21
ARTICLE VII. DIVIDENDS........................................................22
ARTICLE VIII. CORPORATE SEAL..................................................22
ARTICLE IX. AMENDMENT.........................................................22
<PAGE>
BY-LAWS
OF
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
ARTICLE I.
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of the shareholders of this corporation shall be held
at the time and place designated by the Board of Directors of the corporation.
The annual meeting of shareholders for any year shall be held no later than
thirteen months after the last preceding annual meeting of shareholders.
Business transacted at the annual meeting shall include the election of
directors of the corporation.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders shall be held when directed by the
President or the Board of Directors, or when requested in writing by the holders
of not less than ten percent of all the shares entitled to vote at the meeting.
SECTION 3. PLACE.
Meeting of shareholders may be held within or without the State of
Florida.
SECTION 4. NOTICE.
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days before the
meeting, either personally or by first-class mail, by or at
<PAGE>
the direction of the President, the Secretary, or the officer or persons calling
the meeting to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
SECTION 5. NOTICE OF ADJOURNED MEETINGS.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
If, however, after the adjournment the Board of Directors fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
as provided in this section to each shareholder of record on the new record date
entitled to vote at such meeting.
SECTION 6. FIXING RECORD DATE.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purpose, the Board of Directors shall fix in advance
a date as the record date for any such determination of shareholders, such date
in any case to be not more than seventy days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action requiring such determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders entitled
to notice or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date
2
<PAGE>
on which notice of the meeting is mailed or the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
SECTION 7. VOTING RECORD.
If the corporation shall have more than five (5) shareholders the officers
or agent having charge of the stock transfer books for shares of the corporation
shall make, prior to each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof, with
the address of and the number and class and series, if any, of shares held by
each. The list shall be kept on file at the registered office of the
corporation, at the principal place of business of the corporation or at the
office of the transfer agent or registrar of the corporation and any shareholder
shall be entitled to inspect the list at any time during usual business hours.
The list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder at any time
during the meeting.
If the requirements of this section have not been substantially complied
with, the meeting on demand of any shareholders in person or by proxy, shall be
adjourned until the requirements are complied with. If no such demand is made,
failure to comply with the requirements of this section shall not affect the
validity of any action taken at such meeting.
3
<PAGE>
SECTION 8. SHAREHOLDER QUORUM AND VOTING.
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. When a specified
item of business is required to be voted on by a class or series of stock, a
majority of the shares of such class or series shall constitute a quorum for the
transaction of such item of business by that class or series.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders unless otherwise provided by law. After a quorum has
been established at a shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shareholders entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity of
any action taken at the meeting or any adjournment thereof.
SECTION 9. VOTING OF SHARES.
Each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders.
Shares of stock of this corporation owned by another corporation the
majority of the voting stock of which is owned or controlled by this
corporation, and shares of stock of this corporation held by it in a fiduciary
capacity shall not be voted, directly or indirectly, at any meeting, and shall
not be counted in determining the total number of outstanding shares at any
given time.
A shareholder may vote either in person or by proxy executed in writing by
the shareholder or his duly authorized attorney-in-fact.
4
<PAGE>
At each election for directors every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent, or proxy designated by the By-Laws of the
corporate shareholder; or, in the absence of any applicable By-Law, by such
person as the Board of Directors of the corporate shareholder may designate.
Proof of such designation may be made by presentation of a certified copy of the
By-laws or other instrument of the corporate shareholder. In the absence of any
such designation, or in case of conflicting designation by the corporate
shareholder, the Chairman of the Board, President, and Vice President,
Secretary, and Treasurer of the corporate shareholder shall be presumed to
possess, in that order, authority to vote such shares.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name. Shares standing in
the name of a receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver without the
transfer thereof into his name if authority to do so be contained in an
appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
5
<PAGE>
On and after the date on which written notice of redemption of redeemable
shares has been mailed to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a bank or trust company with irrevocable
instrument and authority to pay the redemption price to the holders thereof upon
surrender of certificates therefor, such shares shall not be entitled to vote on
any matter and shall not be deemed to be outstanding shares.
SECTION 10. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting or a shareholder's duly authorized
attorney-in-fact may authorize another person or persons to act for him by
proxy. Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
If a proxy for the same shares confers authority upon two or more persons
and does not otherwise provide, a majority of them present at the meeting, or if
only one is present then that one, may exercise all the powers conferred by the
proxy; but if the proxy holders present at the meeting are equally divided as to
the right and manner of voting in any particular case, the voting of such shares
shall be prorated.
6
<PAGE>
If a proxy expressly provides, any proxy holder may appoint in writing a
substitute to act in his place.
SECTION 11. VOTING TRUSTS.
Any number of shareholders of this corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their shares, as provided by law. Where the counterpart of a
voting trust agreement and the copy of the record of the holders of voting trust
certificates has been deposited with the corporation as provided by law, such
documents shall be subject to the same right of examination by a shareholder of
the corporation, in person or by agent or attorney, as are the books and records
of the corporation, and such counterpart and such copy of such record shall be
subject to examination by any holder of record of voting trust certificates
either in person or by agent or attorney, at any reasonable time for any proper
purpose.
SECTION 12. SHAREHOLDERS' AGREEMENTS.
Two or more shareholders of this corporation may enter an agreement
providing for the exercise of voting rights in the manner provided in the
agreement or relating to any phase of the affairs of the corporation as provided
by law. Nothing therein shall impair the right of this corporation to treat the
shareholders of record as entitled to vote the shares standing in their names. A
transfer of shares of this corporation whose shareholders have a shareholder's
agreement authorized by this section shall be bound by such agreement if he
takes shares subject to such agreement with notice thereof. A transferee shall
be deemed to have notice of any such agreement if the exercise thereof is noted
on the face or back of the certificate or certificates representing such shares.
7
<PAGE>
SECTION 13. ACTION BY SHAREHOLDERS WITHOUT A MEETING.
Any action required by law, these By-Laws, or the Articles of
Incorporation of this corporation to be taken at any annual or special meeting
of shareholders of the corporation, or any action which may be taken at any
annual or special meeting of such shareholders, 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. If any class of shares is entitled to vote thereon as a
class, such written consent shall be required of the holders of a majority of
the shares of each class of shares entitled to vote as a class thereon and of
the total shares entitled to vote thereon. Within ten days after obtaining such
authorization by written consent, notice shall be given to those shareholders
who have not consented in writing. The notice shall fairly summarize the
material features of the authorized action and, if the action be a merger,
consolidation or sale or exchange of assets for which dissenters rights are
provided by law, the notice shall contain a clear statement of the right of
shareholders dissenting therefrom to be paid the fair value of their shares upon
compliance with further provisions as provided by law regarding the rights of
dissenting shareholders.
8
<PAGE>
ARTICLE II.
DIRECTORS
SECTION 1. FUNCTIONS.
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board of Directors.
SECTION 2. QUALIFICATION.
Directors need not be residents of this state or shareholders of this
corporation.
SECTION 3. COMPENSATION.
The Board of Directors shall have authority to fix the compensation of
directors.
SECTION 4. DUTIES OF DIRECTORS.
A director shall perform his duties as a director, including his duties as
a member of any committee of the board upon which he may serve, in good faith,
in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by one or more officers
or employees of the corporation whom the director reasonably believes to be
reliable and competent in the matters presented, counsel, public accountants, or
other persons as to matters which the director reasonably believes to be within
such person's professional or expert competence, or a committee of the Board
upon which he does not serve, duly designated in accordance with a provision of
the Articles of Incorporation or the
9
<PAGE>
By-Laws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall
have no liability by reason of being or having been a director of the
corporation and shall be indemnified by the corporation for any and all claims
and/or losses arising out of his service as a director of the Corporation.
SECTION 5. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of its Board of
Directors at which action on any corporate matter is taken shall be presumed to
have agreed, consented to and adopted such corporate action unless he votes
against such action or abstains from voting in respect thereto because of an
asserted conflict of interest.
SECTION 6. NUMBER.
The Board of Directors shall consist of one or more members, the exact
number to be determined from time to time by shareholders or the Board of
Directors. The number of directors may be increased or decreased from time to
time by amendment to these By-Laws, but no decrease shall have the effect of
shortening the terms of any incumbent director.
SECTION 7. ELECTION AND TERM.
Each person named in the Articles of Incorporation or by the incorporator
as a member of the initial Board of Directors shall hold office until the first
annual meeting of shareholders, and
10
<PAGE>
until his successor shall have been elected and qualified or until his earlier
resignation, removal from office or death.
At the first annual meeting of shareholders and at each annual meeting
thereafter the shareholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
SECTION 8. VACANCIES.
Any vacancy occurring in the Board of Directors, including any vacancy
created by reason of an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall
hold office only until the next election of directors by the shareholders.
SECTION 9. REMOVAL OF DIRECTORS.
At a meeting of shareholders called expressly for that purpose, any
director or the entire Board of Directors may be removed, with or without cause,
by a vote of the holders of a majority of the shares then entitled to vote at an
election of directors.
SECTION 10. QUORUM AND VOTING.
A majority of the number of directors fixed by these By-Laws shall
constitute a quorum for the transaction of business. The act of the majority of
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
11
<PAGE>
SECTION 11. DIRECTOR CONFLICTS OF INTEREST.
No contract or other transaction between this corporation and one or more
of its directors or any other corporation, firm, association or entity in which
one or more of the directors are directors or officers or are financially
interested, shall be either void or voidable because of such relationship or
interest or because such director or directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or because his or their votes are counted for such
purpose, if:
The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
The contract or transaction is fair and reasonable as to the corporation
at the time it is authorized by the Board, a committee or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
SECTION 12. EXECUTIVE AND OTHER COMMITTEES.
The Board of Directors, by resolution adopted by a majority of the full
Board of Directors, may designate from among its members an executive committee
and one or more other committees
12
<PAGE>
each of which, to the extent provided in such resolution shall have and may
exercise all the authority of the Board of Directors, except that no committee
shall have the authority to:
approve or recommend to shareholders actions or proposals required by law to
be approved by shareholders, designate candidates for the office of director,
for purposes of proxy solicitation or otherwise fill vacancies on the Board
of Directors or any committee thereof, amend the By-Laws, authorize or
approve the reacquisition of shares unless pursuant to a general formula or
method specified by the Board of Directors, or authorize or approve the
issuance or sale of, or any contract to issue or sell, shares or designate
the terms of a series of a class of shares, except that the Board of
Directors, having acted regarding general authorization for the issuance or
sale of shares, or any contract therefor, and, in the case of a series, the
designation thereof, may, pursuant to a general formula or method specified
by the Board of Directors, by resolution or by adoption of a stock option or
other plan, authorize a committee to fix the terms upon which such shares may
be issued or sold, including without limitation, the price, the rate or
manner of payment of dividends, provisions of redemption, sinking fund,
conversion, voting or preferential rights, and provisions for other features
of a class of shares, or a series of a class of shares, with full power in
such committee to adopt any final resolution setting forth all the terms
thereof and to authorize the statement of the terms of a series for filing
with the Department of State.
13
<PAGE>
The Board of Directors, by resolution adopted in accordance with this section,
may designate one or more directors as alternate members of any such committee,
who may act in the place and stead of any absent member or members at any
meeting of such committee.
SECTION 13. PLACE OF MEETINGS.
Regular and special meeting by the Board of Directors may be held within
or without the State of Florida.
SECTION 14. TIME, NOTICE AND CALL OF MEETINGS.
Regular meetings of the Board of Directors shall be held without notice at
such times as the Board of Directors may fix. Written notice of the time and
place of special meetings of the Board of Directors shall be given to each
director by either personal delivery, telegram or telecopy at least two days
before the meeting or by notice mailed to the director at least five days before
the meeting.
Notice of the meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all obligations to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. A majority of the directors present, whether
or not a quorum exists, may adjourn any meeting of the Board of Directors to
another time and place. Notice of any such adjourned meeting shall be
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given to the directors who were not present at the time of the adjournment and,
unless the time and place of the adjourned meeting are announced at the time of
the adjournment, to the other directors.
Meetings of the Board of Directors may be called by the chairman of the
Board, by the president of the corporation, or by any two directors.
Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
SECTION 15. ACTION WITHOUT A MEETING.
Any action required to be taken at a meeting of the directors of a
corporation, or any action which may be taken at a meeting of the directors or a
committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action so to be taken, signed by all of the directors, or all
of the members of the committee, as the case may be, is filed in the minutes of
the proceedings of the Board or of the committee. Such consent shall have the
same effect as a unanimous vote.
ARTICLE III.
OFFICERS
SECTION 1. OFFICERS.
The officers of this corporation shall consist of a president, secretary
and treasurer, and may also include one or more vice presidents, each of whom
shall be elected by the Board of Directors at a meeting of directors following
the annual meeting of shareholders of this
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corporation, and shall serve until their successors are chosen and qualify. Such
other officers and assistant officers and agents as may be deemed necessary may
be elected or appointed by the Board of Directors from time to time. Any two or
more offices may be held by the same person. The failure to elect a president,
vice president, secretary, or treasurer shall not affect the existence of this
corporation.
SECTION 2 DUTIES.
The officers of this corporation shall have the following duties:
The President of the corporation shall be the chief executive and
operating officer of the corporation and have general and active management of
the business affairs of the corporation subject to the direction of the Board of
Directors and shall preside at all meetings.
The Vice President, if one or more is elected or appointed, shall have all
of the duties normally performed by the President when the President is unable
or unavailable to act, by order of seniority. Otherwise, his duties shall be
subject to the direction of the President and the Board of Directors. The
Secretary shall have custody of, and maintain, all of the corporate records,
except the financial records; shall record the minutes of all meetings of the
stockholders and Board of Directors, send all notices of meetings out, and
perform such other duties as may be prescribed by the Board of Directors or the
President.
The Treasurer shall have custody of all corporate funds and financial
records, shall keep full and accurate accounts of receipts and disbursements and
render accounts thereof at the annual meetings of stockholders and whenever else
required by the Board of Directors or the President, and shall perform such
other duties as may be prescribed by the Board of Directors or the President.
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SECTION 3. REMOVAL OF OFFICERS.
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board whenever in its judgment the best interest of the
corporation will be served thereby. Any officer or agent elected by the
shareholders may be removed only by vote of the shareholders, unless the
shareholders shall have authorized the directors to remove such officer or
agent. Any vacancy, however occurring, in any office, may be filled by the Board
of Directors, unless the ByLaws shall have expressly reserved such power to the
shareholders.
Removal of any officer shall be without prejudice to the contract rights,
if any, of the person so removed; however, election or appointment of an officer
or agent shall not of itself create contract rights.
ARTICLE IV.
INDEMNIFICATION
Any person, his heirs, or personal representative, made, or threatened to
be made, a party to any threatened, pending, or completed action or proceeding,
whether civil, criminal, administrative, or investigative, because he, his
testator, or intestate is or was a director, officer, employee, or agent of this
corporation or serves or served any other corporation or other enterprise in any
capacity at the request of this corporation, shall be indemnified by this
corporation, and this corporation may advance his related expenses to the full
extent permitted by law. In discharging his duty, any director, officer,
employee, or agent, when acting in good faith, may rely upon information,
opinions, reports, or statements, including financial statements and other
financial data, in each case prepared or presented by (1) one or more officers
or employees of the corporation whom the director, officer, employee, or agent
reasonably believes to be
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reliable and competent in the matters presented, (2) counsel, public
accountants, or other persons as to matters that the director, officer,
employee, or agent believes to be within that person's professional or expert
competence, or (3) in the case of a director, a committee of the board of
directors upon which he does not serve, duly designated according to law, as to
matters within its designated authority, if the director reasonably believes
that the committee is competent. The foregoing right if indemnification or
reimbursement shall not be exclusive of other rights to which the person, his
heirs, or personal representatives may be entitled. The corporation may, upon
the affirmative vote of a majority of its board of directors, purchase insurance
for the purpose of indemnifying these persons. The insurance may be for the
benefit of all directors, officers, or employees.
ARTICLE V.
STOCK CERTIFICATES
SECTION 1. ISSUANCE.
Every holder of shares in this corporation shall be entitled to have a
certificate, representing all shares to which he is entitled. No certificate
shall be issued for any share until such share is fully paid.
SECTION 2. FORM.
Certificates representing shares in this corporation shall be signed by
the President or Vice President and the Secretary or an Assistant Secretary, if
any, and may be sealed with the seal of this corporation or a facsimile thereof.
The signatures of the President or Vice President and the Secretary may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the corporation itself or an employee of the
corporation. In case any officer
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who signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issuance.
In the event the corporation is authorized to issue more than one class or
series, every certificate representing shares issued by this corporation shall
be set forth or fairly summarize upon the face or back of the certificate, or
shall state that the corporation will furnish to any shareholder upon request
and without charge a full statement of, the designations, preferences,
limitations and relative rights of the shares of each class or series authorized
to be issued, and the variations in the relative rights and preferences between
the shares of each series so far as the same have been fixed and determined, and
the authority of the Board of Directors to fix and determine the relative rights
and preferences of subsequent series.
Every certificate representing shares which are restricted as to the sale,
disposition or other transfer of such shares shall state that such shares are
restricted as to transfer and shall set forth or fairly summarize upon the
certificate, or shall state that the corporation will furnish to any shareholder
upon request and without charge a full statement of such restrictions.
Each certificate representing shares shall state upon the face thereof:
the name of the corporation; that the corporation is organized under the laws of
this state; the name of the person or persons to whom issued; the number and
class of shares, and the designation of the series, if any, which such
certificate represents; and the par value of each share represented by such
certificate, or a statement that the shares are without par value.
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SECTION 3. TRANSFER OF STOCK.
The corporation shall register a stock certificate presented to it for
transfer if the certificate is properly endorsed by the holder of record or by
his duly authorized attorney, and the signature of such person has been
guaranteed by a commercial bank or trust company or by a member of the New York
or American Stock Exchange.
SECTION 4. LOST, STOLEN, OR DESTROYED CERTIFICATES.
The corporation shall issue a new stock certificate in the place of any
certificate previously issued if the holder of record of the certificate (a)
makes proof in affidavit form that it has been lost, destroyed or wrongfully
taken; (b) requests the issue of a new certificate before the corporation has
notice that the certificate has been acquired by a purchaser for value in good
faith and without notice of any adverse claim; (c) gives bond in such form as
the corporation may direct, to indemnify the corporation, the transfer agent,
and registrar against any claim that may be made on account of the alleged loss,
destruction, or theft of a certificate; and (d) satisfies any other reasonable
requirements imposed by the corporation.
ARTICLE VI.
BOOKS AND RECORDS
SECTION 1. BOOKS AND RECORDS.
This corporation shall keep correct and complete books and records of
accounts and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees of directors.
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This corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders, and the
number, class and series, if any, of the shares held by each.
Any books, records and minutes may be in written form or in any other form
capable of being converted into written form within a reasonable time.
SECTION 2. SHAREHOLDERS' INSPECTION RIGHTS.
Any person who shall have been a holder of record of shares or of voting
trust certificates therefor at least six months immediately preceding his demand
or shall be the holder of record of, or the holder of record of voting trust
certificates for, at least five percent of the outstanding shares of any class
or series of the corporation, upon written demand stating the purpose thereof,
shall have the right to examine, in person or by agent or attorney, at any
reasonable time or times, for any proper purpose its relevant books and records
of accounts, minutes and records of shareholders and to make extracts therefrom.
SECTION 3. FINANCIAL INFORMATION.
Not later than four months after the close of each fiscal year, this
corporation shall prepare a balance sheet showing in reasonable detail the
financial condition of the corporation as of the close of its fiscal year, and a
profit and loss statement showing the results of the operations of the
corporation during its fiscal year.
Upon the written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the corporation shall mail to such
shareholder or holder of voting trust certificates a copy of the most recent
annual balance sheet and profit and loss statement.
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The balance sheets and profit and loss statements shall be filed in the
registered office of the corporation in this state, shall be kept for as long as
the law requires and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates, in person or by agent.
ARTICLE VII.
DIVIDENDS
The Board of Directors of this corporation may, from time to time, declare
and the corporation may pay dividends on its shares in cash, property or its own
shares, to the full extent permitted by law.
ARTICLE VIII.
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the same of the corporation,
the year of incorporation, and the word "seal"; it may be any of a facsimile,
engraved, printed or impression seal.
ARTICLE IX.
AMENDMENT
These By-Laws may be repealed or amended, and new By-Laws may be adopted,
either by the Board of Directors or the shareholders, but the Board of Directors
may not amend or repeal any by-law adopted by shareholders if the shareholders
specifically provide such by-law shall not be subject to amendment or repeal by
the directors.
22
EXHIBIT 4.2
WARRANT AGREEMENT
THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED PRIOR TO
_________________, 1997. THE REGISTERED HOLDER OF THIS PURCHASE OPTION
BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER
OR ASSIGN THIS PURCHASE OPTION PRIOR TO THAT DATE OTHER THAN TO
AN OFFICER OR PARTNER OF SUCH HOLDER.
NOT EXERCISABLE PRIOR TO ________________, 1997. VOID AFTER 5:00 p.m.
EASTERN TIME, _______________, 2001.
WARRANT AGREEMENT dated as of ___________, 199___ between Advanced
Electronics Support Products, Inc., a Florida corporation (the "Company"), and
JW Charles Securities, Inc. (the "Underwriter").
The Company proposes to issue to the Underwriter warrants as
hereinafter described (the "Underwriter's Warrants") to purchase up to an
aggregate of 75,000 shares, subject to adjustment as hereinafter provided (the
"Warrant Shares"), of the Company's common stock, par value $.001 per share (the
"Common Stock"), each Underwriter's Warrant entitling the holder thereof to
purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue, sell
and deliver the Underwriter's Warrants to the Underwriter or its bona fide
officers and/or directors for the aggregate price of $.001 per Underwriters'
Warrant concurrently with the closing (the "Closing") under the Underwriting
Agreement, dated ___________ , 19___, between the Company and the Underwriter,
relating to the public offering (the "Offering") pursuant to a registration
statement on Form SB-2, as amended (File No. 333-________) (the "Registration
Statement"), of 750,000 Shares (excluding an option to purchase up to an
additional 112,500 Shares to cover over-allotments, if any). The text of the
Underwriter's Warrants and of the form of election to purchase shares to be
attached thereto shall be substantially as set forth in Exhibit A attached
hereto. The Underwriter's Warrants shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future Chairman of the
Board, President or Vice President of the Company, under its corporate seal,
affixed or in facsimile, attested by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
2. REGISTRATION. The Underwriter's Warrants shall be numbered and shall
be registered in an Underwriter's Warrant registered as they are issued. The
Company shall be entitled to treat the registered holder (the "Holder") of any
Underwriter's Warrant on the Underwriter's Warrant register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Underwriter's Warrant on the part of any
other person, and shall not be liable for any registration of transfer of
Warrants
<PAGE>
which are registered or are to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration or
transfer, or with such knowledge of such facts that its participation therein
amounts to bad faith. The Underwriter's Warrants shall be registered initially
in the name of "JW Charles Securities, Inc." in such denominations as the
Underwriter may request in writing to the Company; PROVIDED, HOWEVER, that at
least one business day prior to the Closing, the Underwriter may designate that
the Underwriter's Warrants be issued in varying amounts directly to its bona
fide officers or to other underwriters and their designees, and not to the
Underwriter. Such designation will only be made by the Underwriter if it
determines such issuances would not violate the interpretation of the Board of
Governors of the National Association of Securities Dealers, Inc. (the "NASD")
relating to the review of corporate financing arrangements.
3. TRANSFER OF WARRANTS. For a period of one year from the effective
date of the Registration Statement, the Underwriter's Warrants may not be sold,
assigned, transferred, pledged or hypothecated, in part or in whole, except to
officers of the Underwriter or members of the selling group. Such transfer,
assignment, pledge or hypothecation will be effective only when registered on
the books of the Company upon delivery to the Company of the Warrant
certificate(s) duly endorsed by the Holder or by his duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration or transfer, the Company shall
deliver a new Underwriter's Warrant or Underwriter's Warrants to the persons
entitled thereto. The Underwriter's Warrants may be exchanged at the option of
the Holder thereof, for another Underwriter's Warrant, or other Underwriter's
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares upon surrender to the
Company or its duly authorized agent. Notwithstanding anything herein to the
contrary, the Underwriter's Warrants shall not be transferred to a direct
competitor of the Company without the Company's prior written approval.
4. TERM OF WARRANTS; EXERCISE OF WARRANTS. Each Underwriter's Warrant
entitles the registered owner thereof to purchase one Share of Common Stock at a
purchase price of $6.00 per Share (the "Exercise Price"). The total number of
Underwriter's Warrants which may be purchased is equal to ten percent (10%) of
the number of Shares sold in the Offering, excluding Shares sold as part of the
over-allotment option. The Underwriter's Warrants are non-exercisable and
non-transferable for a period of twelve (12) months following the effective date
of the Registration Statement and will thereafter be exercisable until the date
which is four years from the effective date of the Registration Statement (the
"Expiration Date"). The Exercise Price and the amount of Shares of Common Stock
issuable upon exercise of the Underwriter's Warrants are subject to adjustment
upon the occurrence of certain events, pursuant to the provisions of Section 8
of this Agreement. Subject to the provisions of this Agreement, each Holder
shall have the right, which may be exercised as set forth in such Underwriter's
Warrants, to purchase from the Company (and the Company shall issue and sell to
such Holder) the number of fully paid and nonassessable Shares of Common Stock
specified in such Underwriter's Warrants, upon surrender to the Company, or its
duly authorized agent, of such Underwriter's
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Warrants, with the form of election to purchase attached thereto duly completed
and signed, and upon payment to the Company of the Exercise Price, as adjusted
in accordance with the provisions of Section 8 of this Agreement, for the number
of Warrant Shares in respect of which such Underwriter's Warrants are then
exercised. Payment of the Exercise Price may be made in cash or by check payable
to the order of the Company. No adjustment shall be made for any dividends on
any shares of Common Stock issuable upon exercise of an Underwriter's Warrants.
Upon each surrender of Underwriter's Warrants and payment of the Exercise Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder of such
Underwriter's Warrants and (subject to receipt of evidence of compliance with
the Act in accordance with the provisions of Section 10 of this Agreement) in
such name or names as such Holder may designate, a certificate or certificates
for the number of full Warrant Shares so purchased upon the exercise of such
Underwriter's Warrants, together with cash, as provided in Section 9 of this
Agreement, in respect of any fractional Warrant Shares otherwise issuable upon
such surrender. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of the date of the surrender
of such Underwriter's Warrants and payment of the Exercise Price as aforesaid;
PROVIDED, HOWEVER, that if, at the date of surrender of such Underwriter's
Warrants and payment of such Exercise Price, the transfer books for the Common
Stock or other class of stock purchasable upon the exercise of such
Underwriter's Warrants shall be closed, the certificates for the Warrant Shares
shall be issuable as of the date on which such books shall next be opened
(whether before, on or after the Expiration Date) and until such date the
Company shall be under no duty to deliver any certificate for such shares;
PROVIDED, FURTHER, HOWEVER, that such transfer books, unless otherwise required
by law, shall not be closed at any one time for a period longer than 20 days.
The rights of purchase represented by the Underwriter's Warrants shall be
exercisable, at the election of the Holders thereof, either in full or from time
to time in part and, if any Underwriter's Warrant is exercised in respect of
less than all of the Warrant Shares purchasable on such exercise, a new
Underwriter's Warrant or Underwriter's Warrants will be issued for the remaining
number of Warrant Shares specified in the Underwriter's Warrant so surrendered.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the issuance of Warrant Shares upon the exercise of the
Underwriter's Warrants. The Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Warrant Shares in a name other than that of the
Holder of Underwriter's Warrants in respect of which such Warrant Shares are
issued.
6. MUTILATED OR MISSING WARRANTS. In case any of the Underwriter's
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Underwriter's Warrant, or in lieu of and
substitution for the Underwriter's Warrant lost, stolen or destroyed, a new
Underwriter's Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Underwriter's Warrant and
indemnity, if requested, also reasonably
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satisfactory to the Company. An applicant for such substitute Underwriter's
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
7. RESERVATION OF SHARES, ETC. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Underwriter's
Warrants. ________________, transfer agent for the Common Stock (the "Transfer
Agent"), and every subsequent Transfer Agent, if any, for shares of the Company
issuable upon the exercise of any of such rights of purchase will be irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares of Common Stock as shall be required
for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent Transfer Agent for any shares of
the Company's Common Stock issuable upon the exercise of such rights of
purchase. The Company will supply any such Transfer Agent with duly executed
stock and warrant certificates for such purpose and will itself provide or
otherwise make available any cash which may be distributable as provided in
Section 9 of this Agreement. All Underwriter's Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled, and such cancelled
Underwriter's Warrants shall constitute sufficient evidence of the number of
shares of Common Stock that have been issued upon the exercise of such
Underwriter's Warrants. No shares of Common Stock shall be subject to
reservation in respect of unexercised Underwriter's Warrants subsequent to the
Expiration Date.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the number and kind of securities purchasable upon exercise of each
Underwriter's Warrant shall be subject to adjustment from time to time upon the
happening of certain events that may occur after the date hereof and prior to
the Expiration Date, as follows:
A. If the Company shall (i) declare a dividend on its Common
Stock in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares of Common Stock or (iv)
issue by reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation), the number of Warrant Shares purchasable upon
exercise of each Underwriter's Warrant immediately prior thereto shall
be adjusted so that the Holder of each Underwriter Warrant shall be
entitled to receive the number of Warrant Shares of the Company which
he would have owned or have been entitled to receive after the
happening of any of the events described above, had such Underwriter's
Warrants been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made
pursuant to this Paragraph A shall become effective immediately after
the effective date of such event retroactive to immediately after any
record date for such event.
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B. Anything in this Section 8 to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to make such
changes in the number of Warrant Shares purchasable upon the exercise
of each Underwriter's Warrant, in addition to those required by this
Section 8, as it in its discretion shall determine to be advisable in
order that any dividend or distribution in shares of Common Stock,
subdivision, combination or reclassification of shares of Common Stock,
issuance of rights, options or warrants to purchase Common Stock, or
distribution of shares of stock other than Common Stock, evidences of
indebtedness or assets (other than distributions of cash out of
consolidated earnings or retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of
its Common Stock shall not result in any tax to the holders of its
Common Stock or securities convertible into Common Stock.
C. Whenever the number of Warrant Shares purchasable upon the
exercise of each Underwriter's Warrant is adjusted, as herein provided,
the Exercise Price thereof shall be adjusted by multiplying each such
Exercise Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares purchasable
upon the exercise of each Underwriter's Warrant immediately prior to
such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
D. For the purpose of this Section 8, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the Company at the date of this Agreement or (ii) any
other class of stock resulting from successive changes or
reclassification of such shares consisting solely of changes in par
value, or from no par value to par value, or from par value to no par
value. If at any time, as a result of an adjustment made pursuant to
Paragraph A above, the Holders shall become entitled to purchase any
shares of capital stock of the Company other than shares of Common
Stock, the number of such other shares so purchasable upon exercise of
each Underwriter's Warrant and the Exercise Price of such shares shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions contained in
Paragraphs A through C, inclusive, above, and Paragraphs E through G,
inclusive, of this Section 8.
E. Whenever the number of Warrant Shares purchasable upon the
exercise of each Underwriter's Warrant or the Exercise Price of Warrant
Shares is adjusted, as herein provided, the Company shall promptly mail
by first class mail, postage prepaid, to each Holder notice of such
adjustment or adjustments. The Company may retain a firm of independent
public accountants (who may be the regular accountants employed by the
Company) to make any computation required by this Section 8 and shall
cause such accountants to prepare a certificate setting forth the
amount of the adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which
such adjustment was made. Such certificate shall be conclusive of the
correctness of such adjustment and each Holder shall have the right to
inspect such certificate during reasonable business hours.
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F. In case of any consolidation of the Company with or merger
of the Company with or into another corporation or in case of any sale
or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation (or an affiliate of such successor
or purchasing corporation), as the case may be, agrees that each Holder
shall have the right to purchase upon exercise of each Underwriter's
Warrant the kind and amount of shares and other securities and property
(including cash) which he would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or
conveyance had such Underwriter's Warrant been exercised immediately
prior to such action. The provisions of this Paragraph F shall
similarly apply to successive consolidations, mergers, sales or
conveyances.
G. Notwithstanding any adjustment in the Exercise Price or the
number or kind of Shares purchasable upon the exercise of the
Underwriter's Warrant pursuant to this Agreement, certificates for
Underwriter's Warrants issued prior or subsequent to such adjustment
may continue to express the same price and number and kind of shares as
are initially issuable pursuant to this Agreement.
9. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Underwriter's Warrants.
If more than one Underwriter's Warrant shall be presented for exercise in full
at the same time by the same Holder, the number of Warrant Shares which shall be
issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares purchasable on exercise of the Underwriter's
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions of this Section 9, be issuable on the exercise of any
Underwriter's Warrants (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
current market price per share of Common Stock on the date of exercise.
10. RESTRICTIONS ON DISPOSITIONS. The Underwriter's Warrants and the
Warrant Shares have been registered under the Act pursuant to the Registration
Statement filed by the Company with the Securities and Exchange Commission. The
Underwriter represents and warrants to the Company that it understands that
neither the Underwriter's Warrants nor the Warrant Shares may be transferred
except pursuant to (i) a post-effective amendment to the effective Registration
Statement, (ii) another effective registration statement under the Act, or (iii)
any available rule or exemption from registration under the Act permitting such
transfer and an opinion of counsel, reasonably satisfactory to counsel for the
Company, that an exemption from such registration is available.
11. CERTIFICATES TO BEAR LEGENDS. The Warrant Shares issued upon
exercise of the Underwriter's Warrants shall be subject to a stop-transfer
order and the certificate or certificates evidencing any such Warrant Shares
shall bear a legend in substantially the following form:
6
<PAGE>
"The securities represented by this certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act,
or pursuant to an exemption from registration under the Act."
12. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with the Underwriter and each other Holder of the Underwriter's Warrants
and/or the Warrant Shares (collectively, the "Registrable Securities") that,
subject to the availability of audited financial statements which comply with
Regulation S-X under the Securities Act of 1933 (the "Act") and upon written
request (the "Notice") of the then Holder(s) of at least fifty percent (50%) of
the Registrable Securities, made at any time within the period commencing one
year and ending four years after the effective date of the Registration
Statement, the Company will, up to two (2) times, cause the Registrable
Securities to be the subject of a post-effective amendment to the present
Registration Statement or a new registration statement (collectively, a
"Filing") under the Act, so as to enable the Underwriter and its assigns to
offer publicly the Registrable Securities. The Company shall maintain the
effectiveness of such Filing for at least 120 days and shall qualify or register
the Registrable Securities included therein for sale in up to ten states. All
costs incurred in connection with the preparation of any Filings hereunder shall
be paid by the Company; PROVIDED that fees of counsel for the Underwriter shall
be paid by the Underwriter; PROVIDED FURTHER, that the expenses of any second
such registration statement or post-effective amendment (and matters attended
thereto), shall be borne by the Underwriter or the holders requiring the same.
Within thirty days after receiving a Notice, the Company shall give notice to
the other Holders of the Registrable Securities advising that the Company is
proceeding with such Filing, and offering to include therein the Registrable
Securities of such Holders. The Company shall not be obligated to any such other
Holder unless such other Holder shall accept such offer by notice in writing to
the Company within twenty (20) days thereafter. The Holders of the Registrable
Securities whose Warrants or Shares are included in such offering shall
cooperate with the Company in preparing such Filing. No other securities of the
Company shall be entitled to participate in such Filing. The Company will use
its best efforts, through its officers, directors, auditors and counsel in all
matters necessary or advisable, to file and cause to become effective such
Filing as promptly as practicable and for a period of nine months thereafter to
reflect in such Filing financial statements which are prepared in accordance
with Section 10(a)(3) of the Act and any facts or events arising that,
individually, or in the aggregate, represent a fundamental and/or material
change in the information set forth in such Filing to enable any Holders to sell
the Registrable Securities during said nine month period. The Holder(s) may sell
the Underwriter's Warrants pursuant to such Filing without exercising the
Underwriter's Warrants. If any Filing pursuant to this paragraph (a) is an
underwritten offering, the Holders of a majority of the Registrable Securities
to be included in such Filing will select an underwriter (or managing
underwriter if such offering should be syndicated).
7
<PAGE>
(b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and
agrees with the Underwriter and each other Holder of the Registrable Securities
that if, at any time within the period commencing one year and ending four years
after the effective date of the Registration Statement, it proposes to file a
Regulation A Offering Statement or register any class of security under the Act
in a primary registration on behalf of the Company and/or in a secondary
registration on behalf of holders of such securities and the registration form
or offering statement to be used may be used for registration of the Registrable
Securities, the Company will give prompt written notice (which, in the case of a
registration pursuant to the exercise of demand registration rights other than
those provided in Section 12(a) of this Agreement, shall be within 15 business
days after the Company's receipt of notice of such exercise and, in any event,
shall be at least 30 days prior to such filing) to the Holders of the
Registrable Securities (regardless of whether some of the Holders shall have
theretofore availed themselves of the right provided in Section 12(a)) at the
address(es) appearing on the records of the Company of its intention to effect a
registration and the Holders of the Registrable Securities shall have the right,
subject to Sections (b)(i) and (ii) below, to register all or part of the
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days of receipt/of notice by the
Company, setting forth the intended method of distribution and such other date
or information as the Company or its counsel shall reasonably require. In the
event that such offering is underwritten by a broker/dealer other than the
Underwriter, the Holders' right to register the Registrable Securities shall be
subject to the approval of such underwriter. The Company agrees to use its best
efforts to obtain such approval. This paragraph is not applicable to a
registration filed with the Commission on Form S-4, S-8 on any other
inappropriate forms. The Holders of the Registrable Securities whose securities
are included in such offering shall cooperate with the Company in preparing the
registration statement. All registrations requested pursuant to this Section (b)
are referred to herein as "Piggyback Registrations."
(i) PRIORITY ON PRIMARY REGISTRATIONS. If a
Piggyback Registration includes an underwritten primary registration on
behalf of the Company and the underwriter(s) for the offering being registered
by the Company shall determine in good faith and advise the Company in writing
that in its/their opinion that marketing factors require a limitation on the
number of Registrable Securities that can be sold in such offering without
materially adversely affecting the distribution of such securities by the
Company, the Company will include in such registration (i) first, the securities
that the Company proposes to sell and (ii) second, the Registrable Securities
requested to be included in such registration, pro rata among the Holders of
Registrable Securities and (iii) third, securities of the holders of other
securities requesting registration. If any party disapproves of the terms of any
such underwriting, it may withdraw therefrom by written notice to the Company
and the Underwriter.
(ii) PRIORITY ON SECONDARY REGISTRATIONS. If a
Piggyback Registration consists only of an underwritten secondary
registration on behalf of holders of securities of the Company (other than
pursuant to Section 12(a)), and the underwriter(s) for the offering being
registered by the Company shall determine in good faith and advise the Company
in writing that in its/their opinion the number of Registrable Securities
requested to be included in such
8
<PAGE>
registration exceeds the number which can be sold in such offering without
materially adversely affecting the distribution of such securities, the Company
will include in such registration the securities requested to be included
therein by the holders requesting such registration and the Registrable
Securities requested to be included in such registration above, pro rata among
such holders on the basis of the number of shares requested to be included by
each such holder.
(c) OTHER REGISTRATION RIGHTS. In addition to the rights above
provided, the Company will cooperate with the then Holders of the Registrable
Securities in preparing and signing any registration statement, in addition to
the registration statements discussed above, required in order to sell or
transfer the aforesaid Registrable Securities and will supply all information
required therefor, but such additional registration statement and any expenses
related to such offering shall be at the then Holders' cost and expense unless
the Company elects to register additional shares of the Common Stock in which
case the cost and expense of such registration statement will be prorated
between the Company and the Holders according to the aggregate sales price of
the securities being offered.
(d) ACTION TO BE TAKEN BY THE COMPANY. In connection
with the registration of the Registrable Securities pursuant hereto, the
Company agrees to:
(i) bear the expenses of any registration or
qualification under (a) or (b) of this section, including but not limited
to accounting and printing fees; PROVIDED, HOWEVER, that in no event shall the
Company be obligated to pay (A) any legal fees for Holders of Registrable
Securities, or (B) any underwriters' discount or commission in respect of such
Registrable Securities;
(ii) use its best efforts to register or qualify
the Registrable Securities for offer or sale under state securities or blue
sky laws in such jurisdictions in which the Underwriter shall reasonably request
and to do any and all other acts and things which may be necessary or advisable
to enable the Holders to consummate the proposed sale, transfer or other
disposition of such securities in such jurisdictions; and
(iii) enter into a cross-indemnity agreement,
in customary form, with each underwriter, if any, and each Holder of
securities included in such Registration Statement.
13. NOTICES TO HOLDERS.
(a) Nothing contained in this Agreement or in any of the
Underwriter's Warrants shall be construed as conferring upon the Holders thereof
the right to vote or to receive dividends or to consent or to receive notice as
shareholders in respect of the meetings of shareholders or the election of
directors of the Company or any other matter, or any rights whatsoever as
shareholders of the Company; PROVIDED, HOWEVER, that if a meeting of
shareholders shall be called to consider and take action on a proposal for the
voluntary dissolution of the Company, other than in connection with a
consolidation, merger or sale of all, or substantially all, of its property,
assets, business and goodwill as an entirety, then and in that
9
<PAGE>
event the Company shall cause a notice thereof to be sent by first-class mail,
postage prepaid, at least 15 days prior to the date fixed as a record date or
the date of closing the transfer books in relation to such meeting, to each
registered Holder of Underwriter's Warrants at such Holder's address appearing
on the Underwriter's Warrant register; but failure to mail or to receive such
notice or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such voluntary dissolution. If
such notice shall have been so given and if such a voluntary dissolution shall
be authorized at such meeting or any adjournment thereof, then from and after
the date on which such voluntary dissolution shall have been duly authorized by
the shareholders, the purchase rights represented by the Underwriter's Warrants
and all other rights with respect thereto shall cease and terminate.
(b) If the Company intends to make any distribution on its
Common Stock (or other securities which may be purchasable in lieu thereof upon
the exercise of Underwriter's Warrants), including, without limitation, any such
distribution to be made in connection with a consolidation or merger in which
the Company is the continuing corporation, or to issue subscription rights or
warrants to holders of its Common Stock, the Company shall cause a notice of its
intention to make such distribution to be sent by first-class mail, postage
prepaid, at least 15 days prior to the date fixed as a record date or the date
of closing the transfer books in relation to such distribution, to each
registered Holder of Underwriter's Warrants at such Holder's address appearing
on the Underwriter's Warrant register, but failure to mail or to receive such
notice or any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such distribution.
14. NOTICES. All notices and other communications hereunder (unless
otherwise expressly provided for herein) shall be in writing and shall be deemed
given when delivered in person on the business (before 5:00 P.M.) sent by
facsimile transmission, or on the date indicated on the return receipt if sent
registered or certified mail return receipt requested) to the party to receive
the same at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to the Company: Advanced Electronic Support Products, Inc.
1810 Northeast 144th Street
North Miami, Florida 33181
Attn: Messrs. Slav Stein and Roman Briskin
Facsimile: (305) 652-8489
With a Copy to: Akerman, Senterfit & Eidson, P.A.
SunTrust International Center, 28th Floor
One Southeast Third Avenue
Miami, Florida 33131-1704
Attn: Philip Schwartz, Esq.
Facsimile: (305) 374-5095
10
<PAGE>
If to the Holder: At the address shown on the Underwriter's
Warrant register or the Company's Common
Stock register, as the case may be.
with a copy to: JW Charles Securities, Inc.
1117 Perimeter Center West
Suite 500-E
Atlanta, Georgia 30338
Attn: Mr. Joel E. Marks, Vice President
Facsimile: (404) 353-5873
Lucio, Mandler, Croland, Bronstein & Garbett, P.A.
Barnett Bank Tower
701 Brickell Avenue, 20th Floor
Miami, Florida 33131
Attn: Leslie J. Croland, Esq.
Facsimile: (305) 579-0012
15. OPINION OF COUNSEL. Counsel to the Company shall deliver to the
Underwriter an opinion, dated the date hereof, satisfactory to counsel for the
Underwriter, to the effect that (i) the Underwriter's Warrants and this
Agreement have been authorized by all necessary corporate action, (ii) the
Underwriter's Warrants and this Agreement have been duly authorized, executed
and delivered and each constitutes a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, (iii) the Company has reserved
out of its authorized and unissued shares of Common Stock, a number of shares
sufficient to provide for the exercise of the rights of purchase represented by
the Underwriter's Warrants and (iv) the Warrant Shares, when issued upon
exercise of Underwriter's Warrants in accordance with the terms of the
Underwriter's Warrants and this Agreement, will be validly issued, fully paid
and non-assessable.
16. GOVERNING LAW. This Agreement and each Underwriter's Warrant
issued hereunder shall be governed by and construed in accordance with the
substantive laws of the State of Florida. The Company hereby agrees to accept
service of process by notice given to it pursuant to the provisions of Section
14.
17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
ADVANCED ELECTRONICS SUPPORT PRODUCTS, INC.
By: _________________________
Authorized Representative
JW CHARLES SECURITIES, INC.
By: _________________________
Authorized Representative
12
<PAGE>
EXHIBIT A
(Form of Warrant Certificate)
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT."
No. ____________ ___________ Warrants
VOID AFTER 5:00 P.M. _________ CITY TIME
ON ________________, 19___
__________________________
Warrant Certificate
THIS CERTIFIES THAT for value received JW Charles Securities, Inc., or
registered assigns, is the owner of the number of Warrants set forth above, each
of which entitles the owner thereof to purchase at any time from _____________,
19___, until 5:00 p.m., ____________ time on _____________, 20___ (the
"Expiration Date"), one share of common stock, par value $.001 (the "Common
Stock"), of Advanced Electronics Support Products, Inc., a Florida corporation
(the "Company"), at a purchase price of $____ per share (the "Exercise Price")
upon presentation and surrender of this Warrant Certificate with the Form of
Election to Purchase duly executed. The number of Warrants evidenced by this
Warrant Certificate (and the number of Shares which may be purchased upon
exercise thereof) set forth above, and the Exercise Price per share set forth
above, are the number and Exercise Price as of the date of original issuance of
the Warrants, based on the shares of Common Stock of the Company as constituted
at such date. As provided in the Warrant Agreement referred to below, the
Exercise Price and the number of shares which may be purchased upon the exercise
of the Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits
of, all of the terms, provisions and conditions of an agreement dated as of
___________, 19___ (the "Warrant Agreement") between the Company and JW Charles
Securities, Inc., which Warrant Agreement is hereby incorporated herein by
reference and made a part hereof and to which Warrant
<PAGE>
Agreement reference is hereby made for a full description of the rights,
limitations of rights, duties and immunities hereunder of the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are on file
at the principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Company, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled such holder to purchase. If this
Warrant Certificate shall be exercised in part, the holder hereof shall be
entitled to receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise
of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or
receive dividends or be deemed the holder of Warrant Shares or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained in the Warrant Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue of stock, reclassification of stock, change of par value
or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or except as provided in the Warrant Agreement, to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until the
Warrant or Warrants evidenced by this Warrant Certificate shall have been
exercised and payment for the Warrant Shares shall have been made, and become
deliverable as provided in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period
during which the transfer books for the Company's Common Stock or other class of
stock purchasable upon the exercise of this Warrant are closed for any purpose,
the Company shall not be required to make delivery of certificates for shares
purchasable upon such exercise until the date of the reopening of said transfer
books.
2
<PAGE>
IN WITNESS WHEREOF, Advanced Electronics Support Products, Inc. has
caused the signature (or facsimile signature) of its President and Secretary to
be printed hereon and its corporate seal (or facsimile) to be printed hereon.
Dated: ______________, 19___
ADVANCED ELECTRONICS SUPPORT
PRODUCTS, INC.
By: ___________________
President
[Corporate Seal]
Attest:
- ------------------------------
Secretary
3
<PAGE>
FORM OF
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint , to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ___________________, 19___
Signature _________________________
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
4
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise
the Warrant Certificate)
TO __________________________:
The undersigned hereby irrevocably elects to exercise Warrants
represented by this Warrant Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Warrants and requests that certificates for
such shares be issued in the name of:
Please insert social security
or other identifying number
- -----------------------------
- -----------------------------------------------------------------
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ------------------------------
- -----------------------------------------------------------------
(Please print name and address)
Dated:_________________, 19___
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of this Warrant
Certificate)
5
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ____ Shares of the common stock of
__________________, and herewith makes payment of $__________________ therefore,
and requests that the share certificates be issued in the name(s) whose
address(es) is (are) __________________________________________________________
_______________________________________________________________________________
___________________.
Dated:_______________________________
_____________________________________ (Signature)
_____________________________________ Name (Print or Type)
_____________________________________ Address
_____________________________________ City, State, Zip
6
EXHIBIT 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT IS
made on this
26th day of July, 1996, by and between:
SunTrust Bank Miami, National Association
a national banking association, having an address at
1111 Lincoln Road, Miami Beach, Florida 33139
hereafter referred to as
("BANK");
and the following entity:
Advanced Electronic Support Products, Inc.
("AESP")
a Florida corporation having an address at
1810 Northeast 144th Street, Miami, Florida 33181
hereafter referred to as
("BORROWER").
RECITALS:
BORROWER has applied to the BANK for a Revolving Line of Credit which will
enable BORROWER to borrow from BANK up to $2,500,000.00, subject to the terms
and conditions hereof. The proceeds of the requested Revolving Line of Credit
are to be used for working capital of BORROWER as needed from time to time.
BANK is willing to grant the request of BORROWER provided that: (i) the
BORROWER pledges certain collateral to BANK, including, but not limited to,
presently existing and hereafter acquired accounts, accounts receivable,
equipment and inventory, including the proceeds thereof, as security for the
repayment of the total indebtedness represented by the Revolving Promissory Note
executed by BORROWER in favor of BANK of even date herewith; (ii) BORROWER
agrees to be bound by the terms and conditions of this Agreement and all other
Loan Documents executed
<PAGE>
concurrently herewith; and (iii) the persons and/or entities defined as
Guarantors herein execute enforceable continuing guarantees of the obligations
created hereby.
NOW, THEREFORE, in consideration of the extension of credit from BANK to
BORROWER and other good and valuable consideration hereby acknowledged as
received by each party from the other, it is agreed that:
I. DEFINITIONS:
For purposes of this Loan Agreement, including any Exhibits hereto, unless
specifically excepted or the context otherwise requires:
1.1 "Available Credit" shall mean the amount of money available to
BORROWER hereunder which amount shall be calculated by subtracting the
outstanding principal balance under the Revolving Promissory Note, plus any
accrued and unpaid interest, from $2,500,000.00.
1.2 "BORROWER" shall mean Advanced Electronic Support Products, Inc., a
Florida corporation.
1.3 "Domestic Accounts Receivable" shall be accounts receivable due on
account of deliveries to be made within the United States.
1.4 "Domestic Eligible Accounts Receivable" shall mean at any date of
determination thereof (which date shall be in BANK's sole reasonable discretion)
Domestic Accounts Receivable of the BORROWER which are unpaid for a period of
less than ninety (90) days from the original date of the invoices issued to
solvent going concerns. There shall be excluded from Eligible Domestic Accounts
Receivable (i) all receivables from subsidiaries, affiliated companies or
entities related to the BORROWER; and (ii) all accounts receivable from Syquest.
1.5 "Eligible Foreign Accounts Receivable" shall mean at any date of
determination thereof (which date shall be selected in BANK's sole reasonable
discretion) all Foreign Accounts
2
<PAGE>
Receivable of AESP/MIAMI which are unpaid for a period of less than ninety (90)
days from the date of original invoices issued to solvent going concerns. There
shall be excepted from Eligible Foreign Accounts Receivable all receivables from
subsidiaries, affiliated companies, or entities related to BORROWER.
1.6 "Eligible Inventory" shall mean all inventory of the BORROWER which is
located in Dade County, Florida and encumbered by the UCC-1 of even date
herewith.
1.7 "Event of Default" shall have the meaning assigned thereto in Article
VII hereof.
1.8 "Foreign Accounts Receivable" shall be accounts receivable due on
account of deliveries to be made outside of the United States.
1.9 "Guarantors" shall mean Roman Briskin and Vyachaslav Stein.
1.10 "Letters of Credit" shall mean documentary letters of credit issued
by BANK for the account of BORROWER not to exceed the aggregate of any Available
Credit at the time requested.
1.11 "Loan" shall mean the extension of credit, including the issuance of
any Letter of Credit, by BANK to BORROWER as set forth herein and in the Loan
Documents.
1.12 "Loan Documents" shall mean this Loan Agreement, the Revolving
Promissory Note, Security Agreement, UCC-1 Financing Statements, Guaranty
Agreements, and any and all other instruments or documents delivered to BANK in
connection with the Loan.
1.13 "Maturity Date" shall mean July 26, 1997.
1.14 "Note" shall mean the Revolving Promissory Note executed by BORROWER
to evidence the Loan governed hereby.
1.15 "Person" (or "Persons") shall mean a natural person, a corporation, a
business trust, an association, a company, partnership, a joint venture, trust
or other entity or a government or any agency or political subdivision thereof.
3
<PAGE>
1.16 "Prime Rate" shall mean the interest rate (not necessarily the lowest
or best rate) charged by SunTrust Banks, Inc. in its sole discretion, as its
prime rate, calculated on a daily moving basis.
1.17 "Revolving Line of Credit" shall mean the maximum amount available to
BORROWER, or so much thereof as shall be outstanding from time to time, not in
any event, to exceed $2,500,000.00.
1.18 "Security Agreement" shall mean that certain Security Agreement
executed simultaneously herewith in which BORROWER pledges to BANK all of
BORROWER's assets including but not limited to presently owned or hereafter
acquired accounts, accounts receivable, inventory, intangibles, contract
rights,, furniture, fixtures, equipment, including the proceeds, products, and
offspring thereof.
1.19 "Tangible Net Worth" means the aggregate value of all assets, less
(i) goodwill and other intangible assets, (ii) accounts receivable due from
Stockholders of the BORROWER, (iii) accounts receivable due from affiliates of
the BORROWER, and (iv) the aggregate amount of all liabilities of the BORROWER.
For purposes hereof, the value of the assets of the BORROWER and the goodwill of
the BORROWER shall be determined in accordance with generally accepted
accounting principles.
II. EXTENSION OF CREDIT:
2.1 REVOLVING CREDIT. Subject to the terms and conditions hereof and so
long as there exists no Event of Default or event which, with the lapse of time
or the giving of notice or both, would become an Event of Default, the BANK
will, from time to time, until the Maturity Date, at the request of BORROWER,
make loan advances to BORROWER which loan advances may be repaid and reborrowed
subject to each of the following conditions:
4
<PAGE>
(a) BANK shall have no obligation to make any loan advances or issue
any Letters of Credit which in the aggregate exceed the principal sum of
$2,500,000.00, reduced by the aggregate principal amount of any and all loan
advances and Letters of Credit outstanding at the time of request, and further
reduced by any outstanding accrued and unpaid interest or other amounts owing
under any of the Loan Documents.
(b) The total of all advances made hereunder from time to time shall
not exceed the sum of the following, determined at the time of each advance,
subject to the further limits of section (c) below:
(i) 80% of Eligible Domestic Accounts Receivable;
(ii) 50% of Eligible Foreign Accounts Receivable, up to a
maximum of $250,000.00 of the aggregate of such Eligible
Foreign Accounts Receivable which amount shall not
include more than $100,000.00 of Eligible Foreign
Accounts Receivable due from any one entity;
(iii) 40.0% of all domestic inventory located in the
BORROWER's offices or warehouses, encumbered by the
UCC-1 executed simultaneously herewith, and not pre-sold
to a third party purchaser. Inventory is "domestic" if
it is held for sale to customers located in the United
States of America;
(iv) 50.0% of domestic pre-sold OEM inventory, up to
$750,000.00 of such inventory; and
(v) 40% of domestic pre-sold OEM inventory in excess
$750,000.00 of such inventory.
(c) The provisions of section (b) above shall be subject to the
following:
5
<PAGE>
(i) For purposes of subsections (iv) and (v), domestic
presold OEM inventory shall be OEM inventory which has
been presold (as evidenced by written orders) to a third
party purchaser in the United States who is unrelated to
and unaffiliated with the BORROWER, which is located in
the BORROWER's offices or warehouses, and which is
encumbered by the UCC-1 executed simultaneously
herewith.
(ii) The total of all advances made pursuant to the
qualifications set forth in sections (b)(iii), (b)(iv)
and (b)(v) shall not exceed $1,500,000.00, at any one
time.
(d) BORROWER shall confirm all advances under the Revolving Line of
Credit in writing within five (5) days after an advance request.
(e) BORROWER agrees that the proceeds of the Revolving Promissory
Note will be used for basic working capital requirements and inventory purchases
including issuance of commercial Letters of Credit for BORROWER.
2.2 TERMS OF NOTE.
(a) The obligation of the BORROWER to repay the indebtedness is
evidenced by the Revolving Promissory Note. The Note bears interest at a rate
per annum equal to one-half of one percent (1/2%) in excess of the Prime Rate.
All interest calculations are made on a daily moving basis, computed on a
360-day year.
(b) Interest shall be due and payable monthly commencing August 26,
1996 and shall be billed and payable monthly thereafter. BANK may automatically
debit BORROWER's account held by the BANK when BORROWER is billed for accrued
and unpaid interest.
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BORROWER shall execute at closing BANK's form of automatic debit authorization
in the form attached hereto as Exhibit "B".
(c) The Note shall mature on the Maturity Date at which time the
entire outstanding principal balance together with accrued and unpaid interest
(and any fee due under Sections 4.04 and 8.03 hereof) shall be due and payable
in full immediately by the BORROWER.
2.3 OPTIONAL PREPAYMENT OF NOTE. Upon at least three (3) business days
prior written or telegraphic notice to BANK, BORROWER may prepay the obligation
evidenced by the Note in whole at any time or in part from time to time, without
premium or penalty, but only if interest accrued on the principal amount is
current or prepaid to the date of prepayment. No optional, partial prepayment of
the Note shall excuse BORROWER from the next required regular payment due
thereunder.
2.4 MANNER OF PAYMENT AND DEFAULT CLAUSE. All payments of principal and
interest are payable at the office of BANK addressed as follows: SunTrust Bank
Miami, National Association, Miami Beach Office, Attention: Vice President
Commercial Loans; 1111 Lincoln Road, Miami Beach, Florida 33139; or such other
office of the BANK as is acceptable to the parties hereto. Payments shall be
made in lawful money of the United States of America which shall be legal tender
for debts public and private at the time of payment. If any principal or
interest payment shall not be paid on or before five (5) days from the due date,
then the entire unpaid principal balance together with any accrued and unpaid
interest on the Note shall be immediately due and payable without notice or
demand at the option of the BANK and the unpaid principal balance and unpaid
accrued interest on the Note shall bear default interest at the maximum rate
allowed by law.
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III. REPRESENTATIONS AND WARRANTIES.
BORROWER hereby represents and warrants to BANK, in order to induce BANK
to extend the credit requested, that:
3.1 AUTHORIZATION OF LOAN, ETC. The execution, delivery, and performance
by BORROWER of this Loan Agreement, the Note, and all other Loan Documents
delivered to BANK by the BORROWER: (a) have been duly authorized by the BORROWER
through its Board of Directors and do not violate BORROWER's Articles of
Incorporation; and (b) will not violate (i) any provision of law (including,
without limitation, any applicable usury or similar law), (ii) any order of any
court or other agency of government in any matter to which BORROWER is a party
or as a result of which it is bound, or (iii) any material indenture, agreement
or other instrument or obligation to which BORROWER is a party or subject to, or
by which the BORROWER or any off its assets are subject to, or will be in
conflict with, result in a breach of, or constitute (with notice or lapse of
time or both) a default under any such indenture, agreement instrument or
obligation.
3.2 NO ADVERSE CHANGE. There has been no material adverse change in the
business, properties, assets, operations or condition (financial or otherwise)
of BORROWER since the date of the last financial statements of BORROWER
furnished to BANK. As of the date hereof, there are no material unrealized or
anticipated losses in connection with any loans, advances and other commitments
of the BORROWER. BORROWER further represents that there will be no change of
ownership or management of BORROWER through the Maturity Date. BORROWER shall
give BANK thirty (30) days written notice of any proposed change in management,
including any officers and directors of the company. BANK shall not unreasonably
withhold its consent to a change in management. Any change of ownership, or any
change in management not approved by BANK prior to approval by BANK shall
constitute an Event of Default under Article VII herein.
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3.3 LITIGATION. There are no actions, suits, or proceedings (whether or
not purportedly on behalf of BORROWER) pending or affecting BORROWER at law or
in equity or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which involves or affects the extension of credit herein contemplated
or the possibility of any judgment or liability which if determined adversely to
BORROWER would result in any material adverse change in the business,
operations, properties or assets or in the condition (financial or otherwise) of
BORROWER. BORROWER is not in default with respect to any final judgment, writ,
injunction, decree, rule or regulation of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would have a materially adverse
effect on BORROWER.
3.4 PAYMENT OF TAXES. BORROWER has filed all federal, state and local tax
returns as well as paid any and all import or export duties, fees, taxes,
licenses or other mandatory charge which may result in a material effect on
BORROWER's financial condition or affect in any way the Collateral given BANK
hereunder if not so filed or paid with respect to the operations of BORROWER
which are required to be filed or paid for the present fiscal year, and all
prior fiscal years or as are otherwise due. BORROWER has paid or caused to be
paid to any respective taxing or licensing authority all taxes as shown on said
returns or on any assessment or deficiency received by any of them to the extent
that such taxes have become due.
3.5 AGREEMENTS. BORROWER is not a party to any agreement or instrument or
subject to any charter or other restriction materially and adversely affecting
its business, properties, assets, operations or condition (financial or
otherwise). BORROWER is not in material default in the performance, observation,
or fulfillment of any of the obligations, covenants, or conditions contained in
any material agreement, instrument or obligation to which the BORROWER is a
party. This Loan
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Agreement is not prohibited by the terms or affected by any other agreement or
instrument referred to hereinabove.
3.6 COMPLIANCE WITH APPLICABLE LAWS. BORROWER is in compliance with all
laws, ordinances, rules, regulations, and all other legal requirements, the
violation of which would have a material effect on the business, properties,
assets, operations or condition of BORROWER.
3.7 LOCATION OF BORROWER'S ASSETS. All inventory and other assets of
BORROWER are located in properties specified in the UCC-1.
3.8 BROKERS. There is no broker entitled to a commission on account of the
loan.
IV. CONDITIONS OF LENDING.
The obligation of the BANK to make the Loan hereunder and any advances
subsequent to the execution of this Agreement is, and hereafter through the
Maturity Date, will be subject to the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. As of the date hereof and at the time
of every advance made under the Note, the representations and warranties set
forth in Article III hereof shall be true and correct. Should any material
change occur which affects the representations and warranties set forth in
Article III above, BORROWER agrees to immediately notify BANK in writing of such
changes.
4.2 NO DEFAULT. At the time of each advance hereunder and after giving
effect thereto, BORROWER shall be in compliance with all the terms and
provisions set forth herein on its part to be observed or performed, and no
Event of Default specified in Article VII or otherwise herein, nor any event
which upon notice or lapse of time or both would constitute such an Event of
Default, shall have occurred and be continuing. On the date of each advance
hereunder, at BANK's request BORROWER shall deliver to the BANK a certificate,
dated as of the date of such loan and signed
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by the appropriate corporate officer(s) of the BORROWER, confirming such
compliance as aforesaid and with the condition precedent set forth in Section
4.01 hereof; whether or not BANK requests such a certificate, BORROWER's request
for an advance shall be deemed to be a representation by BORROWER that the
conditions of this Section 4.02 have been satisfied.
4.3 FINANCIAL AUDITS. BANK shall be entitled to conduct quarterly audits
of BORROWER's business operation in the event BANK believes the BORROWER is
experiencing material adverse changes to business operations. BANK shall charge
BORROWER's account for any audit fees subsequent to any audit actually
conducted. The audit fee shall be $250.00 per day. Failure by BANK to conduct
one or more audits shall not operate as a waiver of BANK's right to conduct any
other audit. BORROWER shall provide BANK semi-annual financial statements of all
affiliates and/or subsidiaries of BORROWER together with annual financial
statements and tax returns of the Guarantors.
4.4 ADDITIONAL FINANCIAL INFORMATION. The BANK shall have the right from
time-to-time to demand additional financial information from the BORROWER and
Guarantors, and the BORROWER shall forthwith supply such additional information
to the BANK. The BANK shall also have the right to require additional covenants
to be performed by the BORROWER based upon changes in business conditions of the
BORROWER.
V. AFFIRMATIVE COVENANTS.
BORROWER covenants and agrees that from the date hereof and until payment
in full of all the principal and accrued interest on the Note, unless the BANK
shall otherwise consent in writing, BORROWER will:
5.1 NOTICE. Give prompt written notice to the BANK of (a) any proceedings
instituted by or against BORROWER in any federal or state court or before any
commission or other regulatory
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body, federal, state or local, or of any such proceedings threatened against
BORROWER in writing by any federal, state or other governmental agency, which,
if adversely determined, would have a material adverse effect the businesses,
properties, assets, operations or condition (financial or otherwise) of
BORROWER; and (b) any other action, event or condition of any nature which may
reasonably be expected to lead to or result in a material adverse effect the
businesses, properties, assets, operations or condition (financial or otherwise)
of BORROWER, or which, with notice or lapse of time or both, would constitute an
Event of Default under this Loan Agreement or a default under any other material
agreement by which BORROWER is bound.
5.2 PAYMENT OF DEBTS TAXES ETC. Pay all debts and perform all obligations
promptly and in accordance with the terms thereof and pay and discharge or cause
to be paid and discharged promptly all taxes, assessments and governmental
charges or levies imposed upon BORROWER or upon its income or receipts or upon
any of its properties and assets before the same shall be in default, as well as
all lawful claims for labor, materials and supplies or otherwise which, if
unpaid, might become a lien or charge upon such properties and assets or any
part thereof; provided, however, that BORROWER shall not be required to perform
such obligations or pay such debts (except for obligations for money borrowed),
taxes, assessments, or governmental charges or levies or claims for labor,
materials, and supplies which are being contested in good faith and by proper
proceedings diligently pursued.
5.3 COMPLIANCE WITH APPLICABLE LAWS. Promptly and faithfully comply with,
conform to, and obey all present and future laws, ordinances, rules,
regulations, and all other legal requirements applicable to BORROWER, the
violation of which would have a materially adverse effect on the business,
properties, assets or operations of BORROWER.
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5.4 INSURANCE POLICIES. Maintain ordinary and necessary insurance policies
in good standing and pay promptly all premiums when due and payable thereon,
including but not limited to coverage against general liability, fire, and
theft. All coverages shall include BANK as a Loss Payee with thirty (30) days
prior written notice of cancellation. BORROWER shall deliver to BANK copies of
all insurance policies and/or binders in force no later than ten (10) days prior
to the expiration of any current policy.
5.5 FINANCIAL COVENANTS.
(a) Maintain a minimum current ratio of 1.5, calculated by dividing
current assets by current liabilities. Current assets will be valued by
generally accepted accounting principles; current liabilities will be valued at
their face value.
(b) Maintain a minimum Tangible Net Worth of $3,300,000.
(c) Maintain a ratio of Debt to Tangible Net Worth of no more than
1.5. On or before ten (10) days after the end of each fiscal quarter of the
BORROWER, BORROWER shall provide BANK with proof of BORROWER's compliance with
the foregoing requirements. Said proof shall be prepared by an independent
certified public accountant reasonably satisfactory to BANK and shall be
certified by BORROWER to be true and correct.
5.6 FINANCIAL REPORTS. Deliver the following financial reports to BANK:
(a) Within one hundred twenty (120) days after the end of each
fiscal year of BORROWER: (i) the consolidated audited financial statements of
BORROWER for such year, together with an unqualified opinion with respect to
same from a certified public accounting firm acceptable to the BANK in its
reasonable discretion. The first such report, shall include all such information
retroactive to the BORROWER's fiscal year which began in 1994.
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(b) Within one hundred twenty (120) days after the end of the fiscal
year of each of BORROWER's affiliates, a compilation prepared by an certified
public accounting firm acceptable to the BANK in its reasonable discretion. The
first such report shall include said compilation retroactive to the affiliates
fiscal year which began in 1994.
(c) Within thirty (30) days after filing with the I.R.S., a complete
copy of the BORROWER's and each of its subsidiary's corporate income tax
returns;
(d) On a quarterly basis, no later than twenty (20) days after the
end of each fiscal quarter, management prepared financial statements of the
BORROWER and all entities related to the BORROWER. Such statements shall be
certified by the manager to be true and correct.
(e) On a monthly basis, a Borrowing Base Certificate, substantially
in the form attached hereto as Exhibit "A", supported by a current accounts
receivable aging, a detailed pre-sold (OEM) inventory breakdown and a compliance
certificate, in the form attached to the Borrowing Base Certificate. Said
certificate will be provided ten (10) days after the end of each month of the
term of the Revolving Promissory Note;
(f) Annually within one hundred twenty (120) days after the end of
each calendar year, current personal financial statements and copies of filed
tax returns of each Guarantor, provided that if a Guarantor has not filed a tax
return on or before one hundred twenty (120) days after the end of a calendar
year, copies of said returns within ten (10) days after the filing
5.7 INVENTORY AUDIT. Provide an audit of the inventory of the BORROWER as
of the last day of each fiscal year of the BORROWER . The audit shall be
prepared at the BORROWER 's expense, by an auditor acceptable to the BANK. The
audit shall identify the type and quantity of the assets contained within the
inventory and the value for same. The audit shall be delivered no later than
thirty (30) days after the end of each fiscal year of the BORROWER.
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5.8 DEPOSITORY ACCOUNTS. Maintain the depository accounts of the BORROWERS
and the Guarantors in the BANK. Said account shall include, but not be limited
to, monies received from the issuance of equity offerings, pending the use of
such funds.
VI. NEGATIVE COVENANTS.
BORROWER covenants and agrees that from the date hereof until payment in
full of the principal and interest on the Note, unless the BANK shall otherwise
consent in writing, BORROWER will not (directly or indirectly):
6.1 INDEBTEDNESS, GUARANTEES AND LIENS. Incur, create, assume or permit
any type of indebtedness, guarantee or lien, which would in the BANK' s sole
judgment, taken in the aggregate or individually, materially affect the
BORROWER's business, properties, assets or operations or jeopardize the
BORROWER's ability to repay the loan hereunder. The BORROWERS covenants include,
but are not limited to, agreeing not to pledge, hypothecate, or otherwise
encumber the equipment or inventory of BORROWER. BORROWER shall not change its
business address and shall continually collect all accounts receivable at said
address. Should BORROWER propose to change its business address or the address
where accounts receivable are collected, BORROWER shall give BANK thirty (30)
days prior written notice of said change.
6.2 SALARY AND OTHER PAYMENTS TO PRINCIPALS. Annually pay to either of its
owners, ROMAN BRISKIN and VYACHASLAV STEIN salary, bonuses and all other forms
of compensation or distribution, including but not limited to loans and
dividends, in excess of $125,000.00 to each individual plus to the two owners
combined, 70% of the BORROWER's net income for such year.
6.3 RECEIVABLES FROM AFFILIATES. Allow receivables due from its affiliates
(including, but not limited to affiliates in Sweden, Germany, Russia and the
Ukraine) to exceed $1,022,000.00.
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VII. EVENTS OF DEFAULT.
Each and every occurrence of one or more of the following events shall
constitute an "Event of Default" (hereinafter called "Events of Default"):
(a) any representation or warranty made herein shall prove to be
false or misleading in any material respect;
(b) any report, certificate, financial statement or other instrument
furnished in connection with this Loan Agreement or Loan Document shall prove to
be false or misleading in any material respect;
(c) default shall be made in the payment of the principal of, or the
interest on the Note,, for a period of seven (7) days from the date when said
payments are due and payable;
(d) default shall be made by BORROWER with respect to (i) any
liability for borrowed money beyond any applicable period of grace, or (ii) the
performance of any other obligation incurred in connection with any such
liability for borrowed money beyond any applicable period of grace, if, in each
case, the effect of such default is to accelerate the maturity of such liability
or cause any other material liability to become due prior to its stated
maturity;.
(e) default shall be made under the terms and conditions of any of
the Loan Documents; (f) default shall be made in the due observance or
performance of any other covenant, condition or agreement on the part of
BORROWER to be observed or performed pursuant to the terms of this Loan
Agreement or the other Loan Documents and such default shall have continued for
a period of thirty (30) days;
(g) BORROWER shall (i) apply for or consent to the appointment of a
receiver, trustee, or liquidator of the BORROWERS business, properties, assets
or operations, (ii) admit in
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writing their inability to pay their debts as they mature, (iii) make a general
assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or
insolvent, or (v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors or take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debts,
dissolution or liquidation, law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law
or statute or if action shall be taken by BORROWER for the purpose of effecting
any of the foregoing, or (vi) any order, judgment, decree or writ shall be
entered upon an application of a creditor of any BORROWER by a court of
competent jurisdiction which either: (1) attaches any material portion of any
BORROWER's assets under judicial process, or (2) approves a petition seeking an
appointment of a receiver or trustee of any material part of any BORROWER's
assets, or (vii) any order, judgment, decree or writ shall be entered against
BORROWER for an amount in excess of $25,000.00;
(h) an order, judgment or decree shall be entered without the
application, approval, or consent of the debtor by any court of competent
jurisdiction, approving a petition seeking reorganization of BORROWER or any of
them or appointing a receiver, trustee or liquidator of BORROWER and such order,
judgment, or decree shall continue unstayed and in effect for any period of
forty-five (45) consecutive days, provided the order, judgment or decree shall
have a material adverse effect on BORROWER.
During the continuance of any such event, BANK at its option exercised by
written notice from the BANK to BORROWER, may declare the Note to be forthwith
due and payable, both as to principal and interest, without presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived,
anything herein or in the Note to the contrary notwithstanding and the BANK may
enforce any or all of the BANK's rights and remedies set forth in the Loan
Documents.
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VIII. MISCELLANEOUS.
8.1 NOTICE. Any notice shall be conclusively deemed to have been received
by a party hereto and to be effective on the day on which delivered to such
party at the address set forth below (or at such other address as such party
shall specify to the other parties in writing) or if sent by registered mail, on
the third business day after the day on which mailed, postage prepaid, addressed
to such party at said address
(a) If to the BANK at the following address:
SunTrust Bank Miami, National Association
Commercial Lending Division
1111 Lincoln Road
Miami Beach, Florida 33139
Attention: Vice President
(b) If to the BORROWER at the following address:
Advanced Electronic Support Products, Inc.
1810 Northeast 144th Street
Miami, Florida 33181
8.2 SURVIVAL OF REPRESENTATIONS. All covenants, agreements,
representations, and warranties made herein and in the certificates delivered
pursuant hereto shall survive the Maturity Date. Whenever in this Loan Agreement
reference is made to any of the parties hereto, such reference shall be deemed
to include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of BORROWER which are contained in this Loan
Agreement shall inure to the benefit of the successors of the BANK.
8.3 APPLICABLE LAW. This Loan Agreement and all Loan Documents shall be
construed in accordance with and governed by the laws of the State of Florida.
8.4 INTEREST. Nothing herein contained nor in any instrument or
transaction related hereto shall be construed or so operate as to require
BORROWER or any person liable for the payment of
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this Note to pay interest in an amount or at a rate greater than the maximum
allowed by applicable laws in effect from time to time. Should any interest or
other charges in the nature of the interest paid by BORROWER or any parties
liable for the payment of this Note result in the computation or earning of
interest in excess of the maximum rate of interest allowed by applicable law in
effect from time to time, then any and all such excess shall be and the same is
hereby waived by BANK, and all such excess received shall automatically be
credited against and in reduction of the Principal, and any portion of said
excess which exceeds the Principal shall be paid by BANK to BORROWER or any
parties liable for the payment of this Note, it being the intent of the parties
hereto that under no circumstances shall BORROWER or any parties liable for
payment hereunder be required to pay interest in excess of the maximum rate
allowed by applicable law in effect from time to time.
8.5 EXPENSES. BORROWER will pay (a) any and all documentary stamp taxes,
intangible taxes, costs and expenses applicable to the loans hereunder at,
before or after execution of any Note hereunder; (b) for all recording and
filing costs hereunder; and (c) any and all costs for preparation of loan
documents, consummation and protection of the Loan, including, but not limited
to, attorney's fees for BANK's counsel.
8.6 MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any
provision of this Loan Agreement, any Loan Document, or of the Note, nor any
consent to any departure by BORROWER therefrom, shall in any event be effective
unless the same shall be in writing and signed by the BANK and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on BORROWER shall in any case entitle
BORROWER to any other or further notice or demand in the same, similar or other
circumstances.
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8.7 WAIVER OF RIGHTS BY BANK. Neither any failure nor any delay on the
part of the BANK in exercising any right, power, or remedy hereunder or under
the Note or Loan Documents shall operate as a waiver thereof, nor shall a single
or partial exercise thereof preclude any other or further exercise of any other
right, power, or remedy hereunder.
8.8 TIME OF PERFORMANCE AND EXTENSIONS. Time is of the essence with regard
to any required action, payment or other covenant of BORROWER hereunder or in
any other Loan Document. Failure to timely comply with any required action,
payment or covenant hereunder shall constitute an Event of Default under Article
VII herein. Should any payment of principal of or interest on the Note become
due and payable on other than a business day, the maturity thereof shall be
extended to the next succeeding business day, and, in the case of any prepayment
of principal, interest shall be payable thereon at the rate per annum herein
specified during such extension. The term "business day" shall mean any day not
a Saturday, Sunday, or legal bank holiday in the State of Florida.
8.9 SEVERABILITY. In case any one or more of the provisions contained in
this Loan Agreement or the Loan Documents shall be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
8.10 COUNTERPARTS. This Loan Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one agreement. This Loan Agreement shall be
effective when counterparts which, when taken together, bear the signatures of
all the parties hereto, shall have been lodged with the BANK.
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8.11 REPRESENTATION AND WARRANTY BY THE BANK. The BANK represents and
warrants to BORROWER that the Note evidencing this Loan is made in the ordinary
course of its commercial banking business.
8.12 HEADINGS. The headings used herein have been inserted for convenience
only and do not constitute matters to be considered in interpreting this Loan
Agreement.
8.13 WAIVER OF JULY TRIAL. THE BORROWER HEREBY KNOWINGLY VOLUN TARILY AND
INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT AND ANY AGREEMENT CONTEM PLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT AND THE BANK
MAKING ANY LOAN ADVANCE OR OTHER EXTENSION OF CREDIT TO BORROWER.
IN WITNESS WHEREOF, BORROWER and the BANK have caused this Loan Agreement
to be executed by their duly authorized representatives, all as of the date
first above written.
BORROWER
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC., a Florida corporation
By: /s/ VYACHASLAV STEIN
-------------------------
Vyachaslav Stein, President
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BANK
SunTrust Bank Miami, National Association,
a national banking association
By: /s/ JEFFREY LEVINSON
---------------------------
Jeffrey Levinson, Asst. Vice President
Commercial Lending Department
22
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
15th day of July 1996, by and between RSB Holdings, Inc., a Florida corporation
("Lessor") and Advanced Electronic Support Products, Inc., a Florida corporation
("Lessee").
W I T N E S S E T H:
WHEREAS, the Lessor currently leases certain premises (the "Premises"
as hereinafter described) to the Lessee on a month-to-month tenancy; and
WHEREAS, Lessee desires to continue to lease such Premises, upon the
rents and terms set forth in this Lease for the operation of its business (as
hereinafter described), and Lessor desires to lease said Premises to Lessee upon
such rents and terms.
NOW, THEREFORE, this Lease of the Premises is granted by Lessor and
taken and accepted by Lessee upon the rents and terms contained in this Lease,
and Lessor and Lessee do hereby covenant and agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
SECTION 1.01. PREMISES. Lessor hereby leases to Lessee and Lessee does
take and lease from Lessor the certain premises and all structures, facilities,
fixtures and other improvements located on the premises described in Exhibit "A"
attached hereto (collectively, the "Premises").
SECTION 1.02. TERM. The term of this Lease (the "Term"), and the
obligation of Lessee to pay rent hereunder, shall commence as of July 15, 1996
(the "Commencement Date"), and shall continue in effect for an initial term of
five (5) years. This Lease shall thereafter automatically renew for successive
periods of five (5) years, unless earlier terminated by either party upon
written notice to the other party at least ninety (90) days prior to the
expiration of the then current Term.
SECTION 1.03. RENT. Monthly rent in the amount of Three Thousand Six
Hundred and No/100 Dollars ($3,600.00) ("Rent") shall be payable by Lessee to
Lessor on or before the thirtieth (30th) day of each month during the Term,
without prior demand therefor. During the initial term of this Lease, in the
event Lessor obtains new financing in connection with the loan secured by the
Premises, then the Rent shall be subject to a one-time upward adjustment in an
amount equal to the increase in costs to Lessor of servicing the new loan, which
adjustment shall not exceed ten percent (10%) of the prior year's Rent. Such
adjustments shall be effective upon written notice by the
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Lessor to the Lessee. All Rent to be paid by Lessee to Lessor under this Lease
shall be delivered and paid to Lessor at the address set forth in Section 3.06
or such other address as Lessor may designate.
SECTION 1.04. PAYMENTS BY LESSEE AS GUARANTOR. As set forth in a loan
commitment letter from Intercontinental Bank to Lessor, dated August 15, 1994,
Lessee has guaranteed the obligations evidenced by that certain Promissory Note
in the principal amount of $277,500 made by Lessor in favor of Intercontinental
Bank, dated September 27, 1994. In the event Lessee makes any payments as
guarantor of the obligations evidenced by the promissory note dated September
27, 1994, then any such payments shall be applied against future payments of
Rent due hereunder, at the election of Lessee.
SECTION 1.05. NO ADDITIONAL RENT. This Lease shall be absolutely net to
Lessee. Except as otherwise provided herein, the Lessee shall pay all expenses
arising in connection with the Premises, including without limitation, all
utility charges arising out of Lessee's use of the Premises, all insurance
premiums for Lessee's general liability insurance required by Section 2.05, all
maintenance and repair costs, and all other costs, fees, taxes, including but
not limited to, all sales and use taxes on the Rent paid by Lessee, interest,
charges, expenses, reimbursements and obligations of every kind or nature
relating to the Premises, including real estate taxes. The foregoing expenses
shall be paid or discharged directly by Lessee. Lessee shall be responsible for
all expenses arising in connection with capital improvements to, or replacement
of capital items for, the Premises, provided both Lessee and Lessor consent to
such action following a written notice from one party to the other requesting
such improvement or replacement. Consent shall be evidenced by written consents
from the board of directors of both Lessee and Lessor and shall be delivered to
the party requesting such improvements within thirty (30) days of such notice.
Notwithstanding the foregoing, nothing herein shall prevent Lessor from making
capital improvements to, or replacing capital items for, the Premises at its own
cost, without consent from the Lessee.
SECTION 1.06. QUIET ENJOYMENT. Lessor hereby covenants with Lessee that
upon payment by Lessee of the Rent, and upon the performance of the terms of
this Lease on Lessee's part to be performed, Lessee shall be entitled to the
quiet enjoyment of the Premises without interference, molestation or hindrance
by Lessor, its successors and assigns, or any other tenant of Lessor.
SECTION 1.07. USE OF PREMISES. Lessee may use the Premises for the
purpose of operating a business engaged in the distribution of products utilized
in the operation of computers and for activities related thereto ("Permitted
Use"). Except as otherwise provided for in this Lease, Lessee shall not use the
Premises (or any portion thereof), or permit the Premises (or any portion
thereof) to be used by any other person or entity for any purpose other than the
Permitted Use, without the prior written consent of Lessor, which shall not be
unreasonably withheld. Lessee shall comply with the laws and ordinances of
applicable governmental authorities pertaining to Lessee, the Premises, or the
Permitted Use of the Premises. Lessor represents and warrants to Lessee that the
Permitted Use is allowed under the zoning category of the Premises and does not
violate, and Lessor will not violate, any building code or other law, ordinance,
rule or regulation of any governmental authority having jurisdiction over the
Premises.
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SECTION 1.08. REPRESENTATIONS AND WARRANTIES OF LESSOR. Lessor
represents and warrants to Lessee that Lessor is the owner of the Premises and
is fully authorized to enter into this Lease and convey the leasehold interest
to Lessee specified by this Lease. Lessor further represents and warrants to
Lessee that Lessee shall have legal and practical ingress and egress to the
Premises from a public road as necessary in order to use the Premises for the
Permitted Use.
SECTION 1.09. ACCEPTANCE OF CONDITION OF PREMISES. Lessee acknowledges
to Lessor that Lessee has inspected the Premises and accepts the same in the
condition it exists on the Commencement Date.
ARTICLE II
MAINTENANCE, REPAIRS, UTILITIES, TAXES AND INSURANCE
SECTION 2.01. MAINTENANCE AND REPAIR OF PREMISES. Lessee, at its sole
cost and expense, shall maintain and repair the Premises, and shall make all
non-structural repairs thereto as and when needed to preserve it in good working
order and repair in a condition equal to or better than that on the Commencement
Date, ordinary wear and tear excepted. All damage or injury to the Premises,
caused by or resulting from carelessness, omission, neglect, or improper conduct
of Lessee, its agents, employees, invitees or licensees, shall be repaired
promptly by Lessee at its sole cost and expense. Lessee shall also repair all
damage to the Premises caused by the moving of Lessee's fixtures, furniture or
equipment, if any. All repairs or maintenance shall be of quality or class equal
to or better than the original work or construction.
SECTION 2.02. ALTERATIONS AND IMPROVEMENTS. No alterations or
improvements to the Premises shall be made to the Premises by the Lessee without
the written consent of the Lessor. When approved, any alterations or
improvements shall be at Tenant's sole cost. The estate and interest of Lessor
in the Premises shall not be in any manner subject to any lien for labor,
services or materials expended or provided to or for any improvement or
alteration of the Premises made by Lessee.
SECTION 2.03. TAXES. Lessee shall pay during the Term of this Lease all
ad valorem and real property taxes and assessments levied by any lawful
authority against Lessor, Lessee or the Premises, and shall pay all sales or use
taxes relating to the Rent paid by Lessee to Lessor under this Lease. In the
event any governmental authority having jurisdiction shall levy any assessment
against the Premises for public betterment or improvements, Lessee shall also
pay such assessment.
SECTION 2.04. UTILITIES. All required applications and connections for
necessary utility services for the Premises, if any, shall be made in the sole
name of Lessee. Lessee shall be solely liable for utility charges as they become
due, including those for electricity, telephone services, trash collection or
water and sewer charges.
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SECTION 2.05. INSURANCE. Lessee shall, during the Term of this Lease,
obtain and keep in full force and effect with a reputable insurance company or
companies, full replacement cost coverage for fire, casualty and property damage
for the Premises. Lessee shall also maintain a liability insurance policy to
indemnify Lessor from any matters set forth in Sections 2.06 and 2.07, below.
All such policies shall name Lessor as an additional insured, with appropriate
provisions waiving subrogation.
SECTION 2.06. INDEMNIFICATION. Unless directly caused by Lessor, or its
respective agents, employees, officers and directors, Lessee hereby agrees to
indemnify, defend, and hold harmless Lessor from and against any and all claims,
demands, damages, losses, costs and expenses arising from and attributable to
any of the following: (i) any liens or mechanic's lien suffered or created by
Lessee; (ii) any loss of life, bodily or personal injury to persons or property
which occurs on the Premises during the Term of this Lease.
SECTION 2.07. ENVIRONMENTAL INDEMNITY. Unless directly caused by
Lessor, or its respective agents, employees, officers and directors, Lessee
agrees to indemnify, defend and save Lessor, and its respective agents,
employees, officers and directors from and against any and all claims, actions,
administrative proceedings, judgments, damages, punitive damages, loss of or
damage to natural resources, penalties, fines, costs, liabilities, interest or
losses, including reasonable attorneys' fees and expenses and court costs and
fees, consultant fees, and expert fees, together with all other costs and
expenses of any kind or nature that arise directly or indirectly from the
following:
A. the presence, discharge, release or threatened release of
(i) any dangerous, hazardous or toxic substances, pollutants,
contaminants, chemicals, waste or materials, within the meaning of any
applicable federal, state or local laws, regulations, rules or orders,
or (ii) petroleum products, waste materials or debris, or any other
material or substance regulated by any federal, state or local laws,
regulations or orders, in, on, about, under or within the Premises or
any portion thereof; or
B. the failure of Lessee or any of its agents, employees,
officers, directors, successors or assigns, to comply with any
applicable federal, state or local laws, orders or regulations
governing any such contamination; or
C. the disposal of or transporting of hazardous substances
owned or possessed by, or under the control of, Lessee or any of its
agents, employees, officers, directors, successors or assigns on the
Premises.
Without limiting the generality of the foregoing, the indemnification
provided herein shall specifically cover all costs incurred by Lessor or its
agents, employees, officers and directors in connection with (i) any
investigation or monitoring of site conditions if the conditions described in
this Section are found to exist, (ii) any clean-up, containment, remedial,
removal or restoration work required or performed by any federal, state or local
governmental entity or person because of the
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presence, suspected presence or release, of any contamination in or into the
air, soil, groundwater, surface water or soil vapor at, on, about, adjacent to,
under or within the Premises, and (iii) any claims of third parties for loss or
damage due to such contamination.
SECTION 2.08. CASUALTY DAMAGE.
A. If the Premises or any part thereof shall be damaged by
fire or other casualty, Lessee shall give prompt written notice thereof to
Lessor. In case the building on the Premises (the "Building") shall be so
damaged that substantial alteration or reconstruction of the Building shall, in
Lessor's sole opinion, be required (whether or not the Premises shall have been
damaged by such casualty), or in the event any mortgagee of Lessor's interest in
the Building or the Property should require that the insurance proceeds payable
as a result of a casualty be applied to the payment of the mortgage debt, or in
the event of any material uninsured loss to the Building, Lessor may, at its
option, terminate this Lease by notifying Lessee in writing of such termination
within ninety (90) days after the date of such casualty. If Lessor does not thus
elect to terminate this Lease, Lessor shall notify Lessee in writing of such
election within ninety (90) days after the date of such casualty and shall
commence and proceed with reasonable diligence to restore the Building; provided
such restoration shall be completed in a condition equal to or greater than the
condition prior to the casualty. In the event Lessor elects to restore the
Building as described above, Lessee shall have the option to terminate this
Lease by notifying Lessor in writing within thirty (30) days of receipt of
Lessor's notice of its intention to rebuild upon the happening of any of the
following events: (i) the repair or reconstruction to the Premises or Building
cannot be completed within one hundred twenty (120) days from the date of
Lessor's notice of its intention to rebuild and shall describe the work to be
completed; (ii) the notice from Lessor is sent anytime during the last six (6)
months of the Term of this Lease; (iii) Lessee determines that the repairs do
not restore the Premises, or Building to a condition equal to the conditions
prior to the casualty. If the casualty is a minor casualty necessitating
expenditures of less than $5,000 in repairs to the Building or Premises, Lessor
shall commence such repairs within fifteen days from the date of receipt of
written notice from Lessee as provided above. All costs incurred by Lessor for
restoration of the Property or Building as provided above in this paragraph
shall be reimbursed from the proceeds of the insurance policy obtained by Lessor
in Section 2.05 above.
B. Lessor shall not be liable for any inconvenience or
annoyance to Lessee or injury to the business of Lessee resulting in any way
from such casualty damage or the repair thereof; except that, subject to the
provisions of the next sentence, Lessor shall allow Lessee a fair diminution of
rent during the time and to the extent the Premises are unfit for occupancy. If
the Premises or any other portion of the Building be damaged by fire or other
casualty resulting from the negligence of Lessee or any of Lessee's agents,
contractors, officers, directors, employees, or invitees, the rent hereunder
shall not be diminished during the repair of such damage, and Lessee shall be
liable to Lessor for the cost of the repair and restoration of the Building
caused thereby to the extent such cost and expense is not covered by insurance
proceeds payable pursuant to the insurance obtained under Section 2.05 above.
Notwithstanding anything to the contrary contained in this paragraph, Lessor
shall not have any obligation whatsoever to repair, reconstruct or restore
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the Premises when the damage resulting from any casualty contained under this
paragraph occurs during the last six (6) months of the Term of this Lease.
SECTION 2.09. CONDEMNATION.
If the whole or substantially the whole of the Building or the Premises
should be taken for any public or quasi-public use, by right of eminent domain
or otherwise or should be sold in lieu of condemnation during the term of this
Lease, then this Lease shall terminate as of the date when physical possession
of the Building or the Premises is taken by the condemning authority. If less
than the whole or substantially the whole of the Building or the Premises is
thus taken or sold, Lessor (whether or not the Premises are affected thereby)
may, at its option terminate this Lease by giving written notice thereof to
Lessee; in which event this Lease shall terminate as of the date when physical
possession of such portion of the Building or Premises is taken by the
condemning authority. If this Lease is not so terminated upon any such taking or
sale, the Rent payable hereunder shall be diminished by an equitable amount, and
Lessor shall, to the extent Lessor deems feasible, restore the Building and the
Premises to substantially their former condition, but Lessor shall in no event
be required to spend for such work an amount in excess of the amount received by
Lessor as compensation for such taking. All amounts awarded upon a taking of any
part or all of the Property, Building or the Premises shall belong to Lessor,
and Lessee expressly waives all claim to any such compensation, except for the
awards set forth in the last sentence of the following paragraph.
Notwithstanding the foregoing provisions of this paragraph or any
contrary provision contained herein, Lessor agrees that in the event that (i)
following any actual or intended restoration of the Building by Lessor, Lessee's
use or enjoyment of the Premises would be or is materially impaired as a result
of the taking, or (ii) a portion of the Building is taken such that Lessee's
access to the Building and Premises is materially impaired, then Lessee shall
have the right to terminate this Lease upon written notice to Lessor in
accordance with the notice provisions hereof. Lessor agrees that Lessor shall
(i) make its decision whether or not to restore the Premises and (ii) complete
such restoration if undertaken by Lessor, within the same time periods as are
applicable to a casualty within receipt of the condemnation proceeds being
substituted for the reference to the receipt of the insurance proceeds contained
therein. Lessor shall have no interest in any awards made to Lessee for loss of
business, the taking of Lessee's fixtures and other property, Lessee's moving
expenses, the unamortized balance of its leasehold improvements done at Lessee's
expense, and attorneys' fees in bringing a claim against the condemning
authority by Lessee.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. LESSEE DEFAULT. Each of the following events shall
constitute a default or breach of this Lease by Lessee:
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A. If Lessee shall fail to pay Lessor any Rent when the same shall
become due, and if such default continues unremedied for more than fifteen (15)
days after written notice thereof by Lessor to Lessee;
B. If Lessee shall fail to perform or comply with any of the terms or
conditions of this Lease, provided such default is not a monetary default, and
if such default continues unremedied for more than thirty (30) days after
written notice thereof by Lessor to Lessee. Notwithstanding the foregoing, in
the event that the nature of the default in this subsection B is such that the
default cannot be cured within the initial thirty (30) day cure period, and
provided Lessee is making all diligent efforts to cure said default, then Lessee
shall have an additional thirty (30) days to cure said default. In no event
shall said default continue unremedied for more than sixty (60) days after the
notice of such default by Lessor to Lessee.
C. If Lessee shall vacate or abandon the Premises, and if such default
continues unremedied for more than fifteen (15) days after written notice
thereof by Lessor to Lessee;
D. If this Lease or the estate of Lessee hereunder shall be transferred
to or shall pass to any other person or party, whether by assignment or by
operation of law, except in the manner herein permitted, and if such default
continues unremedied for more than fifteen (15) days after written notice
thereof by Lessor to Lessee.
SECTION 3.02. LESSOR'S REMEDIES. In the event of any default under this
Lease as specified in Section 3.01 which is not cured by Lessee, Lessor shall
have all rights and remedies at law or in equity, including without limitation
the following:
A. Lessor shall have the right to cancel and terminate this Lease as
well as all of the right, title and interest of Lessee hereunder, by giving
Lessee not less that ten (10) days notice of the cancellation and termination.
Upon expiration of the time fixed in the notice, this Lease and the right, title
and interest of Lessee hereunder shall terminate in the same manner and with the
same force and effect;
B. Lessor may elect, but shall not be obligated to do so, to make any
payment required of Lessee herein or comply with any agreement or condition
required hereby to be performed by Lessee, but any expenditure for the
correction by Lessor shall not be deemed to waive or release the default of
Lessee or the right of Lessor to take any action as may be otherwise permissible
hereunder in the case of any default; and
C. Lessor may retake possession of the Premises under applicable law.
Upon termination of this Lease, Lessor may recover from Lessee all Rent accrued
through the date of termination, including the cost of recovering the Premises.
SECTION 3.03. ENFORCEMENT COSTS. If any legal action or other
proceeding is brought for the enforcement of this Lease, or because of an
alleged dispute, breach, default or misrepresentation in
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connection with any provision of this Lease, the successful or prevailing party
or parties shall be entitled to recover reasonable attorneys' fees, sales and
use taxes, court costs and all expenses even if not taxable as court costs
(including, without limitation, all such fees, taxes, costs and expenses
incident to arbitration, appellate, bankruptcy and post-judgment proceedings),
incurred in that action or proceeding, in addition to any other relief to which
such party or parties may be entitled. Attorneys' fees shall include, without
limitation, paralegal fees, investigative fees, administrative costs, sales and
use taxes and all other charges billed by the attorney to the prevailing party.
SECTION 3.04. ASSIGNMENT OF LEASE. Lessee may assign its interest under
this Lease and all rights and obligations thereunder only upon Lessor's prior
written approval. The consent by Lessor to any assignment shall not constitute a
waiver of the necessity for such consent to any subsequent assignment.
SECTION 3.05. NO CONSTRUCTION AGAINST DRAFTSMEN. The parties
acknowledge that this is a negotiated Lease, and that in no event shall the
terms hereof be construed against either party on the basis that such party, or
its counsel, drafted this Lease.
SECTION 3.06. NOTICES. All notices, requests, consents and other
communications required or permitted under this Lease shall be in writing
(including telex, telefax and telegraphic communication) and shall be (as
elected by the person giving such notice) hand delivered by messenger or courier
service, telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
LESSOR:
RSB Holdings, Inc.
1810 N.E. 144th Street
North Miami, Florida 33181
Attn: Slav Stein
LESSEE:
Advanced Electronic Support Products, Inc.
1810 N.E. 144th Street
North Miami, Florida 33181
Attn: Slav Stein
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with
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confirmed answer back if by telex, telefax or other telegraphic method; and (d)
on the date upon which the return receipt is signed or delivery is refused or
the notice is designated by the postal authorities as not deliverable, as the
case may be, if mailed.
SECTION 3.07. WAIVERS. The failure of either party to insist on a
strict performance of any of the terms and conditions hereof shall not be deemed
a waiver of the rights or remedies that such party may have regarding that
specific instance only, and also shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions of this Lease.
SECTION 3.08. SUCCESSORS AND ASSIGNS. This Lease shall extend to, bind,
and inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, permitted successors and assigns.
SECTION 3.09. NO RECORD. Neither this Lease, nor any memorandum
thereof, shall be recorded by either party in the public records of any state or
county, and any such recording shall be a default hereunder.
SECTION 3.10. SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws effective during
the Term hereof, then and in that event it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby.
SECTION 3.11. MODIFICATION OF LEASE. This Lease may not be modified
except with written consent of both parties.
SECTION 3.12. BROKERAGE COMMISSIONS. Lessor and Lessee each represents
and warrants to the other that there are no claims or sums payable for brokerage
commissions or finders fees in connection with the execution of this Lease.
SECTION 3.13. HEADINGS. The headings contained in this Lease are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Lease.
SECTION 3.14. GOVERNING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State of Florida.
SECTION 3.15. ENTIRE AGREEMENT. This Lease contains the entire
understanding and agreement between the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and between such parties.
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
executed on the day and year first above written.
WITNESSES: LESSOR:
RSB HOLDINGS, INC.
By: /s/ ROMAN BRISKIN
- ---------------------------- ------------------------
Print Name: Roman Briskin
----------------
Title: President
- ---------------------------- ---------------------
LESSEE:
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
By:/s/ SLAV STEIN
- --------------------------- ------------------------
Print Name: Slav Stein
----------------
Title: President
- --------------------------- ---------------------
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EXHIBIT "A"
DESCRIPTION OF THE PREMISES
Street Address: 1810 N.E. 144th Street
North Miami, Florida 33181
11
EXHIBIT 10.3
DEMAND PROMISSORY NOTE
$120,000 As of July 15, 1995
North Miami Beach, Florida
ON DEMAND, for value received, ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.,
a Florida corporation ("Maker"), hereby promises to pay to the order of US
ADVANTAGE CORPORATION, a Florida corporation ("Payee"), at its principal place
of business at 1810 N.E. 144th Street, North Miami, Florida 33181, or at such
other place or places as the Payee or the holder hereof may designate in
writing, from time to time, or order, the principal sum of One Hundred Twenty
Thousand and No Dollars ($120,000), plus accrued interest as set forth below.
1. PAYMENTS. Said principal, and any accrued interest, shall be payable ON
DEMAND in such amount as shall be requested by Payee from time to time upon
receipt by Maker of the written demand for all or a portion thereof from Payee.
All payments hereunder will be made in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
2. INTEREST RATE. This Demand Promissory Note (this "Note") shall bear
simple interest on the unpaid principal hereof at the rate of 8.5% per annum.
3. DEFAULT AND DEFAULT INTEREST RATE. This Note shall be considered in
default when any payment required to be made hereunder shall not be paid on the
date it becomes due, and shall remain in default until such payment shall have
been made. While in default, this Note shall bear interest at the maximum rate
permitted by law. The Maker agrees to pay Payee's (or its assigns') reasonable
expenses to obtain or enforce payment or performance of any of the Maker's
obligations under this Note, which expenses shall include reasonable attorneys'
fees, plus other reasonable legal expenses incurred by the Payee or its assigns.
4. INTENT NOT TO COMMIT USURY. Nothing herein contained, nor any
transaction related hereto, shall be construed or so operate as to require Maker
to pay interest at a greater rate than is now lawful in such case to contract
for, or to make any payment, or to do any act contrary to law. Should any
interest or other charges paid by Maker, or parties liable for the payment of
this Note, in connection with the loan evidenced by this Note, or any document
delivered in connection with said loan, result in the computation or earning of
interest in excess of the maximum legal rate of interest which is legally
permitted by law, then any and all such excess shall be and the same is hereby
waived by Payee and holder hereof, and any and all such excess shall be
automatically credited against and in reduction of the balance due under this
Note, and the portion of said excess which exceeds the balance due under this
Note shall be paid by Payee or its assigns to Maker and parties liable for the
payment of this Note.
<PAGE>
5. WAIVERS. The Maker hereby waives presentment, demand, demand for
payment, notice of non-payment, notice of dishonor, protest and notice of
protest and, except as set forth herein, all other notices or demands in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
6. CONSENT TO CHANGES. All parties liable for the payment hereof consent
and agree that the granting to Maker or to any other party of any extension of
time for the payment of any sums due hereunder, or for the performance of any
covenant or stipulation herein or in any document securing the loan hereunder,
or the release of Maker or any other party, or the agreement of Payee not to sue
Maker or any other party, or the suspension of the right to enforce this Note
against Maker or, any other party, or the discharge of Maker or any other party,
or the taking or releasing of other or additional security, shall not in any way
release or affect the liability of Maker; all rights against such parties being
expressly reserved.
7. PREPAYMENT. This Note may be prepaid, in whole or in part, at any time
without penalty provided that any partial payment shall be first applied against
any accrued interest due hereunder.
8. MISCELLANEOUS.
(a) CONTROLLING LAW. This Note and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Florida.
(b) PROVISIONS SEPARABLE. The provisions of this Note are independent
of and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
(c) SECTION HEADINGS. The section headings in this Note are for
convenience only; they form no part of this Note and shall not affect its
interpretation.
(d) NOTICES. Any notice required to be given hereunder shall be in
writing and shall be delivered personally or sent by certified or registered
mail, postage prepaid, or sent by an overnight courier service, priority
overnight, such as Federal Express, to the parties at the respective addressees
set forth herein. If mailed as aforesaid, notice shall be deemed given three (3)
days after being deposited in the United States mail. If personally delivered,
said notice shall be deemed to have been duly given, made and received only when
personally delivered; and, if sent by overnight courier service, priority
overnight, said notice shall be deemed to have been given one day after being
deposited with an overnight courier service for next-day delivery. No delay or
the failure on the part of the Payee, or its assigns, to exercise any power or
right to be
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given hereunder shall operate as a waiver thereof and no right or remedy of the
Payee, or its assigns, shall be deemed abridged or modified by any course of
conduct.
(e) AMENDMENTS. This Note may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
(f) BINDING NATURE OF NOTE. Except as otherwise herein provided, this
Note shall be binding upon and inure to the benefit of the parties hereto, their
legal representatives, successors and assigns.
(g) ENTIRE AGREEMENT. This Note together with any attached,
schedules, exhibits and other documents delivered pursuant hereto, constitute
the entire agreement of the parties and supersede all prior agreements and
undertakings, both written and oral, between the parties, or any of them, with
respect to the subject matter hereof.
MAKER:
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
By: /s/ ROMAN BRISKIN
------------------------
Name: Roman Briskin
----------------------
Title:Vice President
---------------------
3
EXHIBIT 10.4
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
DESCRIPTION PAGE
- ----------- ----
1. Purposes.................................................................1
2. Shares Subject to the Plan...............................................1
3. Eligibility..............................................................2
4. Administration of the Plan...............................................2
(a) Compensation Committee..............................................2
(b) Section 16..........................................................2
5. Terms of Options.........................................................3
(a) Term of Option Granted..............................................3
(b) ISO Option Price....................................................3
(c) NQSO Option Price...................................................3
(d) Expiration of Options...............................................3
(e) Number of Shares to be Exercised....................................4
(f) Manner of Exercise..................................................4
(g) Rights as Stockholder...............................................4
(h) Transfer of Options.................................................4
(i) Vesting of Options..................................................4
(j) Fair Market Value for ISOs..........................................5
(k) Reload Options......................................................5
6. Death, Termination of Employment, or Disability..........................6
(a) Termination of Employment or Disability.............................6
(b) Death...............................................................6
(c) Exercise of Vested Options..........................................6
(d) Termination Subsequent to Tender/Exchange Offer or
Change in Control.................................................6
7. Leave of Absence.........................................................7
8. Adjustment Upon Changes in Capitalization................................7
9. Further Conditions of Exercise...........................................8
(a) Restricted Securities...............................................8
(b) Delivery of Shares by Company.......................................8
(c) Withholdings........................................................8
<PAGE>
10. Termination, Modification and Amendment..................................9
(a) Termination.........................................................9
(b) Modification by Shareholders........................................9
(c) Modification by Directors...........................................9
(d) Affect on Rights....................................................9
11. Effective Date of the Plan...............................................9
12. Not a Contract of Employment............................................10
13. Other Compensation Plans................................................10
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1996 STOCK OPTION PLAN
1. PURPOSES.
The ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. 1996 STOCK
OPTION PLAN (the "Plan") is intended to provide the employees (including
employees who are also directors), independent contractors and consultants of
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. (the "Company") with an added
incentive to provide their services to the Company and to induce them to exert
their maximum efforts toward the Company's success. By thus encouraging
employees, directors, independent contractors and consultants and promoting
their continued association with the Company, the Plan may be expected to
benefit the Company and its stockholders. The Plan allows the Company to grant
Incentive Stock Options ("ISOs") (as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code")), and Non-Qualified Stock Options
("NQSOs"), not intended to qualify under Section 422(b) of the Code (ISOs and
NQSOs hereinafter collectively the "Options"), to employees, directors,
independent contractors and consultants of the Company.
2. SHARES SUBJECT TO THE PLAN.
The total number of shares of Common Stock of the Company, $.001 par value
per share, that may be subject to Options granted under the Plan shall be
265,000 shares of the Company's common stock (the "Common Stock"), subject to
adjustment as provided in Section 8 hereunder. The Company shall at all times
while the Plan is in force reserve such number of shares of Common Stock as will
be sufficient to satisfy the requirement of outstanding Options granted under
the Plan, except as otherwise provided below. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for the
granting of Options under the Plan.
In a given fiscal year, the maximum number of Options that can be granted
hereunder to a single person shall be limited to 100,000 Options, as adjusted
for future stock dividends and/or stock splits. Further, such limitation shall
not be deemed exceeded in the event subsequent to the date of grant of Options
under the Plan, the Company effectuates a stock split and/or stock dividend
which results in an adjustment to the number of Options previously granted. The
aforesaid limitation is intended to comply with Section 162(m) of the Code. To
the extent any provision of the Plan or action by the Board of Directors or
Committee, as hereinafter defined, fails to comply with Section 162(m), it shall
be deemed null and void to the extent required by statute and to the extent
deemed advisable by the Board of Directors and/or such Committee.
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<PAGE>
3. ELIGIBILITY.
ISOs may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An Officer of the
Company is an employee for the above purposes. NQSOs may be granted from time to
time under the Plan to one or more employees of the Company, Officers, members
of the Board of Directors, independent contractors, consultants and other
individuals who are not employees of, but are involved in the continuing
development and success of the Company and/or of a subsidiary of the Company.
4. ADMINISTRATION OF THE PLAN.
(a) NOMINATING AND COMPENSATION COMMITTEE. The Plan shall be administered
by a Nominating and Compensation Committee of the Board of Directors of the
Company (the "Committee") comprised of at least two outside directors (as
described under Rule 16b-3, promulgated under the Securities Exchange Act of
1934 (the "1934 Act")), and in accordance with the requirement of Section 162(m)
of the Code, appointed by the Board of Directors of the Company. In the event
such Committee is not comprised of said outside directors, any Option granted
hereunder shall not be deemed automatically null and void, except as otherwise
provided below. Within the limits of the express provisions of the Plan, the
Committee shall have the authority, in its discretion, to determine the
individuals to whom, and the time or times at which, Options shall be granted,
the character of such Options (whether ISOs or NQSOs), and the number of shares
of Common Stock to be subject to each Option, and to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of option agreements that may be entered into
in connection with Options (which need not be identical), subject to the
limitation that option agreements granting ISOs must be consistent with the
requirements for the ISOs being qualified as "incentive stock options" as
provided in Section 422 of the Code, and to make all other determinations and
take all other actions necessary or advisable for the administration of the
Plan. In making such determinations, the Committee may take into account the
nature of the services rendered by such individuals, their present and potential
contributions to the Company's success, and such other factors as the Committee,
in its discretion, shall deem relevant. The Committee's determinations on the
matters referred to in this Section shall be conclusive.
(b) SECTION 16. Notwithstanding anything contained herein to the contrary,
the Committee shall have the exclusive right to grant Options to persons subject
to Section 16 of the 1934 Act and set forth the terms and conditions thereof.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3, as amended from time to time (and its successor provisions, if any),
under the 1934 Act. To the extent any provision of the Plan or action by the
Board of Directors or Committee fails to so comply, it shall be deemed null and
void to the extent required by law and to the extent deemed advisable by the
Board of Directors and/or such Committee.
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<PAGE>
5. TERMS OF OPTIONS.
Within the limits of the express provisions of the Plan, the Committee may
grant either ISOs or NQSOs. An ISO or an NQSO enables the optionee to purchase
from the Company, at any time during a specified exercise period, a specified
number of shares of Common Stock at a specified price (the "Option Price"). The
character and terms of each Option granted under the Plan shall be determined by
the Committee consistent with the provisions of the Plan, including the
following:
(a) TERM OF OPTION GRANTED. An Option granted under the Plan must be
granted within 10 years from the date the Plan is adopted, or the date the Plan
is approved by the stockholders of the Company, whichever is earlier.
(b) ISO OPTION PRICE. The Option Price of the shares of Common Stock
subject to each ISO shall not be less than the fair market value of such shares
of Common Stock as of the time such ISO is granted. Such fair market value shall
be determined by the Committee and if the shares of Common Stock are listed as
of such date on any national securities exchange or traded on the
over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the closing bid and asked prices of the shares of
Common Stock on the over-the-counter market, as reported by Nasdaq, the National
Association of Securities Dealers OTC Bulletin Board or the National Quotation
Bureau, Inc., as the case may be, on the day on which the Option is granted or,
if there is no closing price or bid or asked price on that day, the closing
price or mean of the closing bid and asked prices on the most recent day
preceding the day on which the Option is granted for which such prices are
available. If an ISO is granted to an individual who, immediately before the ISO
is to be granted, owns directly or through attribution) more than 10% of the
total combined voting power of all classes of capital stock of the Company or a
subsidiary or parent of the Company, the Option Price of the shares of Common
Stock subject to such ISO shall not be less than 110% of the fair market value
per share of the shares of Common Stock at the time such ISO is granted.
(c) NQSO OPTION PRICE. The Option Price of the shares of Common Stock
subject to an NQSO granted pursuant to the Plan shall be determined by the
Committee, in its sole discretion.
(d) EXPIRATION OF OPTIONS. In no event shall any Option granted under the
Plan have an expiration date later than ten (10) years from the date of its
grant, and all Options granted under the Plan shall be subject to earlier
termination as expressly provided in Section 6 hereof. If an ISO is granted to
any individual who, immediately before the ISO is granted, owns (directly or
through attribution) more than 10% of the total combined voting power of all
classes of capital stock of the Company or of a subsidiary or parent of the
Company, such ISO shall by its terms expire and shall not be exercisable after
the expiration of five (5) years from the date of its grant.
3
<PAGE>
(e) NUMBER OF SHARES TO BE EXERCISED. Unless otherwise provided in any
option agreement under the Plan, and except as otherwise provided below, an
Option granted under the Plan shall become exercisable, in whole at any time or
in part from time to time, but in no case may an Option (i) be exercised as to
less than one hundred (100) shares of Common Stock at any one time, or the
remaining shares of Common Stock covered by the Option if less than one hundred
(100), and (ii) become fully exercisable more than ten years from the date of
its grant.
(f) MANNER OF EXERCISE. An Option granted under the Plan shall be
exercised by the delivery by the holder thereof to the Company at its principal
office (to the attention of the Secretary of the Company) of written notice of
the number of full shares of Common Stock with respect to which the Option is
being exercised, accompanied by payment in full, in cash or by certified or bank
check payable to the order of the Company, of the Option Price for such shares
of Common Stock, or, by the delivery of unexercised Options and/or shares of
Common Stock having a fair market value equal to the Option Price, or by a
combination of cash and such unexercised Options and/or shares held by an
optionee that have a fair market value equal to the Option Price, and, in the
case of a NQSO, by having the Company withhold from the shares of Common Stock
to be issued upon exercise of the Option that number of shares having a fair
market value equal to the tax withholding amount due, or otherwise provide for
withholding as set forth in Section 9(c) hereof. The Option Price may also be
paid in full by a broker-dealer to whom the optionee has submitted an exercise
notice consisting of a fully endorsed Option, or through any other medium of
payment as the Committee, in its discretion, shall authorize.
(g) RIGHTS AS STOCKHOLDER. The holder of an Option shall have none of the
rights of a stockholder with respect to the shares of Common Stock covered by
such holder's Option until such shares of Common Stock shall be issued to such
holder upon the exercise of the Option.
(h) TRANSFER OF OPTIONS. All Options granted under the Plan shall not be
transferable otherwise than by will or the laws of descent and distribution, and
any Option granted under the Plan may be exercised during the lifetime of the
holder thereof only by the holder. No Option granted under the Plan shall be
subject to execution, attachment or other process.
(i) VESTING OF OPTIONS. Subject to the provisions of Section 6 hereof, or
unless otherwise determined by the Committee, each Option shall become
exercisable with respect to one third of the total number of shares of Common
Stock subject to the Option on the date of its grant and with respect to each
additional one-third at the end of each one-year period thereafter during the
succeeding two years. Notwithstanding the foregoing, the Committee may in its
discretion (i) specifically provide for another time or times of exercise at the
time the Option is granted; (ii) accelerate the exercisability of any Option
subject to such terms and conditions as the Committee deems necessary and
appropriate; or (iii) at any time prior to the expiration or termination of any
Option previously granted, extend the term of any Option for such additional
period as the Committee in its discretion shall determine. In no event, however,
shall the aggregate term of any Option, including the original term of the
Option and any extensions thereof, exceed ten years. Subject to the foregoing,
and except as otherwise provided herein, all
4
<PAGE>
or any part of the shares underlying the Option with respect to which the Option
is exercisable may be purchased commencing at the time and to the extent such
Option became exercisable or at any time or times thereafter during the term of
the Option.
(j) FAIR MARKET VALUE FOR ISOS. The aggregate fair market value,
determined as of the time any ISO is granted and in the manner provided for by
Subsection (b) of this Section 5, of the shares of Common Stock with respect to
which ISOs granted under the Plan are exercisable for the first time during any
calendar year and under incentive stock options qualifying as such in accordance
with Section 422 of the Code granted under any other incentive stock option plan
maintained by the Company or its parent or subsidiary corporations, shall not
exceed $100,000. Any grant of Options in excess of such amount shall be deemed a
grant of a NQSO. In addition, and notwithstanding anything contained herein to
the contrary, in the event an ISO granted hereunder does not, for any reason, at
the time of grant or during the term of the ISO satisfy all of the conditions
under the Code with respect to being deemed an ISO, then said ISO shall be
deemed a NQSO, but only to the extent, if applicable, said ISO exceeds any such
conditions, and any said determination that said ISO is deemed an NQSO shall not
be deemed the grant of a new Option hereunder.
(k) RELOAD OPTIONS. Whenever an optionee holding any Option outstanding
under this Plan (including Reload Options, as hereinafter defined, previously
granted under this Section 5(k)), exercises the Option and makes payment of the
Option Price pursuant to Section 5(b) hereof, in whole or in part, by tendering
shares of Common Stock previously held by the optionee, then the Company shall
grant to the optionee a Reload Option ("Reload Option"), for the number of
shares of Common Stock that is equal to the number of shares of Common Stock
tendered by the optionee in payment of the Option Price of the Option being
exercised. The Reload Option Price per share shall be an amount equal to the
fair market value per share of the Company's Common Stock, as determined as of
the date of receipt by the Company of the notice by the optionee to exercise the
option, and as determined in accordance with Section 5(b) above. Subject to
Section 6 hereof, the term of the Reload Option shall expire and the Reload
Option shall no longer be exercisable, on the later to occur of (i) the
expiration date of the originally exercised Option or (ii) ten years from the
date of grant of the Reload Option. Any Reload Option granted under this Section
5(b) shall vest immediately upon grant. All other terms of the Reload Options
granted hereunder shall be identical to the terms and conditions of the original
Option, the exercise of which gives rise to the grant of the Reload Option.
Notwithstanding anything contained herein to the contrary, no Reload Options
should be granted hereunder if an optionee is no longer employed and/or retained
by the Company as of the date of the exercise of the Options giving rise to the
grant of Reload Options hereunder. In addition, and notwithstanding anything
contained herein to the contrary, in the event there is not a sufficient number
of shares of Common Stock authorized for issuance upon exercise of Reload
Options under the Plan, the Company shall use its best efforts to cause such
number of authorized shares of Common Stock underlying the Plan to be increased,
provided, however, that if the Company is unable to so cause such increase in
the authorized number of shares of Common Stock underlying the Plan to be
effectuated, the ability of the optionee to exercise such Reload Options
5
<PAGE>
may be delayed indefinitely until such time as the requisite number of shares of
Common Stock is so authorized.
6. DEATH, TERMINATION OF EMPLOYMENT, OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT OR DISABILITY. Except as otherwise provided
herein, upon termination of employment or retention with the Company, a holder
of an Option under the Plan may exercise such Options to the extent such Options
were exercisable as of the date of termination at any time within three (3)
months after the date of such termination, subject to the provisions of
Subsection (c) of this Section 6. For purposes hereof, termination of employment
or retention shall include, but shall not be limited to, termination due to
retirement, layoffs, or the permanent disability of the optionee.
Notwithstanding anything contained herein to the contrary, any Options granted
hereunder to an optionee and then outstanding shall immediately terminate in the
event the optionee is convicted of a felony committed against the Company, and
the provisions of this Subsection (a) shall not be applicable thereto. In
addition, and anything contained herein to the contrary notwithstanding, the
term during which an optionee may exercise Options subsequent to the date of
termination may, in the Committee's discretion, be modified, subject to
applicable law and regulation, from the term specified above, as of the date of
grant and as specified in an option agreement evidencing the grant of Options
under the Plan.
(b) DEATH. If the holder of an Option granted under the Plan dies (i)
while employed by the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's employment or
retention, such Options may, subject to the provisions of Subsection (c) of this
Section 6, be exercised by a legatee or legatees of such Option under such
individual's last will or by such individual's personal representatives or
distributees at any time within six (6) months after the individual's death, to
the extent, except as otherwise provided herein, such Options were exercisable
as of the date of death or date of termination of employment, whichever date is
earlier.
(c) EXERCISE OF VESTED OPTIONS. An Option may not be exercised pursuant to
this Section 6 except to the extent that the holder was entitled to exercise the
Option at the time of termination of employment or retention or death, and in
any event may not be exercised after the original expiration date of the Option.
(d) TERMINATION SUBSEQUENT TO TENDER/EXCHANGE OFFER OR CHANGE IN CONTROL.
Notwithstanding anything in this Plan to the contrary, any Options granted
hereunder and then outstanding shall become immediately exercisable in full in
the event the optionee's employment with the Company is terminated by the
Company subsequent to the consummation of a tender offer or exchange offer made
by any "person" within the meaning of Section 14(d) of the 1934 Act or
subsequent to a Change in Control, as defined below. For purposes of this
Subsection, a "Change in Control" shall have occurred if:
6
<PAGE>
(1) any "person" (other than Slav Stein and Roman Briskin) within the
meaning of Section 14(d) of the 1934 Act becomes the "beneficial owner" as
defined in Rule 13d-3 thereunder, directly or indirectly, of more than 20%
of the Company's Common Stock.
(2) any "person" (other than Slav Stein and Roman Briskin) acquires
by proxy or otherwise the right to vote more than 20% of the Company's
Common Stock for the election of Directors, other than solicitation of
proxies by the Incumbent Board (as hereinafter defined), for any merger or
consolidation of the Company or for any other matter or question.
(3) during any two-year period, individuals who constitute the Board
of Directors of the Company (the "Incumbent Board") as of the beginning of
the period cease for any reason to constitute at least a majority thereof,
provided that any person becoming a Director during such period whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least three quarters of the Incumbent Board
(either by specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for Director without
objection to such nomination) shall be, for purposes of this clause (3),
considered as though such person were a member of the Incumbent Board.
(4) the Company's stockholders have approved the sale of all or
substantially all of the assets of the Company.
(e) AUTOMATIC VESTING UPON DEATH. In addition, and notwithstanding
anything contained herein to the contrary, in the event an optionee dies during
such time as the optionee is employed or retained by the Company, then fifty
percent (50%) of any outstanding Options which have not vested and are not
exercisable by the optionee as of the date of death shall be automatically
deemed vested and exercisable by the optionee's estate and/or his legatees in
accordance with Subsection 6(b) hereof.
7. LEAVE OF ABSENCE.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to re-employment is guaranteed either by statute or by
contract.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split,
combination or exchange of shares of
7
<PAGE>
Common Stock or the like, or by the issuance of dividends payable in shares of
Common Stock, an appropriate adjustment shall be made by the Committee, in the
aggregate number of shares of Common Stock available under the Plan, in the
number of shares of Common Stock issuable upon exercise of outstanding Options,
and the Option Price per share. In the event of any consolidation or merger of
the Company with or into another company, or the conveyance of all or
substantially all of the assets of the Company to another company, each then
outstanding Option shall upon exercise thereafter entitle the holder thereof to
such number of shares of Common Stock or other securities or property to which a
holder of shares of Common Stock of the Company would have been entitled to upon
such consolidation, merger or conveyance; and in any such case appropriate
adjustment, as determined by the Committee shall be made as set forth above with
respect to any future changes in the capitalization of the Company or its
successor entity. In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options under the Plan will automatically terminate,
unless otherwise provided by the Board of Directors of the Company or any
authorized committee thereof.
(b) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. FURTHER CONDITIONS OF EXERCISE.
(a) RESTRICTED SECURITIES. Unless the shares of Common Stock issuable upon
the exercise of an Option under the Plan have been registered with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
prior to the exercise of the Option, an optionee must represent in writing to
the Company that such shares of Common Stock are being acquired for investment
purposes only and not with a view towards the further resale or distribution
thereof, and must supply to the Company such other documentation as may be
required by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with said
Act.
(b) DELIVERY OF SHARES BY COMPANY. The Company shall not be obligated to
deliver any shares of Common Stock until they have been listed on each
securities exchange on which the shares of Common Stock may then be listed or
until there has been qualification under or compliance with such state or
federal laws, rules or regulations as the Company may deem applicable. The
Company shall use reasonable efforts to obtain such listing, qualification and
compliance.
(c) WITHHOLDINGS. The Committee may make such provisions and take such
steps as it may deem necessary or appropriate for the withholding of any taxes
that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not limited to, (i)
the withholding of delivery of shares of Common Stock upon exercise of Options
8
<PAGE>
until the holder reimburses the Company for the amount the Company is required
to withhold with respect to such taxes, (ii) the cancelling of any number of
shares of Common Stock issuable upon exercise of such Options in an amount
sufficient to reimburse the Company for the amount it is required to so
withhold, or (iii) withholding the amount due from any such person's wages or
compensation due such person.
10. TERMINATION, MODIFICATION AND AMENDMENT.
(a) TERMINATION. The Plan (but not Options previously granted under the
Plan) shall terminate ten (10) years from the earliest of the date of its
adoption by the Board of Directors, or the date the Plan is approved by the
stockholders of the Company, or such date of termination, as hereinafter
provided, and no Option shall be granted after termination of the Plan.
(b) MODIFICATION BY SHAREHOLDERS. The Plan may from time to time be
terminated, modified or amended by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company voting as a
single class, and entitled to vote thereon.
(c) MODIFICATION BY DIRECTORS. The Board of Directors of the Company may
at any time, prior to ten (10) years from the earlier of the date of the
adoption of the Plan by such Board of Directors or the date the Plan is approved
by the stockholders, terminate the Plan or from time to time make such
modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board of Directors shall not, without approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company, voting as a single class, and entitled to vote
thereon, increase (except as provided by Section 8) the maximum number of shares
of Common Stock as to which Options may be granted under the Plan, materially
change the standards of eligibility under the Plan or materially increase the
benefits which may accrue to participants under the Plan. Any amendment to the
Plan which, in the opinion of counsel to the Company, will be deemed to result
in the adoption of a new Plan, will not be effective until approved by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company, voting as a single class, and entitled to vote
thereon.
(d) AFFECT ON RIGHTS. No termination, modification or amendment of the
Plan may adversely affect the rights under any outstanding Option without the
consent of the individual to whom such Option shall have been previously granted
and/or awarded.
11. EFFECTIVE DATE OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors of
the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of the
Plan by the Board of Directors.
9
<PAGE>
12. NOT A CONTRACT OF EMPLOYMENT.
Nothing contained in the Plan or in any option agreement executed pursuant
hereto shall be deemed to confer upon any individual to whom an Option is or may
be granted hereunder any right to remain in the employ of the Company or of a
subsidiary or parent of the Company or in any way limit the right of the
Company, or of any parent or subsidiary thereof, to terminate the employment of
any employee, or to terminate any other relationship with an Optionee, including
that of independent contractor or consultant. Notwithstanding anything contained
herein to the contrary, and except as otherwise provided at the time of grant,
all references hereunder to termination of employment shall with respect to
consultants and independent contractors mean the termination of retention of
their services with or for the Company.
13. OTHER COMPENSATION PLANS.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
10
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
BY AND BETWEEN
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
(THE "COMPANY")
AND
--------------------
(THE "EXECUTIVE")
DATED:
__________ ___, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. Employment................................................................1
2. Employment Term, Duties and Acceptance....................................1
3. Compensation and Benefits.................................................2
(a) Compensation.........................................................2
(b) Insurance and Reimbursement..........................................2
(c) Automobile Allowance.................................................3
(d) Expense Reimbursement................................................3
(e) Vacation.............................................................3
(f) Life Insurance.......................................................3
4. Term and Termination......................................................3
(a) Term.................................................................3
(b) Termination..........................................................3
(c) Change in Control Without Board Approval.............................4
(d) Change in Control With Board Approval................................4
(e) Change in Control Benefits...........................................5
(f) Change in Control Defined............................................5
(g) Exercise in Change in Control........................................5
5. Nondisclosure of Confidential Information.................................6
(a) Non-Disclosure and Non-Solicitation..................................6
(b) Return of Records....................................................7
(c) Inventions...........................................................7
(d) Further Assurances...................................................7
(e) Proprietary Information..............................................8
(f) Specific Performance.................................................8
(g) Survival of Section..................................................8
6. Agreement Not-to-Compete..................................................8
7. Key-Man Life Insurance....................................................9
8. General Provisions........................................................9
(a) No Assignment; Binding Nature of Agreement...........................9
(b) The Term "Company"...................................................9
(c) Notices..............................................................9
(d) Entire Agreement; No Amendments......................................9
(e) Governing Law; Severability.........................................10
i
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(f) Waiver..............................................................10
(g) Attorneys' Fees; Jurisdiction and Venue.............................10
(h) Headings............................................................10
(i) Counterparts........................................................10
ii
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and effective this
____ day of ___________, 1996, by and between ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC., a corporation organized under the laws of the State of Florida,
having its principal office at 1810 N.E. 144th Street, North Miami, Florida
33181 (the "Company"), and __________________, residing at
_________________________, _____________, Florida _____ (the "Executive").
W I T N E S S E T H
WHEREAS, the Company is engaged in the distribution of products utilized
in the operation of computers; and
WHEREAS, the Company is desirous of employing the Employee, and the
Employee is desirous of being employed by the Company, in accordance with the
terms and conditions contained hereinafter.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which is hereby acknowledged by
the parties, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Employee, and the
Employee agrees to be employed by the Company, in accordance with and pursuant
to the terms and conditions set forth below.
2. EMPLOYMENT TERM, DUTIES AND ACCEPTANCE.
(a) The Company shall employ the Executive, for the Employment Period,
as defined in SECTION 4 below, as an executive to perform such executive and
managerial duties as are associated with his positions with the Company as may,
from time to time, be assigned to the Executive by the Company's Board of
Directors. The Executive shall devote his full time and attention to his duties
and to use his best efforts in and to the faithful performance of his duties
hereunder, subject to the general direction and control of the Board of
Directors of the Company.
(b) The Executive hereby agrees to contribute his best skills and
services at all times to the Company. The Executive agrees to diligently and
competently perform the duties and responsibilities assigned to him by the Board
of Directors of the Company. The Executive shall work full-time for the Company.
(c) The Executive hereby agrees to abide by all reasonable rules and
regulations established by the Board of Directors of the Company and such
restrictions, if any, applicable to the
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Executive which may, from time to time, be set forth in the Company's Articles
of Incorporation and Bylaws.
3. COMPENSATION AND BENEFITS.
(a) COMPENSATION. As compensation for all duties to be rendered by the
Executive hereunder, the Company agrees to pay to the Executive during the
Employment Period and hereby grants to the Executive the following:
(i) A salary (the "Annual Salary") at the rate of One Hundred
Twenty Five Thousand Dollars ($125,000.00) per annum. The Annual Salary
shall increase on each anniversary date of the commencement of the
Employment Period, by an amount equal to ten percent (10%) of the prior
year's Annual Salary plus the increase in the Consumer Price Index, but in
no event greater than an amount which exceeds twenty percent (20%) of the
prior year's Annual Salary. Consumer Price Index as used herein shall mean
the Consumer Price Index shown on the U.S. City Average for all urban
consumers, unadjusted, all items, as promulgated by the Bureau of Labor
Statistics of the U.S. Department of Labor, using the year 1967 as the
base of 100. In the event that the Consumer Price Index referred to herein
ceases to incorporate a significant number of the items as currently set
forth therein, or if a substantial change is made in the method of
establishing said Consumer Price Index, then the Consumer Price Index
shall be adjusted to the figure that would have resulted had no change
occurred in the manner of computing the Consumer Price Index. In the event
that the Consumer Price Index is not available, then the Board of
Directors may select, in its discretion, another index which measures the
cost of living increases in a manner similar to the Consumer Price Index
or may, in its sole discretion, otherwise determine the annual increase in
the Executive's Annual Salary, but in no event greater than an amount
which exceeds twenty percent (20%) of the Executive's prior year's Annual
Salary.
(ii) An annual bonus (the "Annual Bonus") at least equal to five
percent (5%) of the pre-tax net income of the Company in each fiscal year.
The Annual Bonus shall not exceed an amount which is equal to three
hundred percent (300%) of the prior year's Annual Salary for any one year.
The Annual Bonus shall be paid to Executive upon completion of each annual
audit of the Company, and shall be calculated without taking the Annual
Bonus of the Executive into account. If any annual audit shall be less
than for a full year, then the aforesaid figures shall be determined and
paid on a pro-rata basis.
(b) INSURANCE AND REIMBURSEMENT. The Executive shall be eligible,
subject to the terms and conditions of each plan or program, to participate, at
the expense of the Company, in such group medical, health, accident, disability
and life insurance and medical reimbursement programs as are made generally
available from time to time by the Company to other senior executives and such
other fringe benefit programs, including, but not limited to, retirement plans
and deferred compensation, which may be adopted by the Company from time to
time.
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(c) AUTOMOBILE ALLOWANCE. The Company shall provide the Executive with
an automobile allowance of $500 per month.
(d) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
for his reasonable out-of pocket expenses and costs incurred in connection with
the performance of his services hereunder, upon presentation of proper vouchers
and documentary support therefor in accordance with the Company's usual and
customary practices and procedures.
(e) VACATION. During the term of this Agreement, the Executive shall be
entitled to four weeks of paid vacation time per year. The time or times at
which the Executive will be permitted to take such vacation time shall be
determined by the mutual agreement of the Company and the Executive. Vacation
time not taken by fiscal year end may be accumulated and used not more than one
year from the end of such fiscal year.
(f) LIFE INSURANCE. The Company shall provide the Executive, at the
Company's expense, with One Million and no/100 Dollars ($1,000,000) of term life
insurance (the "Policy") on the life of the Executive naming such beneficiaries
thereunder as the Executive shall designate. If the Policy permits, the
Executive, upon his leaving the employment of the Company, shall have the right
to purchase or otherwise acquire said term life insurance Policy pursuant to the
terms and conditions stated in the Policy.
4. TERM AND TERMINATION.
(a) TERM. Unless sooner terminated pursuant to the provisions of this
SECTION 4, the initial term of this Agreement shall be a period of five (5)
years commencing the date hereof (the "Employment Period"). Thereafter, unless
sooner terminated pursuant to the provisions of this SECTION 4, this Agreement
shall continue for successive one year terms, unless either party cancels the
Agreement by written notice to the other party of their intent to cancel. In
order to be effective, notices of intent to cancel must be delivered to the
other party not later than 90 days prior to any anniversary date of this
Agreement.
(b) TERMINATION. Notwithstanding anything contained herein to the
contrary, the Company shall have the right to terminate this Agreement and the
Executive's employment hereunder at any time for Cause (as defined hereafter).
For purposes of this Agreement, "Cause" means the following:
(i) a material breach or violation by the Executive of any
provision of this Agreement or the failure of the Executive to materially
perform his duties or responsibilities hereunder (unless said material
default is caused by a physical or mental infirmity or disability which
renders Executive incapable of performing the customary duties for which
Executive was employed) after the Executive has been given at least thirty
(30) days prior written notice together with an opportunity to cure said
breach, violation or failure during such thirty (30) day period; or
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(ii) actions by the Executive constituting fraud and/or
embezzlement; or
(iii) in the event that Executive becomes incapable, for more than
a four (4) month period, of performing the customary duties for which
Executive was employed due to a physical or mental infirmity or
disability, or as a result of Executive's death.
The right of the Company to so terminate this Agreement and Executive's
employment hereunder pursuant to this SECTION 4(b) shall be exercisable by the
Company upon the giving of written notice to the Executive specifying the
grounds for such termination. Such termination shall be effective upon the
giving of such written notice by the Company subject to the cure period provided
in this SECTION 4. Except as set forth in the next sentence, if the Executive is
terminated for Cause, the Executive shall be only be compensated through the
date of his termination and the provisions set forth in SECTIONS 5 and 6 hereof
shall remain in full forge and effect. If the Executive's termination is the
result of the happening of an event under subsection (iii) above, then
notwithstanding the termination of this Agreement for Cause, the Company shall
pay to the Executive, or to the estate of the Executive, an amount equal to the
Executive's Annual Salary for the twenty-four (24) month period subsequent to
Executive's termination of Employment. The provisions of this subsection shall
survive the termination of this Agreement.
(c) CHANGE IN CONTROL WITHOUT BOARD APPROVAL. In the event of a Change
in Control (as defined hereafter) of the Company, and such Change in Control has
not been approved prior to such Change of Control by the Company's Board of
Directors, the Executive may, at any time within the three (3) month period
following the date of such Change in Control, terminate this Agreement and his
employment hereunder if, in his sole discretion, he reasonably determines that
such Change in Control would be a material detriment to his ability to
effectively render services to the Company hereunder. In the event that the
Executive terminates this Agreement and his employment hereunder Seven Hundred
Fifty Thousand and no/100 Dollars ($750,000), payable within 60 days following
the date of such termination, without having to fulfill his obligations or
perform his duties hereunder, and, in such event, the Executive shall also be
released from any and all restrictive covenants contained herein during the
Employment Period. Further, when the Executive terminates his employment with
the Company pursuant to and in accordance with SECTION 4(c) any unvested stock
options granted to the Executive by the Company pursuant to this Agreement or
pursuant to any other agreements shall automatically become vested.
(d) CHANGE IN CONTROL WITH BOARD APPROVAL. In the event of a Change in
Control of the Company, and such Change in Control has been approved prior to
such Change in Control by the Company's present Board of Directors, the
Executive may, at any time within the three (3) month period following the date
of such Change in Control, terminate this Agreement and his employment hereunder
if, in his sole discretion, he reasonably determines hat such change in Control
would be a material detriment to his ability to effectively render services to
the Company hereunder. In the event that the Executive terminates this Agreement
and his employment hereunder pursuant to and in accordance with this SECTION
4(d), the Executive shall receive a sum equal to the Executive's
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Annual Salary for the preceding year, payable within 60 days following the date
of such termination. If the Executive terminates this Agreement pursuant to this
SECTION 4(d), any unvested stock options granted to the Executive by the Company
pursuant to any other agreements shall automatically vest on a pro rata basis
proportional to the ratio of (i) the time period in which the Executive was
employed by the Company pursuant to this Agreement and (ii) the Employment
Period. For example, if the Executive was employed by the Company for three (3)
years, the ratio of the time period in which the Executive was employed by the
Company pursuant to this Agreement to the Employment Period would be sixty
percent (60%). In this example, if the Executive were to terminate his
employment with the Company pursuant to this SECTION 4(d), sixty percent (60%)
of the Executive's stock options would automatically become vested, to the
extent not already vested.
(e) CHANGE IN CONTROL BENEFITS. In addition, upon a Change in Control,
the Company shall remain obligated to keep all benefits available and paid to
the Executive as if he will still an employee (i) for a period of two years from
the date that the Executive terminates his employment with the Company pursuant
to SECTION 4(c) of this Agreement or (ii) for a period of one year from the date
that the Executive terminates his employment with the Company pursuant to
SECTION 4(d) of this Agreement. In the event that the Executive's participation
in such benefit programs is barred by any such plans or programs, the Company
shall arrange to provide Executive with substantially similar benefits. Further,
Executive shall not be required to mitigate the amount of any payment provided
by this SECTION 4 by seeking other employment or otherwise nor shall the amount
of any payment provided pursuant to this SECTION 4 be reduced by any
compensation earned or received by Employee from any source, including without
limitation compensation received as a result of other employment.
(f) CHANGE IN CONTROL DEFINED. For purposes of SECTIONS 4(c), 4(d) and
4(e), "Change in Control" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14(a) of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
from time to time (the "Exchange Act"); provided that, without limitation, a
Change in Control shall be deemed to have occurred if: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and
excluding from such definition Slav Stein and Roman Briskin), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or (ii)
individuals who, on the effective date of this Agreement, constitute the Board
of Directors cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors as of the effective
date of this Agreement.
(g) EXERCISE IN CHANGE IN CONTROL. The right of the Executive to
terminate this Agreement and the Executive's employment hereunder pursuant to
SECTION 4(c) or SECTION 4(d) shall be exercisable by the Executive upon delivery
of written notice to the Company specifying the grounds for such termination.
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5. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
The Executive hereby acknowledges and agrees that the duties and
services to be performed by the Executive hereunder are special and unique and
that, by reason of and/or as a result of his employment hereunder, the Executive
will acquire, make sue of and/or add to confidential information of a special
and unique nature and value relating to certain records, secrets, documentation,
ledgers and general information, accounts receivable and payable ledgers,
customer lists, prospective customer lists, financial and other records of
and/or with respect to the Company, its subsidiaries and affiliates, customers
and other similar matters (all such information, together with that certain
information described herein, being hereinafter referred to as "Confidential
Information"). The Executive further acknowledges and agrees that the
Confidential Information is of great value to the Company and/or its
subsidiaries and affiliates and that it is reasonably necessary to protect the
Confidential Information and the goodwill of the Company and/or its subsidiaries
and affiliates. Accordingly, the Executive hereby agrees that:
(a) NON-DISCLOSURE AND NON-SOLICITATION. The Executive will not, at any
time, directly or indirectly, except in connection with the Executive's
employment hereunder or as otherwise authorized by the Board of Directors of the
Company for the benefit of the Company:
(i) divulge to any person, firm or corporation other than the
Company hereinafter referred to as "Third Parties"), or use or cause or
authorize any Third Parties to use, the Confidential Information or any
other information relating to the business or interests of the Company
which the Executive knows or should know is regarded as confidential and
valuable by the Company and/or its subsidiaries and affiliates (whether or
not any of the foregoing information is actually novel or unique or is
actually known to others), except as required by law; or
(ii) solicit or cause or authorize to be solicited, directly or
indirectly, for or on behalf of himself or any Third Parties, any business
competitive to the business of the Company and/or its subsidiaries and
affiliates from Third Parties who are, at any time within one (1) year
prior to the expiration of the term of this Agreement, customers of the
Company and/or its subsidiaries and affiliates; or
(iii) accept, cause or authorize to be accepted, directly or
indirectly, for or on behalf of himself or the Third Parties, any business
competitive to the business of the Company or its subsidiaries and
affiliates from any such customers of the Company and/or its subsidiaries
and affiliates; or
(iv) solicit, cause or authorize to be solicited, directly or
indirectly, for employment for or on behalf of himself or any Third
Parties, any persons who are, at any time within one (1) year prior to the
expiration of the terms of this Agreement, employees of the Company or its
subsidiaries and affiliates in an executive capacity.
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(b) RETURN OF RECORDS. Upon the termination of his employment with the
Company for any reason whatsoever, the Executive shall forthwith deliver or
cause to be delivered to the Company any and all Confidential Information,
including drawings, notebooks, keys, data and other documents and materials
belonging to the Company and/or its subsidiaries and affiliates which is in his
possession or under his control relating to the Company and/or its subsidiaries
and affiliates, or the business of the Company and/or its subsidiaries and
affiliates, and will deliver to the Company upon such termination of employment
any other property of the Company and/or its subsidiaries and affiliates which
is in his possession or under his control.
(c) INVENTIONS. The Executive will disclose promptly in writing to the
Company all Inventions (as defined hereafter), whether or not he considers them
to be patentable or having the ability to be trademarked or copyrighted, which
he alone or with others conceives or makes, whether or not during regular
working hours, and the Executive hereby assigns and agrees to assign to the
Company or its subsidiaries and affiliates all right, title and interest in and
to all Inventions which relate to the business of the Company or its
subsidiaries and affiliates and agrees not to disclose any Inventions to others
without the prior written consent of the Board of Directors of the Company,
except as required by the conditions of his employment hereunder. For purposes
of this Agreement, "Invention" means any and all machines, apparatus,
compositions of matter, methods, know-how, processes, designs, configurations,
uses, ideas, concepts or writings of any kind, concerning or relating in any way
to the business of the Company and/or its subsidiaries and affiliates,
discovered, conceived, developed, made or produced, or any improvements thereto,
and shall not be limited to the definition of an "invention" contained in United
States patent laws. The Executive understands and agrees that all Inventions,
trademarks, copyrights or service marks relating thereto which reasonably relate
to the business of the Company and/or its subsidiaries and affiliates and which
are conceived or made by him during the term of this Agreement, either alone or
with others, are the sole and exclusive property of the Company whether or not
they are conceived or made during or outside regular working hours.
(d) FURTHER ASSURANCES. The Executive will, at any time during his
employment hereunder or after the termination of this Agreement for any reason,
at the request of the Company and without further consideration, execute (i)
specific agreements in favor of the Company and/or its subsidiaries and
affiliates, or their nominees, of any and all Inventions, (ii) all papers and
perform all acts which the Company and/or its subsidiaries and affiliates
considers necessary or advisable for the preparation, application, procurement,
maintenance, enforcement and defense of any United States or foreign patent
applications and patents for any and all Inventions, for the perfection or
enforcement of any trademarks or copyrights relating to Inventions and for the
transfer of any interest which the Executive may have, (iii) any and all papers
and documents required or necessary to vest sole right, title and interest in
the Company and/or its subsidiaries and affiliates, or their nominees, of any
and all Inventions, patents, patent applications or any trademarks, service
marks or copyrights relating thereto, and (iv) all documents including those
documents referred to above, and do all other acts necessary to assist in the
preservation of all of the interests of the Company and/or its subsidiaries and
affiliates in any and all Inventions arising under this Agreement.
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(e) PROPRIETARY INFORMATION. The Executive understands and agrees that
all Proprietary Information (as defined hereafter) conceived by him either alone
or with others or provided to him by the Company and/or its subsidiaries and
affiliates or others is the sole and exclusive property of the Company and/or
its subsidiaries and affiliates. For purposes of this Agreement, "Proprietary
Information" means any information relating to the business of the Company
and/or its subsidiaries and affiliates that has not previously been publicly
released by duly authorized representative of the Company and/or its
subsidiaries and affiliates and shall include, without limitation, information
included in all drawings, designs, plans, proposals, marketing and sales
programs, financial information, costs, pricing information, customer
information and all methods, concepts or ideas in or reasonably related to the
business of the Company and/or its subsidiaries and affiliates.
(f) SPECIFIC PERFORMANCE. The Executive hereby acknowledges and agrees
that the services to be rendered by him to the Company hereunder are of a
special and unique nature and that it would be very difficult or impossible to
measure the damages resulting from a breach of this Agreement. The Executive
hereby further acknowledges and agrees that the restrictions herein are
reasonable and necessary for the protection of the business and the goodwill of
the Company and its subsidiaries and affiliates and that a violation by the
Executive of any such covenant will cause irreparable damage to the Company
and/or its subsidiaries and affiliates. The Executive therefore agrees that any
breach or threatened breach by him of any provisions of this SECTION 5 shall
entitle the Company and/or its subsidiaries and affiliates, in addition to any
other legal remedy available to them, to apply to any court of competent
jurisdiction for a temporary and permanent injunction of any other applicable
decree of specific performance, without any bond or security being required
thereof, in order to enjoin such breach or threatened breach. The parties
understand and intend that each provision and restriction agreed to in this
SECTION 5 shall be construed as separate and divisible from every other
provision and restriction and that the unenforceability of any one provision or
restriction shall not limit the enforceability, in whole or in part, of any
other provision or restriction and that one or more of all of such provisions or
restrictions may be enforced, in whole or in part, as the circumstances
warranty.
(g) SURVIVAL OF SECTION. The provisions of this SECTION 5 shall survive
the termination of this Agreement.
6. AGREEMENT NOT-TO-COMPETE. The Executive hereby agrees, to the extent
permitted by law, that during the twelve (12) month period subsequent to the
date of termination of his employment with the Company hereunder, for Cause or
any reason other than if the Executive terminates his employment with the
Company pursuant to SECTION 4(c) of this Agreement, the Executive shall not,
directly or indirectly, engage in any activity competitive with the Company's
business whether alone, as a partner, or as an officer, director, employee,
agent, consultant or shareholder of any other entity, or as a trustee, fiduciary
or other representative of any other person or entity. In the event of a breach
or threatened breach by Executive of the covenants contained in this SECTION 6,
Executive acknowledges that the Company will not have an adequate remedy at law
and that the Company shall be entitled to such equitable and injunctive relief
as may be available to
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restrain Executive from the violation of the provisions hereof. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for breach or threatened breach, including the recovery of
damages from Executive. Executive acknowledges and agrees that the covenants
contained in this Section are of the essence in this Agreement, that each of the
covenants is reasonable and necessary to protect and preserve the interests and
properties of the Company and the business of the Company, and that irreparable
loss and damage will be suffered by the Company should Executive breach any of
such covenants. The provisions of this Section shall survive the termination of
this Agreement.
7. KEY-MAN LIFE INSURANCE.
The Company may, at any time and from time to time, make application
for one or more policies of life insurance on the life of the Executive, which
policies shall name the Company as the beneficiary thereof. The Executive hereby
acknowledges and agrees that he shall have no interest whatsoever in any such
policies and that any amounts paid thereon will inure solely to the benefit of
the Company and not to estate of the Executive. The Executive hereby agrees to
cooperate with the Company in obtaining any such insurance, including submitting
to physical examinations at a reasonable time or times, if required, and
completing applications furnished by insurers for such purposes.
8. GENERAL PROVISIONS.
(a) NO ASSIGNMENT; BINDING NATURE OF AGREEMENT. The Executive may not
at any time assign this Agreement nor any right or interest hereunder. Except as
otherwise herein provided, this Agreement shall be binding upon and inure to the
benefit of the parties hereto, the Executive's legal representative and the
Company's successors and assigns.
(b) THE TERM "COMPANY". For purposes of this Agreement, the term
"Company" shall mean and include subsidiaries, parents and affiliated companies
of the Company in existence from time to time.
(c) NOTICES. All notices, requests, claims, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been given or made upon the earliest to occur of: (a) receipt, if made by
personal service, (b) to (2) days after dispatch if made by reputable overnight
courier service, (c) upon the delivering party's receipt of a written
confirmation of a transmission made by cable, by telecopy, by facsimile, by
telegram or by telex, or (d) seven (7) days after being mailed by registered
mail (postage prepaid, return receipt requested) to the respective parties at
the addresses on the face of this Agreement.
(d) ENTIRE AGREEMENT; NO AMENDMENTS. This Agreement together with any
attached schedules, exhibits and other documents delivered pursuant hereto,
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Agreement may
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not be changed, modified, extended, renewed or supplemented and no provision
hereof may be waived, except by an instrument in writing signed by the party
against whom enforcement of any change, modification, extension, renewal,
supplement or waiver is sought.
(e) GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida.
(f) WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver or
relinquishment of any such terms, covenants or conditions, nor shall any waiver
or relinquishment of any right or power hereunder at any one time or more times
be deemed a waiver or relinquishment of such right or power at any other time or
times.
(g) ATTORNEYS' FEES; JURISDICTION AND VENUE. Should it become necessary
for any party to institute legal action to enforce the terms and conditions of
this Agreement, the successful party will be awarded reasonable attorneys' fees
at all trial and appellate levels, expenses and costs. Any suit, action or
proceeding with respect to this Agreement shall be brought in the courts of Dade
County in the State of Florida or in the U.S. District Court for the Southern
District of Florida. The parties hereto hereby accept the exclusive jurisdiction
of those courts for the purpose of any such suit, action or proceeding. Venue
for any such action, in addition to any other venue permitted by statute, will
be Dade County, Florida. The parties hereto hereby irrevocably waive, to the
fullest extent permitted by law, any objection that any of them may now or
hereafter have to delaying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any judgment entered by any court in
respect thereof brought in Dade County, Florida, and hereby further irrevocably
waive any claim that any such suit, action or proceeding brought in Dade County,
Florida has been brought in an inconvenient forum.
(h) HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the day and year first above written.
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
EXECUTIVE:
___________________________________
11
EXHIBIT 10.7
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS COMPANY, IS AVAILABLE.
U.S. $__________ __________, 1996
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
7-YEAR CONVERTIBLE SUBORDINATED PROMISSORY NOTE
DUE ______________, 199_
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC., a corporation duly
organized and existing under the laws of the State of Florida (the "Company"),
for value received, hereby promises to pay to ____________________ (the initial
"Holder") at __________, Florida _____, or at such other place or places as the
Holder hereof may designate in writing, from time to time, the principal sum of
($___________), or such lesser amounts as from time to time may be due and owing
hereunder including any accrued interest, on the _____ day of __________, 199_
(the "Maturity Date"), upon presentation and surrender of this Convertible
Subordinated Promissory Note (this "Note") at the office of the Company at 1810
N.E. 144th Street, North Miami, Florida 33181, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, from the date hereof at the rate of one
percent (1%) over the floating prime rate charged by Citibank, N.A. (New York,
New York) as adjusted from time to time, with such interest payable monthly, in
like coin or currency, on the first day of each month, commencing __________,
1996, until payment of all principal hereunder, and any outstanding accrued
interest, on the Maturity Date.
1. CONVERSION. This Note shall be convertible, in whole or in part, at the
Holder's option, at any time prior to maturity, regardless of the amount of
principal outstanding (the "Conversion Right"), into the number of fully paid
and nonassessable shares of the common stock
<PAGE>
of the Company ("Common Stock") which shall equal the product of the Exercise
Price (as hereinafter defined) multiplied by the aggregate amount of principal
and interest then outstanding (the "Shares"), upon surrender of this Note,
together with all rights appertaining hereto, at the office of the Company. The
"Exercise Price" shall be $4.00 per Share of Common Stock. The Company shall
have ten (10) days to (a) issue the Shares after receipt by the Company of
written notice of the Holder's election to exercise the Conversion Right, and
(b) in the case of a partial exercise, reissue a new note in the same form and
containing the same terms as this Note, with the new outstanding principal.
The Exercise Price will be adjusted for: dividends or distributions on the
Company's Common Stock payable in Common Stock; subdivisions, combinations or
certain reclassifications of Common Stock; distributions to all holders of the
Common Stock of certain rights to purchase Common Stock at less than the current
market price at the time; and distributions to such holders of assets or debt
securities of the Company or certain rights to purchase securities of the
Company (excluding cash dividends or distributions from current retained
earnings). However, no adjustment need be made if the Holder may participate in
the transaction. If the Company is a party to a consolidation or merger or a
transfer of all or substantially all of its assets, the right to convert the
Note into Common Stock will be changed into a right to convert it into
securities, cash or other assets of the Company or another entity, on the same
basis as the other common stockholders of the Company.
Upon exercise of the Conversion Right, all accrued and unpaid interest
hereon shall be due and payable by the Company. No other adjustments in respect
of interest or dividends will be made upon any conversion. No fractional shares
or scrip representing fractional shares will be issued upon any conversion, but
an adjustment in cash will be made by the Company subsequent to the conversion.
2. SUBORDINATION. This Note is subordinated to Senior Debt (as defined
below). "Senior Debt" is the principal of and premium, if any, and interest on,
all payments due pursuant to the terms of instruments creating or evidencing
Indebtedness (as defined below) of the Company outstanding as of the date hereof
and all renewals, extensions and refundings thereof, which are payable to
financial institutions. The term "Indebtedness," as applied to any entity, means
any indebtedness, contingent or otherwise, in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such entity
or only to a portion thereof), as evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance deferred
and unpaid of the purchase price of any property or interest thereof, of and to
the extent such indebtedness would appear as a liability upon a balance sheet of
such entity prepared on a consolidated basis in accordance with generally
accepted accounting principles. The Company agrees, and each Holder agrees by
accepting this Note, to the subordination hereunder.
3. EVENTS OF DEFAULT. This Note shall be considered in default, if any of
the following events ("Event(s) of Default") shall have occurred (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body):
2
<PAGE>
a. a default in the payment of any interest upon this Note when it
becomes due and payable, and continuance of such default for a period of 10 days
after receipt of written notice from the Holder to the Company;
b. a default in the payment of the principal amount of this Note on
the Maturity Date and continuance of such default for a period of 10 days after
receipt of written notice from the Holder to the Company; or
c. the Company shall suspend the operations of any of its businesses,
shall become insolvent, be unable to meet its debts as they mature, or make an
admission in writing to such effect, call a meeting of its creditors, commit any
act of bankruptcy or file for or suffer to be filed against it any petition
under any provision of any bankruptcy, insolvency, reorganization,
rearrangement, readjustment of debt or similar law or statute.
4. EXERCISE OF RIGHTS IN EVENT OF DEFAULT. In the Event of Default, the
Holder may, at any time after such occurrence and by written notice to the
Company, declare the entire unpaid principal amount hereunder, together with any
unpaid accrued interest thereon, to be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. Notwithstanding the foregoing with respect to written
notice, this Note shall be considered in default upon the occurrence of any of
the Events of Default and shall remain in default until the entire unpaid
principal together with any unpaid interest thereon has been paid to the Holder.
While in default, this Note shall bear interest at the maximum rate permitted by
law. In addition to the foregoing, upon the occurrence of an Event of Default
and at any time thereafter, the Holder shall have the right in its sole
discretion to determine which rights, liens, guarantees, security interests or
remedies it shall retain, pursue, release, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any of
the other of them or any of its rights hereunder. Notwithstanding any other
rights which the Holder may have under applicable law and hereunder, the Company
agrees that, should at any time an Event of Default specified in SECTION 3
hereof occur or be continuing, the Holder shall have the right to apply
(including, without limitation, by way of setoff) any monies, deposits,
accounts, balances or other property of the Company held by, or thereafter
coming into the possession of, the Holder to a reduction of amounts owed
hereunder, including without limitation the principal amount and interest due on
this Note.
5. PRINCIPAL OBLIGATION. No provision of this Note shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
principal of and interest on this Note at the place, at the respective times, at
the rate, and in the currency herein prescribed, until effective exercise by
Holder of the Conversion Right for the entire principal and interest due.
6. PREPAYMENT. This Note may be prepaid, in whole or in part, at any time
without penalty provided that any partial payment shall be first applied against
any accrued interest due hereunder.
3
<PAGE>
7. REGISTRATION RIGHTS.
a. ONE-TIME DEMAND REGISTRATION RIGHTS. Within 60 days following
written demand of the Holder, the Company shall prepare and file with the
Securities and Exchange Commission (the "Commission"), and use its best efforts
to cause to become effective no later than 60 days after the date of filing, a
registration statement on Form S-3 (if such form is then available for use by
the Company, or such other available registration statement) ("Registration
Statement") and such other documents, as may be necessary in the opinion of
counsel for both the Company and the Holder, so as to permit a public offering
and sale of the Shares, under the Securities Act of 1933, as amended (the
"Securities Act"). All expenses incurred in connection with the registration of
the Shares, including without limitation, all blue sky registration and filing
fees, legal fees, printing expenses, fees of experts used in connection with
such registration and expenses incidental to any post-effective amendment to the
Registration Statement, shall be borne and paid by the Company. The Company
shall keep such Registration effective for a period of not less than 2 years
after becoming effective.
b. PIGGY BACK REGISTRATION RIGHTS. If, at any time, the Company shall
propose the registration under the Securities Act of an offering of any of its
capital stock to be sold for its own account and/or for the account of other
persons, the Company, on each such occasion, shall as promptly as practicable,
but in no event later than thirty (30) days prior to the proposed filing date of
the Registration Statement, give written notice to the Holder of its intention
to effect such registration (which notice shall state an estimated selling price
for Common Stock in such offering) and the Holder shall be entitled, on each
such occasion, to request to have all or a portion of the Shares included in
such Registration Statement. Upon the written request of the Holder that the
Company include the Shares, in such Registration Statement (which request shall
state the number of Shares for which registration is sought and the intended
method of disposition thereof), the Company shall cause such Shares to be so
included in the offering covered by such Registration Statement.
8. EXCHANGE PRIVILEGE AND TRANSFERABILITY. Subject to the provisions of
the last paragraph of this Section, the Holder at its option may surrender the
Note for exchange at the principal office of the Company and, without expense
(except for any stamp tax or other governmental charge with respect to any
transfer involved therein), receive in exchange therefor notes, in denominations
designated by the Holder and payable to such person or persons or order as may
be designated by such Holder and for the same aggregate principal amount as the
then unpaid principal balance of this Note. Every instrument made and delivered
in exchange for this Note shall in all other respects be in the same form and
have the same terms, on a pro rata basis, as this Note, except that the
Conversion Right shall only exist with respect to an instrument in favor of the
Holder. The Conversion Right shall exist on a pro rata basis in the remaining
Note(s) in favor of the Holder.
The Holder, by acceptance hereof, agrees that the rights represented by
this Note are not transferable, in whole or in part, whether by sale, transfer,
gift, or other hypothecation unless and until (1) a registration statement
relating to such sale, transfer, gift or hypothecation shall have become
effective under the Securities Act or (2) a legal opinion satisfactory to the
Company is
4
<PAGE>
furnished with respect to such sale, transfer, gift or other hypothecation to
the effect that such registration under the Securities Act is not required with
respect thereto or (3) the Company shall have been furnished with a copy of a
"no-action letter" of the Commission with respect to such sale, transfer, gift
or other hypothecation.
9. INTENT NOT TO COMMIT USURY. Nothing herein contained, nor any
transaction related hereto, shall be construed or so operate as to require the
Company to pay interest at a greater rate than is now lawful in such case to
contract for, or to make any payment, or to do any act contrary to law. Should
any interest or other charges paid by the Company, or parties liable for the
payment of this Note, in connection with the loan evidenced by this Note, or any
document delivered in connection with said loan, result in the computation or
earning of interest in excess of the maximum legal rate of interest which is
legally permitted by law, then any and all such excess of the maximum legal rate
of interest which is legally permitted by law, then any and all such excess
shall be and the same is hereby waived by the Holder hereof, and any and all
such excess shall be automatically credited against and in reduction of the
balance due under this Note, and the portion of said excess which exceeds the
balance due under this Note shall be paid by the Holder to the Company and
parties liable for the payment of this Note.
10. NOTICES. All notices, requests, claims, demands, and other
communications under this Note shall be in writing and shall be deemed to have
been given or made upon the earliest to occur of: (a) receipt, if made by
personal service, (b) to (2) days after dispatch if made by reputable overnight
courier service, (c) upon the delivering party's receipt of a written
confirmation of a transmission made by cable, by telecopy, by facsimile, by
telegram or by telex, or (d) seven (7) days after being mailed by registered
mail (postage prepaid, return receipt requested) to the respective parties at
the addresses on the face of this Note.
11. MISCELLANEOUS.
a. BINDING NATURE OF NOTE. Except as otherwise herein provided, this
Note shall be binding upon and inure to the benefit of the parties hereto, their
legal representatives, successors and assigns.
b. ENTIRE AGREEMENT; NO AMENDMENTS. This Note together with any
attached, schedules, exhibits and other documents delivered pursuant hereto,
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Note may not be
changed, modified, extended, renewed or supplemented and no provision hereof may
be waived, except by an instrument in writing signed by the party against whom
enforcement of any change, modification, extension, renewal, supplement or
waiver is sought.
c. GOVERNING LAW; SEVERABILITY. This Note shall be governed by and
construed in accordance with the laws of the State of Florida. The invalidity of
any portion of this Note shall not affect the enforceability of the remaining
portions of this Note or any part thereof, all of which are inserted herein
conditionally on their being valid in law. In the event that any portion or
portions contained herein shall be invalid, this Note shall be construed so as
to make such portion or portions
5
<PAGE>
valid or, if such construction is not legally possible, as if such invalid
portion or portions had not been inserted.
d. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver or
relinquishment of any such terms, covenants or conditions, nor shall any waiver
or relinquishment of any right or power hereunder at any one time or more times
be deemed a waiver or relinquishment of such right or power at any other time or
times.
e. ATTORNEYS' FEES; JURISDICTION AND VENUE. Should it become
necessary for any party to institute legal action to enforce the terms and
conditions of this Note, the successful party will be awarded reasonable
attorneys' fees at all trial and appellate levels, expenses and costs. Any suit,
action or proceeding with respect to this Note shall be brought in the courts of
Dade County in the State of Florida or in the U.S. District Court for the
Southern District of Florida. The parties hereto hereby accept the exclusive
jurisdiction of those courts for the purpose of any such suit, action or
proceeding. Venue for any such action, in addition to any other venue permitted
by statute, will be Dade County, Florida. The parties hereto hereby irrevocably
waive, to the fullest extent permitted by law, any objection that any of them
may now or hereafter have to delaying of venue of any suit, action or proceeding
arising out of or relating to this Note or any judgment entered by any court in
respect thereof brought in Dade County, Florida, and hereby further irrevocably
waive any claim that any such suit, action or proceeding brought in Dade County,
Florida has been brought in an inconvenient forum.
f. HEADINGS. The headings contained in this Note are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name and attested to by the signature of its Secretary this _____ day of
______________, 1996.
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
6
EXHIBIT 10.10
JW CHARLES SECURITIES, INC.
FINANCIAL ADVISORY AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective ___________, 199__
between JW Charles Securities, Inc., (hereinafter "Consultant") and Advanced
Electronics Support Products, Inc., (hereinafter "Company").
RECITALS
A. Company desires to be assured of the association and services of
Consultant in order to avail itself of Consultant's experience, skills and
abilities, and background and knowledge, to facilitate long range planning, and
to execute the Company's business and investment banking needs in an orderly and
efficient manner, and is therefore willing to engage Consultant upon the terms
and conditions herein contained.
B. Consultant agrees to be engaged and retained by Company and upon said
terms and conditions.
NOW THEREFORE, in consideration of the recitals, promises and conditions in
this Agreement, the Consultant and Company agree as follows:
1. CONSULTING SERVICES. Company hereby retains Consultant to become an
investment banking consultant to the Company and to render such advice,
consultation and information to the Board of Directors of the officers of the
Company regarding general financial matters, including, but not limited to,
long-term financial planning, expansions, changes in capital structure,
shareholder relations, banking methods and systems, the raising of capital from
public and private sources, and investment banking transactions and services, as
shall be requested by the directors or officers from time to time. In addition,
as the Company continues to make acquisitions, consultants will prepare industry
research reports and will assist the Company in determining acquisition
evaluations on prospective acquisitions.
To this end, Consultant agrees, upon request, to make itself available to
render such services as Consultant deems necessary.
2. Term. Except as otherwise provided in Section 3(b) of this Agreement,
the term of this Agreement shall be for a period of two (2) years commencing
____, 199-, and is renewable at the option of the Company for successive one (1)
year terms by thirty (30) days' written notice delivered by the Company, unless
terminated after the initial term pursuant to Section 12 hereof.
3. COMPENSATION OF CONSULTANT.
a. ADVISORY FEE. Company hereby agrees to pay Consultant fees in the
amount of $2,000 per month on____ 199-. The Company shall pay $48,000
<PAGE>
(representing prepayment in full of the fees for the two-year term of this
Agreement) to Consultant on the closing date of the Company's public offering of
750,000 shares of the Company's common stock, par value $,001 per share,
underwritten by Consultant.
b. FINDER'S FEES. In addition to the compensation and expenses paid or
payable to Consultant pursuant to Sections 3(a) and 4 hereof, the Company agrees
that, if Consultant, directly or indirectly, introduces the Company, during the
term of this Agreement, to any person or entity that during the term hereof or
within 18 months following the term hereof, provides any investment capital,
loan or any other equity or debt financing to the Company or any affiliate
thereof, or becomes a party to a merger, acquisition, joint venture, private
placement or other similar transaction with the Company or any affiliate
thereof, then the Company shall pay to Consultant a cash finder's fee. Each cash
finder's fee payable to Consultant under this Agreement shall be calculated as a
percentage of the Transaction Value (as defined herein) in accordance with the
following scale:
6% on the first $5,000,000;
5% on the amount from $5,000,001 to $6,000,000;
4% on the amount from $6,000,001 to $7,000,000;
3% on the amount from $7,000,001 to $8,000,000;
2% on the amount from $8,000,000 to $9,000,000; and
1% on the amount above $9,000,000
"Transaction Value" shall mean the aggregate value of all cash, securities
and other property and valuable consideration of every kind either (i)
transferred to the Company and its affiliates in connection with any transaction
involving any investment capital, loan or any other equity or debt financing
for, or acquisition of, the Company or any affiliate thereof, or in connection
with an acquisition of equity or assets thereof or (ii) transferred by the
Company and its affiliates in any transaction involving an investment in or
acquisition of any third party, or acquisition of the equity or assets thereof,
by the Company or any affiliate thereof or (iii) transferred or otherwise
contributed by the Company and its affiliates to enter into any joint venture or
similar joint enterprise or undertaking with the Company or any affiliate
thereof. The aggregate value of all such cash, securities and other property and
valuable consideration shall be the aggregate fair market value thereof as
determined jointly by Consultant and the Company, or by an independent appraiser
jointly selected by Consultant and the Company.
4. EXPENSES. Company agrees to pay all reasonable business expenses
authorized in advance by Company and incurred by Consultant in furtherance of
the business of Company, including travel, food, lodging and entertainment
expenses, upon presentation by Consultant of receipts in form reasonably
satisfactory to Company.
5. RELATIONSHIP OF PARTIES. This Agreement shall not constitute an
employer-employee relationship. It is the intention of each party that
Consultant shall be an independent contractor and not an employee of the
Company. Consultant shall not have the authority to act as the agent of Company
except when such authority as specifically delegated to Consultant by
2
<PAGE>
the Company. Subject to the express provisions herein, the manner and means
utilized by consultant in the performance of Consultant's services hereunder
shall be under the sole control of the Consultant. All compensation paid to
Consultant hereunder shall constitute earnings to Consultant from
self-employment income. Company shall not withhold any amounts therefrom as
federal or state income tax withholding from wages or as employee contributions
under the Federal Insurance Contributions Acts or any similar federal or state
law applicable to employers and employees.
6. LIABILITY OF CONSULTANT. The Company acknowledges that all opinions and
advice, whether oral or written, given by Consultant to the Company in
connection with this Agreement are intended solely for the benefit and use of
the Company in considering the transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to make
use of or rely upon the advice of Consultant to be given hereunder, and no such
opinion or advice shall be used by the Company for any other purpose or
reproduced, disseminated, quoted or referred to by the Company in communications
with third parties at any time, in any manner or for any purpose, nor may the
Company make any public reference to Consultant or use Consultant's name in any
annual report or any other report or release of the Company without Consultant's
prior written consent, except that the Company may, without Consultant's further
consent, disclose this Agreement (but not information provided to the Company by
Consultant) in the Company's filings with the Securities and Exchange
Commission, if such disclosure is required by law.
7. NOTICES. Any notice, request, demand or other communication required or
permitted hereunder shall be deemed to be properly given when personally served
in writing or when deposited in the United States mail, postage prepaid,
addressed to the other party at the address appearing at the end of this
Agreement. Either party may change its address by written notice made in
accordance with this Section.
8. BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives,
administrators, executors, successors, subsidiaries and affiliates.
9. GOVERNING LAW. This Agreement is made and shall be governed and
construed in accordance with the laws of the State of Florida.
10. ASSIGNMENT. Any attempt by either party to assign any rights, duties or
obligations which arise under this Agreement without the prior written consent
of the other party shall be void, and shall constitute a breach of the terms of
this Agreement.
11. ENTIRE AGREEMENT, MODIFICATIONS. This Agreement constitutes the entire
agreement between the Company and the Consultant. No promises, guarantees,
inducements or agreements, oral or written, expressed or implied, have been made
other than as contained in this Agreement. This Agreement can only be modified
or changed in writing signed by the party or parties to be charged.
3
<PAGE>
12. TERMINATION. This Agreement may be terminated after the initial two (2)
year term by either party upon written notice delivered at least thirty (30)
days prior to the proposed termination date. If terminated by Company, such
action shall not alter Company's obligation to pay Consultant the agreed upon
full compensation described in this Agreement.
13. LITIGATION EXPENSES. If any action is brought by either party to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which it may be entitled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
indicated at the beginning of this Agreement.
JW CHARLES SECURITIES, INC.
1117 Perimeter Center West
Suite 500-E
Atlanta, Georgia 30338
Dated:_____________ By: ___________________________________
Title: ________________________________
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1810 Northeast 144th Street
North Miami, Florida 33181
Dated:_____________ By: ___________________________________
Title: ________________________________
4
EXHIBIT 21
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
LIST OF SUBSIDIARIES
AESP Computerzubehor GmbH, a company organized under the laws of Germany
Advanced Electronic Support Products Computertillbehor i Sweden
Aktiebolag, a company organized under the laws of Sweden
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Advanced Electronic Support Products, Inc.
Miami, Florida
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated June 28, 1996 (except for Note 1
which is as of _________, 199_), relating to the consolidated financial
statements of Advanced Electronic Support Products, Inc.
which is contained in that Prospectus.
We also consent to the reference to us under the captions "Selected
Financial Information" and "Experts" in the Prospectus.
Miami, Florida BDO Seidman, LLP
November 11, 1996 /S/ BDO SEIDMAN, LLP.
EXHIBIT 23.3
Consent of Independent Accountants
The Board of Directors
Advanced Electronic Support Products Computertillbehor i Sweden AB:
We consent to the use of our report included herein and the reference to our
firm under the heading "Experts" in the prospectus.
/S/ THOMAS PARCK
- ---------------------------------
Thomas Parck
Approved Public Accountant
KPMG Bohlins AB
Gavle, Sweden
November 11, 1996
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 203,804
<SECURITIES> 0
<RECEIVABLES> 3,081,018
<ALLOWANCES> 66,000
<INVENTORY> 3,197,950
<CURRENT-ASSETS> 6,522,363
<PP&E> 479,265
<DEPRECIATION> 98,598
<TOTAL-ASSETS> 6,903,030
<CURRENT-LIABILITIES> 3,497,659
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0
0
<COMMON> 813
<OTHER-SE> 3,404,558
<TOTAL-LIABILITY-AND-EQUITY> 6,903,030
<SALES> 13,721,014
<TOTAL-REVENUES> 0
<CGS> 8,507,520
<TOTAL-COSTS> 12,459,451
<OTHER-EXPENSES> (73,911)
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